Is India The New China For Toy Manufacturing?

Is India The New China For Toy Manufacturing?

There has been considerable speculation and commentary of late about the rise of India as a toy manufacturing force, and about the reduction in factory output in China. This article looks at the realities of Indian toy manufacturing and the challenges for the toy industry in looking anywhere but China.

Most of the world’s toy production emanates from China. Estimates I have seen vary between 70-85% of the global total. The reality behind the hype is that you can’t find that amount of capacity in a hurry elsewhere, nor can you expect to find the same established levels of knowledge, technical expertise and human capital in terms of toy design, engineering and manufacturing. So therefore, in my view, China will remain the dominant force in toy manufacturing for years to come. China’s domestic toy consumption serviced mainly via toys produced in market seems set to rise for decades (especially with the removal of the one child policy which is likely to lead to higher birth rates/more toy consumers), which is another factor suggesting China is going to be a very major player in toy production for the foreseeable future.

However, not everything is ‘rosy’ for China’s toy manufacturing prospects. When China first began to develop into the global production hub it is today, labour rates were significantly lower versus other Asian countries and Western countries than they are today. That’s really important, because despite automation and advanced machinery, toys can be very labour intensive in terms of running along traditional manned assembly lines. It’s not unusual for a toy to have a dozen people or more working on a production line, so clearly the cost of that labour is going to be a driving factor in terms of ex-factory costings.

Moreover, traditionally the major toy markets of North America & Europe had to accept the cashflow impact & extended stock risk of having product on the water for around a month from Chinese ports. So when the cost advantage decreases, so the shipping time and also shipping cost appear to be more negative factors versus production closer to home.

Therefore, bearing in mind these factors, it is not surprising that the toy industry is looking elsewhere for alternative production sources. There are several reasons why India is particularly interesting: Firstly, size of population is a factor. Whereas some other Asian countries will never reach a fraction of China’s potential workforce or scale of manufacturing, India with its population of somewhere around 1.4 billion people easily offers the promise of large scale workforce and capacity over time. Secondly, India is already a leading regional hub of engineering and manufacturing excellence in other categories, most notably the automotive industry. Thirdly, English language is prevalent, which is important for at least English speaking markets covering c. 1/3 of the world’s toy sales. Additionally, the shipping time/cost to the European toy market is significantly less.

When you look at all of these factors alongside the fact that labour costs in India are half as much as China or less, and with significantly less ongoing inflationary pressure we can begin to see why toy manufacturing can be a motivating interest.

In practical terms, this year, my company has been approached by 4 or 5 toy companies looking for new manufacturers outside China. This has led me to India to visit really high end toy factories which I did not previously realise existed in India. Aside from the wonderment of visiting such a vibrant and seemingly chaotic country, the sheer quality/sophistication of approach, the engineering know how and the very high end working environments were very pleasantly surprising!

One leading factory owner in India explained this to me by way of comparing the toy industry to the automotive industry – in cars there are literally thousands of component parts, some of great engineering complexity, and with a requirement for meeting even greater safety standards than the toy industry. When a team of people has worked extensively on such complicated engineering projects, a plastic toy made up of a handful of moulded plastic pieces with the occasional light, sensor or electrical circuit is really not very challenging at all in terms of engineering and manufacturing processes.

I came back with India certain in the knowledge that India is definitely going to grow and grow as a toy manufacturing centre. The challenge for now though is that there are a limited number of high end factories with the right audits/certification and high end quality processes…and therefore there is comparatively limited capacity in situ at the time of writing. While it’s clear that factories in India are generally planning for major growth in the next 5 years, and therefore capacity is set to grow exponentially, there is still nowhere enough capacity to fulfil a statistically significant amount of toy manufacturing versus China.

In 5-10 years time, this situation may have changed, but for now, those who want to take advantage of significant cost reductions/margin Improvement and quicker shipping times to Europe will have to take active steps to seek capacity/production while they can.

So India is not yet ready to be the ‘new China for toy manufacturing’, but nevertheless it is certainly set to grow in importance over the next years, and for now offers a definite cost saving opportunity for those forward thinking enough to embrace the opportunity and assertive enough to carve out dedicated capacity!

Do you need help to find the right mid to senior level people? We can help…we have been helping people from across the world of Toys, Games & Licensing to find new roles since 2011. Our client list reads like a ‘Who’s Who’ in the industry, think of a Toy company and we have worked with them in some way. Along the way we have met thousands of really talented people who could be your next hire.  Get in touch for more information via the ‘CONTACT’ page if you need help to hire new people, or check out www.ToyRecruitment.com 

The Purchase Dynamic For Toys – Pester Power

Toy Purchase Dynamic: How & Why Toys Are Bought

The toy industry seems to talk about pester power a lot less nowadays for some reason. In fact when I first discussed the topic with my first boss in the toy business back in the late 1990s, she told me that the industry had moved on from pester power to a more advanced negotiation based approach. Frankly, I’m not sure that was the right analysis then and it certainly isn't now. Pester power is the best way of summing up what often happens in the purchase dynamic where parent and child are involved when it comes to certain (more kid appealing) categories of toys.

I’ve conducted many hundreds of research groups with children and parents, and I can categorically tell you that pester power has not gone away, in fact it is as strong a factor now as it has ever been. This article will look at how each of the parties approaches the process of buying toys, and then what happens when their often differing perspectives meet.

Children are in many ways simpler and more straightforward than adults. Children are usually fairly open about what exactly they want, with a focused single mindedness and determination that most adults (excluding certain industry leading sales people!) do not have. When it comes to getting that treat or snack that the parent doesn’t want the child to have, or most importantly when it comes to having a particular toy or play item, children can be very effective in terms of getting their own way. Not via any kind of complicated intellectual arguments, but just by sheer persistence and pestering!

This quote from Ovid is the best analogy to describe how children go about getting their way: “Dripping water hollows out stone, not through force but through persistence”.

In practical terms, if a parent and child are in a shop, and the child decides they want something their usual approach would be to repeatedly ask the parent to buy it, regardless of how many times the parent says no, and regardless of how exasperated the parent gets. Repeatedly asking for the same thing does work surprisingly often from the child’s point of view, and because they are learning and developing the best approach to getting what they want from life, if this approach works once, most children (quite rightly) presume it will work again, and again and again!

This seems an absurd approach to many adults, as adults usually become largely conditioned to taking no for an answer (because overly pushy persistent people are often judged to be rude in the adult world we eventually become conditioned to take no for an answer far easier than children who still think to ask why/why not). The viewpoint often changes though when you yourself become that parent and you’re in a rush because your car parking ticket is running out, a personal activity to rush off to, or because you have other shopping to do in a limited time. In this way the temptation to pacify/placate the child by giving in can often win out. Clearly many parents stand strong and won’t give in to the child, and if you asked parents in research they would tell you that they would certainly never give in to such pestering themselves. Yet the same parents can often be observed giving in to the child in reality because it moves them forward towards whatever else they are trying to do.

One of the most interesting and important factors to consider when we look at pester power is that the dynamic often varies by product category. Some categories are more/mostly driven by pester power and kid appeal, some others are primarily driven by parental preference, and some are driven by a combination of both. You really need to understand how the dynamic works in your main product categories, because that dynamic tells you how to approach your marketing, who you need to communicate to and most importantly what your message should be.

The start point to understanding this is to look at what children want from their play objects/experiences and what parents want. Children primarily want to have fun! They are the ultimate hedonists in that respect, they want to play freely doing whatever they want. They also want to be ‘cool’ and to play with things that are really cool. When we test really hot toys there is a moment of pure excitement and usually a spontaneous expression of something akin to ‘wow’ when we reveal toys to the children. If we look at toy appeal as a hierarchy, then these really fun play patterns and really ‘cool’ toys are at the top. Children do though have other motivations, albeit lower down the hierarchy - they often want to be as clever as they can be, and to prove that fact, because at toy buying/playing age (in fact up until close to secondary school age c. 10-12 years) children generally aspire to the approval of teachers and parents to a somewhat surprising degree. So products which support these definite but somewhat weaker aspirations may also appeal  to the child in some circumstances.

From a parents point of view, the vast majority of parents want what is best for their child/children and to feel like/be viewed by others as a ‘good parent’. Parents also though want not to be pestered, to have peace and quiet and to be able to do their own things away from their children – both in terms of focusing on necessary chores and in terms of their own fun activities. The balance between the child’s needs and being a good parent versus the parent’s own needs/wants plays out in different ways depending on the parents concerned, but there is no doubt that these factors are usually present to some degree in most cases.

So what does this mean for toy companies? It means that if you are active in a category which parents are likely to perceive as tacky, a waste of money or ‘crappy’, you had better make sure you have full kid appeal, because the child is going to have to really pester to get your products! On the other hand if your main product category is something more educationally or socially focused i.e. craft kit or board game, you had better make sure you appeal to what the adult is looking for in terms of positively developing and occupying the child while making the product as appealing to the child as you can.

Where in fact my first boss in the toy business was closer to the mark in terms of talking about a ‘negotiation process’ is in these more mutually driven purchases/activities/product categories. The child may want something that the parent sees as ‘crappy’ or ‘just rubbish’, but the parties may mutually consent (eventually) to a more worthy purchase instead via a process of negotiation.

Do you need help to find the right mid to senior level people? We can help…we have been helping people from across the world of Toys, Games & Licensing to find new roles since 2011. Our client list reads like a ‘Who’s Who’ in the industry, think of a Toy company and we have worked with them in some way. Along the way we have met thousands of really talented people who could be your next hire.  Get in touch for more information via the ‘CONTACT’ page if you need help to hire new people, or check out www.ToyRecruitment.com 

How To Approach Export / International Business In The Toy Industry

How To Approach Export / International Business In The Toy Industry

One of the most enticing areas of opportunity for toy companies is that of export sales i.e. selling products outside your home market/s.  The media so often tells us we are living in a ‘truly global market’ nowadays, that the big bright opportunity outside our homeland often seems like something that should be ours by right.

If only things were that simple! There are a number of complexities/factors which make export business trickier than it might at first glance appear to be, the two most striking factors are:

1.       Cultural and language barriers – even neighbouring companies can have a very different culture, compare Germany and France for example, are so close geographically speaking but miles apart in terms of culture. It’s not that German companies can’t do well in France or vice versa, just that the consumer, retailer and manufacturers are likely to have a very different outlook. It goes even deeper than that though – prevalent design styles, fonts, colour palettes etc. tend to vary from country to country. Packaging that works in one country is not necessarily going to work in another country therefore. Even in product terms we can see that a hit in one country doesn’t necessarily translate – for instance toys which parents perceive to encourage violent or overly aggressive play are not so popular in the  German market as they are in other markets.

2.       Retail chains/distribution channels differ – for instance the two largest toy retailers in North America (Target and Walmart) do not have a strong presence (at least under those brand names) in Europe. Equally, Smyths and Carrefour two of the largest toy retailers in Europe do not have a strong presence in North America. Each retailer has its own culture, systems, merchandising and marketing approach. In my experience retail buyers are not always as influenced as perhaps they should be by the explosive sales figures of a product in a different market from their own.

The other key difference is in terms of distribution channels. If we compare the German market for example with the French market we can see a French market dominated by several strong hypermarché and a toy specialist channel dominated by several chains. In the German market we see much greater market share from independent toy shops and department stores. Because each of these retail channels has its own characteristics i.e. margin/pricing structures, shelf space logistics set up etc. this can significantly affect the export opportunity.

So how do we exploit the opportunity and overcome these complexities/barriers?

Here are some suggested methods for increasing your chances of successfully achieving export sales:

1.       Build over time – I’ve set up distribution directly for numerous toy companies, and unless you happen to have the hottest license/product in the market place, it’s going to take you time to build. For each selling cycle you can expect to make another little step of progress, but as each selling cycle is a year, you can count on this taking you years. Even the established global toy companies who have been in business for decades are still usually in the process of expanding internationally. Start with the mindset of ‘Rome wasn’t built in a day!

2.       Export toy business (as with most sales) depends firmly on strong relationships – often before a company is willing to let you into their distribution chain and put their hard earnt customer relationships at risk, they will need to get to know you and to feel comfortable that you are going to deliver safe, functioning products on time and on spec consistently. Most people in the toy business will tell you about people they have met year after year but are yet to do any business with – this is all part of the process of planting seeds that can grow. Not every seed grows into a fully grown tree, but if you don’t plant any seeds you certainly won’t grow a forest!

3.       Trade shows are essential - you can lay the foundations for a year’s worth of business in just a few days. At events like the Spielwarenmesse in Nuremberg there is literally more opportunity to meet potential customers than any one person has time to fully exploit! There are people I’ve met at Spielwarenmesse or other trade shows who are now top customers for my business.

4.       Take a flexible approach – things don’t work the same way in other countries as they do in your home market. Be willing and able to adapt if you want to make the most of the opportunity.

5.       Piggy back on other people’s relationships – if you can’t build a lifelong friendship overnight, you can at least find a way to access other people’s contacts in one way or another. There is a plethora of reps, consultants and professional middle men operating in the toy industry who will help you out on a professional basis, as well as many people who will offer you good advice for free. Presenting a product is always the best way to learn what the weaknesses of your products/selling story may be, as people in general – whether distributors or retailers are never slow to inform you of shortcomings to address/fix.

Do you need help to find the right mid to senior level people? We can help…we have been helping people from across the world of Toys, Games & Licensing to find new roles since 2011. Our client list reads like a ‘Who’s Who’ in the industry, think of a Toy company and we have worked with them in some way. Along the way we have met thousands of really talented people who could be your next hire.  Get in touch for more information via the ‘CONTACT’ page if you need help to hire new people, or check out www.ToyRecruitment.com