Supply Chain Diversification – The Second Biggest Toy Industry Trend

Supply Chain Diversification – The Second Biggest Toy Industry Trend

Aside from (the hopefully) short-term of impacts there are two massive trends having a massive effect on the toy business now and probably for the next decade. The first is sustainability. If your company isn’t in a sustainable product category or if your products are primarily made of plastic materials, then sustainable initiatives are becoming more and more important to keep consumer onside and buying toys.

Aside from sustainability though there is one major shift happening which does not get the headlines but is nevertheless throwing up massive challenges for toy companies. The shift is coming in terms of manufacturing hubs. Whereas we once relied primarily, or often completely on China for manufacturing at affordable costs and with good efficiency, the situation has changed significantly in that a proportion of production is seeping away from China into other countries.

There are a number of drivers of this, which we have covered in detail in other articles, but perhaps the best way to share that with you is to watch this YouTube video explainer we published a year or so back:

This video explains why China is not going to remain the same primary source for toys as it once was. The point of this article though is to discuss how toy companies can manage the ongoing change.

There have been ongoing problems in toy supply recently – from the initial shutdowns in China due to Covid-19 through to shipping problems, and before that Trump’s tariffs on China, rising costs and much more.

The bottom line here is that toy companies are going to move from a model of having a relatively easy and efficient sole manufacturing hub to needing to diversify their risk across more regions. We have been advising our clients to set up multi-hub capability.

This comes with some pain though – because there is no perfect solution to replacing what China has become. Despite occasional pain points, China has been very reliable and the easy option compared with many other manufacturing hubs. But what happens for companies who don’t set up the multi-hub set up is that when issues hit like they have in the last 18 months or so, supply gets threatened. By having at least small production already set up with vendors to diversify risk, companies can ramp up more quickly than those starting from scratch.

The reality toy companies need to accept though is that these hubs are not necessarily going to be easier. Moving from China’s vastly experienced factories to lesser experienced companies in areas with less mature supply chain can be painful & take a lot of work. But this is where the trend is heading to whether we like it or not. As per our video presentation above, we believe China will keep around half of the toy production they had at the start of this decade, but the rest is going to dissipate further afield with India, Vietnam, other Asian countries and ‘Near shoring’ taking up some of the slack.

The multi-hub sourcing strategy is going to be an ongoing major factor in the toy business for the next decade.

Do you need help to understand the toy & game business? We help people from all around the world to understand and successfully enter the toy business. For more information on how we do this, check out our services here: www.KidsBrandInsight.com/services

China’s Delivery Robots & Online Gaming Limitations: Implications For The Toy Business

China’s Delivery Robots & Online Gaming Limitations: Implications For The Toy Business

Things affecting the toy business seem to keep on occurring in China with a frequency we don’t see in other countries. We’ve written at length about supply chain issues & the ridiculous price of container shipping right now. But this week there have been two more occurrences in China which may affect the toy business.

Chinese Tech Giant Alibaba Announces Increased Role In Delivery For Robots

Alibaba have announced that they will be rolling out 1,000 delivery robots in China to manage the final delivery of parcels bought via online shopping. This is important because China tends to be at or near the forefront of e-commerce and m-commerce. One of the primary drivers is the volume of Chinese people in China who are buying via e-commerce, with over 1 billion people shopping this way versus approximately 300 million people in India and c. 250m in the USA. Therefore, China is dealing with the largest challenges in terms of fulfilling a ridiculously high number of people ordering and needing delivery.

Bearing in mind how critical Amazon now is in major Western toy markets, what happens with e-commerce in China is likely to be adopted by Amazon in the West at some point if it proves to be successful. For sure there are many challenges of robots operating in urban environments and it can’t be easy to ensure hey drop off parcels in the right circumstances, but the future is here already as far as robot delivery is concerned.

When we think about some of the labour shortages affecting delivery services recently, robots could well offer part of the solution.

China Limits Online Gaming Time For Children

Big news coming out of China recently with reports that the government will limit online gaming time for under 18s to a maximum of three hours per week in a move aimed at reducing gaming addiction, poor eyesight and other social factors. This could be good news for the toy business, as those children who can’t spend time & money gaming as much as they would like may buy more toys or have more toys given to them. It I hard to estimate what positive impact this could have on toy sales, but it seems likely to offer a systemic boost going forward based on how long children will spend playing video games if left to their own devices!

We run a Consultancy business helping toy & games companies get ahead. For more information, check out www.KidsBrandInsight.com/services

Our Managing Director, Steve Reece, works with a limited number of companies as a non-executive director, independent board director and as a board advised. If you are interested in finding out more about this, check out the link to our service above.

Trademarks, Patents and Legal Protection For Toys & Games – Practical, Commercial Insights

Trademarks, Patents and Legal Protection For Toys & Games – Practical, Commercial Insights

LEGAL DISCLAIMER: This article should in no way be taken as offering legal advice, neither the author (writing on a work for hire basis) nor the publisher intend or are even qualified to offer legal advice. We highly recommend anyone needing advice in this area to seek qualified, legal expert help. This article is intended to offer practical and commercial perspectives on how product creators can protect their work. Furthermore, not every area of legal protection mentioned in this article can be applied to every country, the law obviously varies from country to country – so take local expert legal advice where required. In short, you wouldn’t go to an automotive mechanic to fix you teeth would you – so please do more diligence on this topic than just reading this quick summary commentary! (Don’t you just love an article which starts with a full paragraph legal disclaimer!).

Anyone who has worked in the toy business for a while encounters some kind of IP (intellectual property) infringement or ‘me too’ product. It can be challenging to take effective steps in such circumstances. So, we’ll take a look at some of the standard legal protections you have available to you & discuss the practicality of these. Then we’ll look at more commercial/pragmatic solutions outside the remedies of the law.

TRADEMARKS

Brands are a big thing in the toy & game business. Brands get sold for big money e.g. Mega Bloks $500m+ usd, Hit Entertainment’s portfolio of brands including Thomas the Tank Engine for $680m usd, Marvel Entertainment $4billion and of course Lucasfilm, owner of the Star Wars brand for $4billion.

What trademarks allow you to do in practical terms is to register proprietary ownership of a brand. That can be a text-based trademark i.e. the brand name, or a design trademark, the most obvious and iconic example of which would be the Nike swoosh logo.

If you have a registered trademark and another company launches a product featuring that trademark, then you have clear legal remedy i.e. if you take them to court you have an obvious claim. In reality any kind of legal action carries costs and risk, but a registered trademark gives you strong legal protection if you have the means and wherewithal to defend it.

Different countries or regions have separate trademark registration systems and processes, so it can take some paperwork and cost to register in multiple markets, but for instance, in the UK you can register a trademark for around £200 gbp, which is not a prohibitive amount for most companies.

PASSING OFF Passing off refers to a company trying to ‘pass off’ their products as those of a different brand they don’t own. For example, you may notice that in the toy market there are lots of blocks that look the same shape and look of Lego blocks. It could be argued in a court of law (& most probably has been argued at some point we guess) that these blocks are passing themselves off as Lego. But what these ‘me too’ products don’t do (at least not if they have any sense) is to add the Lego brand name to the products, because that would be both a trademark infringement and a clear example of passing off.

PATENTS

Patents protect technical invention (at least in theory). By outlining a clear technical innovation, the patent applicant can seek to obtain a patent which ensures their ownership and sole control and commercial usage of that innovation. The challenge, as with all things related to the law, is that practically speaking to enforce a patent is immensely costly, and therefore, within the realms of toys & games unlikely to be practically enforced by most companies.

OTHER LEGAL MECHANISMS AND PROTECTIONS

There are some other protections and actions companies can take. The most practical of which is probably a ‘cease and desist’ letter. It should be quite obvious what that letter does, it instructs the alleged infringer to cease and desist their infringing. Practically speaking, in some blatant cases, where it is obvious a company is infringing the legal rights of another company, an aggressively worded cease and desist letter may be enough to stop the infringing. The cease-and-desist letter also pre-notifies the alleged infringer that legal action may be taken if they don’t stop, at which point in time, the alleged infringer could also become liable for damages and paying the legal costs of the other party.

Litigation may at some point become necessary (in which case, for heaven’s sake don’t rely on a free article on the internet, get qualified legal advice!). There are various strategies for approaching this which go way beyond our expertise but be prepared for a lengthy bitter battle which will put a lot of money at risk and take your time away from managing your business.

Sometimes, practically speaking, some degree of imitation in the marketplace is inevitable if you are successful. Sometime the best approach is to keep trying to develop the next big product and staying ahead of the competition.

Our Managing Director, Steve Reece has worked as a toys expert witness and a board games expert witness, for the Royal Courts of Justice in London and the Hong Kong courts. To find out more about this, just click here: https://www.kidsbrandinsight.com/expert-witness-toys-board-games/