Toy Manufacturing Trends
Clearly one of the major trends in Toy manufacturing in the past few years is the ever increasing labour costs, and therefore overall manufacturing costs out of China. And bearing in mind that cost of goods makes up by far the largest single expense item on Toy company P&L’s, any upward trend is a legitimate concern for the Toy industry.
In our experience, and based on stories and press releases in the trade press, there are definitely more North American and European companies who have moved manufacturing back to their home regions or are seriously considering it.
However, those who call this the death knell of Chinese Toy manufacturing are dreaming! Because while thing’s have changed for certain, there are still some HUGE factors in favour of Chinese Toy production. Cheap labour costs historically has been an important advantage, but there are other factors to consider. Here are a few of them:
1. Capacity - the reality is that if Chinese Toy production was shut off tomorrow, there would be literally no way of delivering the c. $70-90 billion of Toys (at retail value) we sell each year. if we do some quick math/s, presuming a total global retail market value of $80 billion, total net selling value for Toy suppliers will be roughly $50 billion. Manufacturing cost should normally be c. 15-25% of net selling price, so let’s call it 20% – that’s $10 billion of manufacturing spending. If we presume an average cost per unit of $3, that means (very approximately) 3 billion Toys manufactured every year globally.
You can’t just switch on new manufacturing to deliver that kind of capacity. It took China decades to get to current capacity levels, it will take any other country the same.
So in a sense, the reality is the Toy industry en masse actually has no option but to keep producing in China to fulfil the current level of demand.
2. Expertise and Talent Pool – way back in time, China may have been preferred primarily on a price/costing advantage basis, but over time the depth, breadth and scale of expertise developed has been mightily impressive, and again means that a massive proportion of the Toy industry’s human capital when it comes to engineering, design, tooling, manufacturing, innovation, R&D etc. rests with the Chinese Toy production industry.
3. Geographic location - the Asian Toy markets are growing overall. So while many European and some North American countries see China’s location as a disadvantage due to cashflow tied up in boats on the water, the upward trend for Asian Toy sales is a definite positive in China’s favour. With over 4 billion of the 7 billion people on the planet living in Asia, clearly China is well placed to benefit from fulfilling ever increasing Toy demand in Asia.
4. Efficiencies of Scale - clearly we expect scale of demand to drive serious reductions in manufacturing costs. So because of factors listed above, while labour cost advantages may equalise over time, the scale of production and component sourcing itself can drive cost advantage for China.
There are more factors in addition to these, but the point is, to those harbingers of doom – you’re dreaming if you think China Toy production is over!
P.S. A significant part of our business is based on helping Toy companies to work with reliable, cost effective factories who pass the toughest ethical factory standards/audits to keep your licensors and retailers satisfied. One of our guiding principles is to perform our own due diligence based on reputation and customer satisfaction…we validate for certain that each factory delivers reliable service, consistent quality and strong customer service over time. We won’t work with factories who don’t deliver on this, because their delivery = our hard earnt reputation.
We work with facilities in China, other regions of Asia, North America, Europe and beyond.
If you’ve been let down, or need additional trustworthy capacity, please feel free to get in touch…