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The Ever-Growing Importance Of China To The Global Toy Industry

Spoiler alert: this article is not primarily about OEM manufacturing!


For those who have been in the toy business for a long time, China is synonymous with toy manufacturing, and has been for the working lifetimes of most people in the toy trade. China has been an incredible manufacturing resource for toy companies. Much has been written about the pressures on China’s toy manufacturing sector (including by ourselves), with rapid economic development which makes labour intensive toy production less and less viable in China. Labour cost inflation is the primary reason why toy companies are increasingly looking to Vietnam, India and other Asian markets to pick up some slack in terms of lower labour costs.


This manufacturing picture though is not the only picture. There are two major areas where China is going to offer huge opportunity, competition and activity for the toy business around the world:


Domestic China Market

There was a point in time when China’s domestic toy market was primarily generic locally manufactured toys. Over time though, as China’s economy has developed and living standards have increased substantially, China is fast becoming the major growth opportunity in the world today for established toy companies. The fact that Lego has plans to open 80+ stores in China should give a strong indication of just how big the domestic toy market opportunity is in China. If current levels of economic development and brand adoption continue, China could become the world’s biggest toy market in a decade potentially.

China therefore has growing importance to the toy industry because there are only so many countries in the world which offer such a large market alongside significant upward growth. The challenge for many toy companies though is that China (like all markets) has its own quirks in terms of culture, distribution setup, media and consumer wants. To use the Lego example again, Lego has launched products tailored to the Chinese market – this is in itself quite a statement, because Lego’s range is one of the most global in the toy business. The major U.S. stock market listed companies have been investing heavily in China’s domestic toy market for at least a decade because above all they need growth to satisfy their investors.


For smaller toy and game companies it can be daunting to know where to start with selling in China, and just like elsewhere, finding a good committed distributor can be challenging, but nevertheless the opportunities are significant and growing.


Chinese manufacturing companies launching their own brands

China has been the world’s toy manufacturing powerhouse for so long, and many manufacturing groups have generated significant wealth over decades by manufacturing toy products on an OEM basis for other companies. Even from way back though, some toy factories went direct to building their own brands in Western markets supplied from their own factories in China. This method of doing business is growing. Logically speaking it makes sense after all, maybe once a toy factory supplying OEM manufacturing might make 15% profit or more, but today with increased labour costs and constant downward pressure on pricing from customers while costs rise might be lucky to generate 5% profit. It makes sense then that of those thousands of Chinese toy factories some should invest of their wealth to seek to transition from manufacturing toys for other people to designing, manufacturing, selling and marketing their own products and brands.


This could be one of the most disruptive implications of China’s economic development for toy markets around the world, as long- established toy factories with significant expertise move up the value chain to compete with their one-time customers. In the last 12 months, our company has Consulted for more Chinese factories looking to move up the value chain and establish their own brand than we did in the 5 years before that.


China’s role in the world, and especially for us in the toy business is changing. This vast heavily populated country at one point supplied our industry with a large industrial capacity, huge workforce and cheap labour. Looking forward though, while Chinese factories will continue to play a very significant role in supplying toy companies with OEM manufacturing, that role is likely to recede over time. Whereas China’s domestic market is likely to grow significantly, and the number of Chinese toy factories switching from OEM to creating and building their own brands is going to increase significantly which will add competition and new product development streams to the market.


We run a Consultancy business advising toy companies on how to grow their business by a combination of strategic analysis and export sales facilitation. We have helped more than 100 companies grow. Our clients range from $multi-billion FMCG giants through to start ups, from long established toy companies to toy factories and everything in between. We work with companies around the world – recent projects have been delivered for clients in the USA, UK, China, Hong Kong, India, Eastern Europe and beyond. For more information on our process and methodology for growing toy sales: https://www.kidsbrandinsight.com/blog/toy-co-growth-booster-program/

5 Top Tips To Boost Your Toy Export Sales

Toy fair season is the time when toy people dust off their passports, open their international contact address books and see if they can improve their international distribution this time round.


The following tips/fundamentals should resonate with all kinds of companies, for the simple reason that they have been tried, tested and proven to work over time by our company, by client companies we have worked with and by many other companies we have observed:


1. Export Sales depend on trusting relationships – it could be argued that all sales depend on this, but actually because retail buyers tend to move around more than international toy company owners, it is even more of a fundamental when trying to build an export sales business. There are people we will meet this toy fair season who we first met over 15 years ago, many of whom have been in business for decades. Some of them we have been actively selling to/buying from for most of that time, some of them we have sporadically traded with and some we have never traded with, but there’s always next time! There is also a small group of people/companies with whom we had negative experiences of some kind, with varying levels of antipathy, resentment and negative baggage both ways.


The critical point is there are only so many distributors out there, and aside from new kids on the block or companies which fell by the wayside, if we looked at the international toy companies we deal with today, around 70-80% of them are the same as 15 years ago. So the bottom line is we need to take a longer term relationship nurturing approach to build a platform for long term commercial success (versus selling anything we can to anyone we can whether it will work for them or not!).


2. Resources & Focus – selling in general as often depends on ‘leg work’, follow up and dogged persistence as it does on persuasive brilliance. Yet we often meet companies who proclaim that export sales is an important area, but who do not assign any significant resources or focus onto the international opportunity. Even smaller companies will happily hire new staff to chase perhaps a new distribution channel in North America, which will offer them a fraction of the global opportunity versus one sales person chasing the huge global opportunity (outside the USA) via export sales.


On the same note, we roll our eyes when companies are ‘very focused’ on selling internationally but never leave North America! For sure, some international companies will visit the U.S. in particular, especially for the New York toy fair every February, but many more won’t. If think you are seriously committed to international sales but have never attended Hong Kong in early January or Nuremberg for Spielwarenmesse in late January, then you have a different definition of committed than we do! It’s easy to cheapskate out of the costs of visiting these shows, but to build enough of the right relationships you really need face to face time with key companies in each major export market, and these shows are the most efficient vehicles you will find towards that end.


3. Understand & embrace the fragmented nature of the export opportunity – the USA and Canada combined make up c. 25% of the global toy market, that leaves a lot more to play for elsewhere! One of the major stumbling blocks for North American companies though is understanding the fragmented nature of the export markets.


When your new export sales person comes into your office excited that they just received an order for 5k units from Holland you may struggle to be excited versus a single purchase order from Walmart for 150k units for example. The reality is though that North American mass retail offers a one of a kind volume opportunity. Everything else is outside that is about putting together a jigsaw puzzle of many pieces, and over time this jigsaw puzzle can grow into a bigger business of many pieces, almost like a Specialty business with Mass upside.


Each partner makes up a smaller part of the business, thus reducing the risk of having your business reliant on just a few 3rd parties. In short piecing together an export jigsaw puzzle of your own allows you to lay strong foundations to partially reduce the roller coaster effect of trading with mass retail domestically.


4. Be aware of local/regional commercial & cultural differences – other countries have their own commercial and cultural frameworks. This can lead to legislative & bureaucratical considerations as well as practical (different!) language issues e.g. some product categories are not popular in other markets i.e. the German market is not strong for toys seen to promote aggressive/violent play, so the action figures category is not strong in Germany versus North America.


Europe, which combined makes up around ¼ of the global toy market is highly fragmented, and while the European Union harmonises things to a degree, there are countries in Europe outside of the EU. Safety standards are different – if you just managed to get to grips with the latest domestic toy safety standards try getting your head around EN71, REACH and WEEE regulations in Europe! Furthermore, European employment law tends to grant the worker significantly more rights versus the USA for example. Away from Europe, Japan and China which make up the No. 2 and No. 3 toy markets in the world, have even more significant cultural, regulatory etc. differences.


The logical way to deal with these challenges is to make it someone else’s i.e. your distributor’s responsibility, and then to over time build your own knowledge of all these factors. While the extra margin of always selling directly to retailers in each country may be appealing, I have seen far too many North American companies wander blindly into doing this, leading to major challenges/issues to resolve from customs/import documentation issues that cost $millions to resolve through to companies hiring sales staff they could not fire without significant payoffs. In the first instance, selling via distributors for lower margin will avoid so much risk, management time loss and other issues.


5. Engage local/expert help – in the same way as you may need to engage a specialist rep to enter a particular distribution channel domestically, so you may want to consider looking at expert help to kickstart your export sales. There are numerous companies offering market entry services and international representation. Again, everything has a price, but we’ve noticed that in our own business we often save companies years of wasted effort and investment via just a little local market knowledge e.g. one client had exhibited at the wrong trade show for 7 years at huge cost, with (unsurprisingly!) very poor results, a move to the right trade shows instantly yielded substantial results. At the very least, speaking to international toy market experts should increase your knowledge base.

In summary, there’s no doubt that the export opportunity can be significant, but it needs to be managed realistically and efficiently!



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


We also run a Strategic Sourcing Consultancy advising toy & game companies around the world on their Sourcing strategies, reviewing their vendor base & suggesting improvements. To date our Sourcing services have saved our clients $tens of millions. For more information on how we can help, just go to: www.ToyTeamAsia.com

Innovation Versus Following The Formula In The Toy Biz...

We talk about ‘Innovation’ often in the toy industry. The need to innovate to compete is supposedly paramount - when between 50% and 75% of all toy SKUs are new each and every year, there is indisputably a need for a relentless product development or product sourcing pipeline. Yet we often confuse the terms ‘innovation’, ‘blue sky’ and ‘ground breaking’ as being exactly the same as ‘new’.


The reality is new products are not always that original. I have been unable to find a robust analysis of what percentage of products in market are completely fresh and original versus following an already proven formula, but experienced toy people tend to have seen the ‘same old thing’ work time and time again. And so then the question becomes why would we ever originate something fresh with all the inherent risk involved, when we can follow the ‘me too’ approach?


When we look at the consumer lifecycle in the toy business, this becomes even more of a salient question – because we are dealing with children at a particular time/age in their lives, they come into our product ranges, and then comparatively quickly versus other industries they move on. This leads us to a new generation of toy consumers. This cycle occurs every 3 or so years, meaning that the new generation of kids experiences our brands and product ranges for the first time in their lives. So why would we ever bother to create completely ‘new’, when we can rehash the ‘new’ from a few years back and continue to sell our products?


The most striking counter argument here is that hit product often provides the impetus for growth in the toy industry, and those companies with massive hits on their hands can experience a huge sales uplift, or at least see gaps in their business filled by the all new innovations. So clearly there is a place for the kind of brilliant innovation which brought us new inventions such as Furby or Connect 4. In the case of Furby, we have recently seen a new generation of consumers introduced to the brand anew, with the product itself being hugely enhanced by new technology. This shows that yesterday’s completely new news can become tomorrow’s perennial brand (with updates and tweaks) in an industry where known brands are the pillars of long term stability for toy companies.


There is clearly a downside to chasing the hits though – that being the high level of investment including: R&D/royalty costs, inventory risk, marketing expense, opportunity cost and risk to retail goodwill if products fail. We operate in a classic ‘hit or miss’ industry, and alas the misses will nearly always significantly outnumber the hits over a period of time. So if you are in that business, be prepared for a roller coaster ride, and ensure you have the capital to place multiple bets on new product lines in order to increase the odds in your favour over a number of product launches. Nevertheless, if you choose to play that game, you are only ever as good as your last hit, so be prepared for a bumpy ride!


One fact I have seen proven over and over again in my time in this business is that those companies which ONLY play the ‘hit or miss’ game are the companies who see the wildest swings between success and misfortune or as Frank Sinatra put it “You’re riding high in April, shot down in May.”. The companies that secure a significant proportion of their sales (to at least cover their overhead) on proven product formulae, while placing a few carefully considered bets to chase the hits are normally the companies enjoying most longevity.

So overall, while we often speak of innovation in our industry, we should be clear about the part this plays, and also be clear about what is innovative in reality. Fundamentally we should be clear what the goal of innovation is – otherwise we may be safer (in business terms) replicating a known formula. Perennial themes such as monsters, dinosaurs, zombies, ponies and horses, good versus evil, super heroes and villains – all of these known perennials can be seen as safer bets, as they have been proven time and time again. Of course, execution is still key, and if you can follow part safe formula and part innovation by adding technology or functionality/positioning value, then you can seek the right balance for ongoing success.



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


We also run a Strategic Sourcing Consultancy advising toy & game companies around the world on their Sourcing strategies, reviewing their vendor base & suggesting improvements. To date our Sourcing services have saved our clients $tens of millions. For more information on how we can help, just go to: www.ToyTeamAsia.com

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