Smart Union is a Chinese toymaker located in Dongguan province. It was founded by Tony Wu and was emblematic of the rise of the manufacturing power of China. “Its orders, factories and employees steadily increased in number, and a web of suppliers grew up around it.” Mr. Wu had experience in the toy industry before founding Smart Union, and used his knowledge and entrepreneurial skills and established his own mainland factory in 1997. Within ten years, with clients such as Mattel and Disney, the firm was able to go public on the Hong Kong Stock Exchange and raise HK$53 million (US$7m). The firm had all of the factors of production going its way: land in mainland China; a large population of cheap labor; plenty of capital and the entrepreneurial ability of Mr. Wu. As all of these things started to go well for the firm, problems arose. “China began to overheat in 2007.” Attendant with the rise in profits, across all of China, the cost of labor started to increase. As there were more competitors vying to supply the same goods to Smart Union’s customers, the prices of their raw materials along with the rest of the production costs for its toys (namely electricity and oil). Further, most of Smart Unions goods were sold to American firms and thus paid for in American dollars. As the yuan appreciated in value, the firm’s profits were squeezed. Also, customers were taking advantage of the increase in suppliers of toys and made “tougher bargains with small producers.” As their customers threatened to move their orders to other firms, Smart Union was forced either to cut its prices to maintain demand, losing profits, or lose the customer entirely if it couldn’t afford to lower its prices and still maintain its supply chain. According to the article, Smart Union would have been able to weather the storm of increases in production costs and