In July 2019, the Hong Kong Trade Development Council released a research update on China’s toy market. According to the HKTDC, an estimated 80% of all toys produced worldwide are made on the country’s mainland.
However the HKTDC noted that toy production in the country is facing competition throughout the continent. “Although China has occupied an important position in toy production for many years, market pressures are increasing,” the report read. “As production costs on the mainland continue to rise many toy companies have opted to relocate production to other Asian markets, such as India or Vietnam, where wages are lower.”
Along with this trend, the U.S.-China trade war has prompted headlines about manufacturing across industries relocating outside of China in order to avoid the impacts of tariffs. (In December, the U.S. and China reached a “Phase One Trade Deal,” halting proposed tariffs on a number of items, including toys).
Is the toy industry joining this expansion outside of the longtime leader in manufacturing, and if so, where is it going?
Toy production around the world
Toy manufacturers exploring opportunities outside of China are looking to countries such as India, Vietnam, Malaysia, Thailand, and Mexico.
Tammy Smitham, VP of Communications and CSR for Spin Master, noted “Diversifying our supplier base is an ongoing process and one we have been focused on not just due to the possibilities of tariffs but also due to rising labor costs in specific countries like China. We are strategically transitioning to other countries outside of China including sourcing from such countries as Mexico, Vietnam and India, for example.”
Ken Lewis, CEO of 4 Kidz Inc., said that more than 30% of his business is sales into Mainland China, so moving production elsewhere would mean higher costs for customers there. He observed that Vietnam, Malaysia, and India appear to be “target countries” for the toy industry.
In addition to China, one of 4 Kidz’ product lines is partially manufactured in the Ukraine.
“We are currently manufacturing a range of products in the Ukraine. We have found the quality of the product is consistent and shipments are on time with no extensions needed,” Lewis said. “The cost to produce in the Ukraine is comparable to that of China, wages are equal or a little lower, and the cost of living is low.”
According to Jay Foreman, CEO of Basic Fun!, both India and Vietnam “have been making toys in some form for a while, and both are getting very aggressive and wanting to do more. Other countries like Indonesia, Malaysia, and Thailand have or are making toys, but they have not been able to effectively expand. India and Vietnam have.”
Yet Foreman maintains that moving production out of China wouldn’t have many advantages.
“In the end, it’s a wash cost savings wise,” he said. “What you might gain in wages, you lose in transportation, efficiency, and sourcing accessories. The reason to move is to diversify your base, if that’s important for your business.”
In August, the Wall Street Journal reported that U.S. companies seeking to shift manufacturing out of China struggle to find factories in Vietnam that can meet their safety standards and contain machinery equipped to handle their needs. With its population a fraction of the size of China’s, Vietnam also poses possible labor shortages.
Manufacturing also relies on infrastructure, like reliable transport systems, buildings and warehouses, and electrical power systems. According to Foreman, the quality of these systems in China has yet to be matched by other manufacturing countries like India and Vietnam.
Those countries catching up “will take a lot of time and effort and patience on all parts. Those that are in have a big advantage. Those that are coming need to work very hard,” Foreman said.
India’s not ready yet
Both Foreman and Lewis say that India’s path to becoming a viable location for toy manufacturing is a long-term one. In the present, Foreman said “it’s for the large of scale and/or the strong of heart.”
“Our industry has spent the better part of 30 years building a safe and efficient supply chain,” Foreman said. “It’s going to take 10 years or more to get India to the same level at best.”
Similarly Lewis noted, “I do see that India is still a long time away for it to be a reliable supplier. Like those of us who started producing products in China in the early 80’s and witness the change to what they have become, India will go through that change as well.”
Will toymaking come stateside?
For Foreman, the answer is simple: “No, no, and a big no!”
The lack of a labor force in the United States would be a major obstacle to production, he said.
“We have virtual full employment,” he said. “There is no labor force for this type of manufacturing, and no way to make 95% of the toys made offshore here more efficiently or economically.”
Lewis said there are some products, which wouldn’t rely on much labor, that could be made in the U.S. “It is always a viable location if you are just molding and require very little labor or producing ‘tech’ products.”
“But I don’t see basic toys being produced here, although I wish they were,” Lewis said.
Foreman also noted there are a limited number of products for which U.S. manufacturing would be feasible, such as printed games. Yet he doesn’t see an incentive to manufacture in the states.
“No reason to make it here when you can’t do it better, cheaper, or faster from tooling to delivery,” he said.