In the past years, Hong Kong toy industry has stumbled along, with unsatisfactory exports. The year of 2006 saw a fall of 1.9% on overall export. Fortunately, it has turned for the better in 2007. Since mainland China and EU (especially Germany) have seen stronger demand on toys and US, the largest export market for Hong Kong also registered moderate growth, total export of toys last year amounted to 95.7 billion HKD, rising by 23.4%. In the 34th session of Hong Kong Toys and Games Fair this January, buyer attendance exceeded that of the previous year. Orders for intelligent toys and sports items gained a growth of double digits. However, it is believed that, there is still harsh challenge ahead.
Multiple pressures
Any change of domestic economic environment and policy will have great affect on Hong Kong toy business, for a majority of them set up factories in mainland China, especially Shenzhen and Dongguan in Pearl River Delta. At present, these toy business are confronted by lots of pressures.
--soaring production cost
What harass toy makers most now should be the production cost that keeps soaring up. Besides raw materials, workers’ salary also sees high rise. Guangdong this year will raise its lowest standard for salary by at least 10 percent. New labor law that has taken effect since this January will imposed extra burden on makers. From this year, employer must pay economic considerations expect employee refuse to extend his employment contract. Meanwhile, there will be a great cost for maker that signs non-fixable term employment contract.
--upvaluation of RMB
What adds fuel to the fire is the upvaluation of RMB. Since the foreign exchange in June 2005, China yuan has risen around 13 percent to US dollar. According to certain survey of Hong Kong Trade Development Council (HKTDC), average cost in term of RMB for Hong Kong makers that place their production in mainland records around 30 percent. When RMB rises by 10 percent to US dollar, production cost will soar up by 2 to 4.5 percent, excluding other factors that result in higher cost.
--more expenditure
Last year’s toy recall hit the industry heavily. China has enhanced its strength on supervision, expanding quality license for exported toys from original 4 categories to 11. Furthermore, the valid period for the license has also been shortened to 3 years from 5 years before. Makers have to invest more resource on inspection, logistic, purchasing and quality control, bringing on higher cost. Production cost is estimated to be increased about 10 to 30 percent but a majority of makers could hardly raise their quotation when negotiating with buyers so as to offset higher cost.
--policy on processing trade adjusted
During these two years, China adjusts its policy on processing trade in succession, expanding the commodities catalogue for restricted processing trade and forbidden processing trade. Preferential terms for processing trade trend to be reduced. In fact, we find increasingly more obstruction and restriction against future development of processing trade pursuers.
Guangdong government has adopted a series of measures to encourage the reform and upgrading of processing trade companies, and promote industrial shift to mountain area as well as west and east wing of the province. Industrial park that will receive shifted processing trade from Guangdong have been programmed and constructed out of Guangdong by central government.
Due to soaring production cost in Pearl River Delta, it is a critical point for what some toy makers can afford, which are struggling at the edge between life and death. In this condition, to invest huge resource on shifting and upgrading would be far beyond their strength.
Dynamic development for toy market
Bestsellers in overseas show some changes in recent years. Export figure of Hong Kong toys gives us an inkling. From 2005 to 2007, traditional toys, including dolls, has registered negative growth on export and its percentage on overall export has declined to about 50 percent in 2007 from its 70 percent in 2007.
In contrast, non-traditional toys, for instance video games, have grown from 27 percent in 2005 to 48 percent in 2007. In fact, toy business now is gravitated to video games and AI toys, as well as educational items. Catering for market trend, makers should consider producing toys with higher cost but higher added value. Meanwhile, more investment is expected to be made to product development and market research.
Additionally, domestic economy now fully flourishes. Furthermore, for China’s family planning, parents have adopted positive attitude on toys and are wiling to buy toys for their kids. In recent years, toy sales continues to see rapid growth. A report released by HKTDC, domestic toy market is estimated to exceed 100 billion RMB in 2010. There is an extreme great room for development. After all, domestic consumers have high recognition generally on Hong Kong toys for their design, grade, brain-training property and safety.
Relying on these edges, outstanding achievement can made in domestic China, where market requires toys with high quality and creative design. Hong Kong companies should seize the opportunity to program their future in domestic China.
Create brand for greater competitiveness
To offset higher cost, advance competitiveness and tap into mainland, original brand is a feasible way out. Nowadays, OEM production is faced with keen competition and low marginal benefit. But presently, consumers have higher recognition on brand name, when a popular brand can easily become the favorite of consumers, and gain their loyalty. In addition, even when brand toys are in higher price point, consumers will still find it reasonable in relation to product quality. When maker develops its own brand, it will act as an active role on improving gross profit.
Hong Kong indeed had successful examples. In 1980s, toys like Teenage Mutant Ninja Turtles series were warmly received by kids in Europe and US. Robosapien that can dance and know Kung Fu is recent highlight item in global market. However, Hong Kong has not developed its evergreen name just as Barbie or Monopoly.
In passing days, makers were rather conservative in product development and brand creation, who are not so experienced in brand image construction, distinguishing, promotion and management. Brand creation requires great invest of human resource, materials and finance. Since most of Hong Kong merchants are SMEs, limited resource hinders them from developing. Toy industry is one with keen competition for not so restrict admittance requirement. Makers might not catch up with rivals in other regions when they make response themselves. Therefore, Hong Kong companies should turn to HKTDC and mainland governmental departments for appropriate brand promotion channel, so as to construct and cement sales network in domestic China. Besides, design and brand development institutes in Hong Kong can hold more training program for creative design and brand construction.
As the second-largest toy export region, Hong Kong has made great achievement after 40 years’ painstaking effort. If Hong Kong toy industry loses its growth impetus, it would be a great pity. I hope that, central government and Hong Kong SAR government comprehend the toughness of the industry and ensure against great impact on the industry when new policy is launched. Toy industry can then continue to ascend to new stage in a stable way. █
Writer’s Bio:
Jeffery Lam, member of C.P.P.C.C, member of HK Legislative Council, chairman of TDC Toys Advisory Committee, as well as president of Forward Winsome Industries Ltd
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