Toy Manufacturing - 2018 Update, India on the up & China's transition...
April 6, 2018
2018 has started off in tumultuous fashion for the global toy industry with a huge disruption coming via the tribulations of Toys R Us.
Another less instant, but perhaps more dramatic transition is happening in the arena of toy manufacturing. For the past decade or so, Chinese toy factories have been under increasing cost pressures, yet the majority of toy manufacturing remains in China at the time of writing. China offers the smoothest working currently with large capacity & huge domain knowledge and capability. Currently there is no other option available at scale with ready to go toy manufacturing.
2018 though appears to be heading towards the tipping point where cost inflation and Chinese state policy are pushing toy manufacturing away from the traditional heartland of southern China. Manufacturing wages in China are now 3-5 times higher than in some other Asian countries. Furthermore, the Chinese authorities seem to be ever more concerned about environmental factors in the East of the country with ongoing air quality issues as widely reported elsewhere. The benefit of having a single unitary authority can be seen in the strategic, broad sweeping approach to resolving this issue, but we have seen some further cost inflation due to these state instigated measures, most notably in packaging costs (with packaging generally accounting for around 20-25% of the total cost of toys, this has been significant).
Interestingly, another measure China is taking to address these issues is to try to push production further West back into the (currently) rural areas which have seen loss of labour as workers shipped East in search of manufacturing jobs. The 'One Belt, One Road' intiative which will see huge investment in infrastructure will have the effect of making it easier, quicker & more economically viable to push goods through the West of China on towards key export markets. This though will take time, and such toy factories developed in the West of China may not come with the current certainty in terms of supply chain, staff/knowledge and capacity or certainty of supply.
So these are interesting times in terms of toy manufacturing!
India's burgeoning toy manufacturing sector is set to be one of the solutions adopted by the global toy industry. India has been on the up since Hasbro started up with new vendors there in 2014. There are now more than a dozen export level/certified toy factories in India. There is now a considerable capacity, appetitie for investment in new facilities and capability also.
India is not without challenges, in terms of different culture, and in terms of a learning curve which has been ongoing since 2014. There has also been an inevitable (but sometimes painful process) of some vendors coming & going as the industry develops there. But it looks like India is now on the launch pad waiting to rocket into huge growth in terms of toy manufacturing.
India is clearly the only country globally which can offer comparable size of workforce, embedded industrial capacity and engineering/production knowledge to China. With 25 million vehicles produced each and every year in India, there is a vast supply chain providing plastic & metal components. Moreover, the kind of vendors who can supply injection moulded plastic components which work inside a machine with 20,000 parts without breaking it should clearly be able to manufacture 5-10 piece toy items!
Over time as we've presented Indian toy factories to toy companies, we have heard a few standard concerns/mental barriers, most of which are perceived issues not actual issues:
1. Travel & infrastructure - India is a fast developing nation. Therefore we often encounter customers who visited India say 20 years ago and are therefore concerned about the roads & whether products can get to port ok. The reality is that India 20 years ago is very different to India today. The driving in India can be 'eye opening', so you may not want to be the lorry driver transporting goods to port, but the roads between the factory and the port will be fine. Most factories we work with are within 30 mins to 5 hours from the port via roads that are good enough.
2. Ports & shipping - Huge quantities of goods ship from India to toy companies & retailers round the world. Walmart, Target, Carrefour etc all source goods from India which ship from India's container ports. While China's container ports are overall by far the biggest globally, Mumbai's port nevertheless handles higher volumes than Manila, Georgia USA, Felixstowe in the UK, Vancouver etc. Currently many export toy factories in India have special local arrangements with customs where goods are signed off and sealed either on the factory site or nearby & then drive straight to the ship. We have not seen any shipment issues/delays, although the same as China, your factory may need to 'jump through a few hoops' for customs.
3. Quality - Many customers ask us about quality for goods produced in India. Frankly, you will find good & bad factories everywhere, but when you work with the export level factories we represent in India, quality is on a par with Chinese toy factories overall. Quality can mean many things though, so to be clear, companies that are new to India need to take extra special care to ensure specifications are fully understood, but in terms of manufacturing output the toy factories we work with in India are on a par with China. In some cases quality can be better - for instance packaging is often better quality in India (several customers have made this observation, this is not just our opinion!). The one challenge we would flag is that India does not have 30 years of export level toy manufacturing in large depth and breadth like China. So if you try to pioneer in India, it will take longer and inevitably there will be a learning curve. The local domain knowledge is growing but we advise following the already trodden path to smooth the process!
4. Safety/Compliance - many customers come to India with some degree of trepidation in terms of preconceptions about worker welfare and compliance to ethical audit standards and EN71, ASTM etc. However, there are two really key points here: 1. India's employment laws are far more protective of the worker in general vs China, and the factories usually have local urban population working in the factory i.e. they go home after work, so there is no dorm culture. 2. Most plastic toy vendors we work with in India are also automotive component vendors. The automotive industry has very high standards in terms of compliances and standards. Many of these vendors ship components straight to the assembly line for major companies like VW, Toyota, JCB etc. Therefore high standards are not new to these vendors.
Overall we're at an interesting point in time regarding toy manufacturing. China is here to stay, and we will see increasing movement of production inland over the next decade or more, as well as a move to more automated/high tech production in the East/South East of China in order to take labor costs out of the equation to the greatest degree possible.
India is poised to take on $billions of toy manufacturing for those products with high manual assembly component (which is most plastic toys!). While still in the infancy of India's growth curve we are seeing a broadening of export level toy vendors, and a normalisation of the toy business in India.
For more information on where to start in India/to get quotes, please feel free to get in touch.