Big trouble in little China

April 9th 2015 at 11:57AM
Big trouble in little China

Steve Reece takes a look at the industry’s recent over reliance on China as a manufacturing hub and what possible solutions are on hand to help toy firms.

These are interesting times for the manufacturing end of the toy business.

Rising costs in the traditional toy manufacturing heartlands in China is an ongoing trend, with senior industry figures recently talking about the need for Chinese manufacturing companies to relocate further inland to help address manufacturing costs.

One of the biggest issues facing the global toy industry is a clear over reliance on China as a manufacturing hub. Capacity remains one of China’s massive strengths.

Manufacturing plants can’t appear overnight, nor can the vast array of expertise and knowledge present in the Southern China heartland where toy manufacturing is centred.

The toy industry simply doesn’t have a short-term alternative of sufficient scale.

For years the solution was heading towards other Asian markets where labour costs remain lower.

In fact, one of the clear trends of the 21st century thus far is for established large scale manufacturing businesses to open new offshoot factories in Vietnam.

But these extensions come with their own challenges in terms of infrastructure, knowledge and supporting technical capabilities.

There appears to be little doubt that Vietnam and other countries in South East Asia will significantly expand their capacity over the next decade or so, but it’s unlikely to reach the scale and output levels of the Chinese heartland in a hurry.

In the short-term, one supporting factor for UK-based companies heading towards peak manufacturing season for 2015 is the massive fall in value of the Euro against the US dollar, which makes USD-based manufacturing massively less appealing to Eurozone based companies.

Capacity in Eurozone factories looks set to be hugely stretched this year, leaving gaps in output for Chinese factories to fill which should work in favour of UK based companies as the pound has not seen the same dramatic level of devaluation against the USD.

In practical terms, and to take the micro perspective, we have found new factories for numerous clients of late, and regardless of the macro trends we haven’t had issues finding good suppliers with all the appropriate audits/standards, etc. Although we have had to shop around to some degree to ensure capacity.

The best approach for individual companies seems to be to ensure a broad enough base of available/approved factories to secure reliable, responsive supply, with perhaps some investigation to local alternatives.

As far as the longer term picture is concerned, while there remain challenges in terms of outlook, cost effective supply normally ramps up somewhere, somehow to meet demand.

So maybe we can let the Chinese factories worry about that one for now.