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Transitioning Out of China’s Zero Covid Policy: Implications For The Toy Business

Big moves in China recently with the government finally softening their stance on Zero covid. As the rest of the world has been out of hard lockdown protocols for some time, the obvious question is why did China take so long to reach the same position that most of the rest of the world reached a year or more ago?


One of the major challenges for China has reportedly been the inefficacy of the non-mRNA vaccines deployed in China – an article in The Guardian newspaper in the UK suggested that the effect of China’s deployed vaccines did not last with hardly any evidence of any active effect 6 months after vaccination. To add to this, the article further suggests that only 40% of those aged over 80 years of age have been vaccinated, and the overall booster rate estimated at c. 68% versus Japan’s rate of 90%. [1] In addition to all this, due to the Zero Covid policy, estimates suggest that a mere 1.5m of China’s c. 1.4 billion people have had Covid so far – compared with an estimated 90% of the UK population by way of comparison.

But surely China will get through this – other countries have done after all – so what’s the problem from a Toy business perspective?


The major challenge here relates to 2023 peak season Toy production. China still produces the majority of the world’s Toys, albeit with an ebbing away of market share over time. We can reasonably expect that China will go through a significantly serious Covid wave which could last through to the annual mass movement of population that happens at Chinese New Year and due to the lack of Covid immunity could wreak havoc on China’s population and economy. Our business has long been used to seeing factory labour forces disappear off back to their distant homes and away from the major manufacturing zones around the Southeastern coast of China. This time though, many will take Covid back home with them. Others still may be reluctant to return to manufacturing working with thousands of other factory workers in confined conditions until Covid waves clear and the situation calms down. Replacing labour after CNY has often been a problem, but when the country is currently an estimated 20 million factory workers short of what demand requires, we can see how any further significant drop off in labour availability could have implications on peak season Toy production.


Moreover, we can surely expect that even when the first wave clears more waves will come, and they could be hitting at just the point in late Spring/early Summer when production is most ramped up for Toy manufacturing.


In conclusion then, it looks like we could see another disrupted year for Toy supply chains in China.



We run a Strategic Toy Sourcing Consultancy – www.ToyTeamAsia.com through which we have helped dozens of clients to review their vendor base and to reallocated production to other geographies. Please get in touch for details of how we can help you manage the ongoing shifts in Toy manufacturing.



[1]https://www.theguardian.com/commentisfree/2022/nov/28/china-abandon-zero-covid-protests-mass-vaccination

HOW TO MEASURE TOY MARKET GROWTH IN TIMES OF HIGH INFLATION


As we head towards the end of 2022, we’ll soon be seeing data suggesting the overall level of growth, shrinkage or stagnation the overall market has delivered. As someone who spends a lot of time researching and analysing data, I have one area where I think the trade press and broader mass market media are missing something important.


If the Toy market has grown in a particular country by a few percentage points in £/$/€ terms, but inflation is officially 10% (but in reality is probably significantly higher than that as government institutions are incentivised to under report inflation), then the market hasn’t grown in reality, in fact it has shrunk in ‘real terms’. To unpack this and explain further – the actual $/€/£ amount might show an increase, let’s say for easy maths you have a Toy market worth $1billion and the market grows by a normally creditable 5%, then the market would grow to $1.05billion. But if inflation is running at 10%, then in order to stand still in terms of actual real-world value, the market would need to grow to $1.1 billion. So in fact, the market has actually shrunk when you take into account the reduced value of the currency.


Frankly, a lot of Finance & Economics is above my pay grade & definitely way beyond my comprehension but shouting out market growth when everybody can see that hard numerical ‘growth’ is clearly not ‘real’ growth is potentially misleading.


There is no doubt that as ever our mighty industry is performing better during the current tough financial climate we are living through than many other industries, but we should also keep a grip on reality!



We recently launched a Mentoring service for up-and-coming people in the Toy & Game business. If you or your teams could benefit from Mentoring to aid their personal development and to facilitate greater performance and results for your company, check out www.ToyBizMentor.com

What Is Friendshoring – And How Does It Apply To The Toy Business?


Recently US Treasury Secretary Yellen referred to a move (particularly in the USA) towards ‘Friendshoring’ she stated the following:


“Favouring the Friendshoring of supply chains to … trusted countries, so we can continue to securely extend market access, will lower the risks to our economy as well as to our trusted trade partners,”


Clearly in this case, Yellen is referring to the long-term reliance of the USA on China for supply chains across various types of categories and physical product segments. There is much talk currently of ‘decoupling’, of the ‘end of globalisation’ and the move to ‘Friendshoring’ and ‘Nearshoring’ due to the changing nature of the U.S. relationship with China.


All of which sounds fine in principle, but in the Toy industry, there are not many viable alternatives currently. Vietnam has seen significant opportunity as Chinese factory owners opened up plants outside China choosing Vietnam due to it’s geographical and cultural proximity. India is set to take up some of the slack with a few good Toy factories. Closer to major Domestic Toy markets, Mexico is ramping up to a degree, but the bottom line right now is that there is no substantial alternative to China which retains the majority of Toy manufacturing at this point, albeit with a decreasing share on a year by year basis.


When we look at terms like ‘Friendshoring’ we need to see this as an ongoing and future trend – the industrial capacity and domain expertise is not there yet in other geographies. So yes, we absolutely should be looking at our ‘Plan B’ outside of China, but we need to see our industry (& the broader world) as being at the start of a long process of migration of Toy production. Just as China didn’t become the golden hub of Toy manufacturing overnight, so the process of moving from a single hub sourcing solution to a multi-hub solution will take time. Being all in on China right now seems risky but being all in elsewhere is realistically speaking not an option. So, we need to chart a careful course forward and not get to carried away by terms like ‘Friendshoring’ until our friends are ready for us!


If you want more insights into Toy Sourcing & the need for strategic diversification, check out this Linked In Newsletter article:

BIGGEST THREATS FACING THE TOY INDUSTRY: PART 1, LACK OF SUPPLY CHAIN DIVERSIFICATION

https://www.linkedin.com/pulse/biggest-threats-facing-toy-industry-part-1-lack-risk-our-steve-reece/



Did you know we run a Strategic Sourcing Consultancy to the Toy & Game business? We have worked in some guise with most of the major Toy companies globally, and regularly consult with clients to help them review their vendor base and to carefully plan their strategic supply diversification. For more info on what we do: https://www.toyteamasia.com/



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