Steve Reece takes a look at how the world of toy sourcing is accelerating away from China, following the dimishing factory output spurred the fall of the Yuan.

Manufacturing movements

Since I last wrote about manufacturing, things seem to have moved on rapidly in the world of toy sourcing. There has been a general trend over the past decade or so for companies to look at alternative sources outside the toy manufacturing heartlands of South Eastern China.

There have also been some moves to set up new facilities in other Asian countries, albeit limited in scale thus far.

However, as with all things, necessity often accelerates things, which sit in the ‘important but not urgent’ pile. I’m getting a definite sense that this may well be the year that leads to an acceleration of toy manufacturing moving away from China.

In the past few months I’ve been approached by four separate companies asking us to help them find reliable and cost effective manufacturing sources away from the seemingly ever-spiralling labour costs in China.

We’ve seen factory output figures in China down by a double figure percentage year on year for some key months of the year, which is at least partially due to a drop in demand from the Eurozone due to the weakness of the Euro against the USD.

The recent devaluation of the Yuan currency by way of reaction to this diminished factory output will certainly supply some short term respite, and protect demand to a degree, but it can only be a temporary measure, and sadly offers little hope of a long term solution to the fact that China’s manufacturing driven economy can no longer be relied upon for the highly competitive costings we were so used to in the past.

Whenever I look at a toy factory in operation, it always surprises me how manual the manufacturing process can be for certain types of toys. And so when we come to look at viable alternatives, the first factor we need to look for is cheaper labour costs than China, which brings India, Vietnam, Thailand, The Philippines and other Asian countries into the frame.

The challenge of course is how these countries can quickly fill the void in terms of education, expertise, supply chain and QA. We’re finding that those audit friendly factories who can prove that they are reliable and more cost effective are quickly filling spare capacity, to the degree that some of them are even turning business away.

There are some amazing opportunities ahead for manufacturing entrepreneurs in these countries in the next decade or so. For now China remains the dominant force in toy manufacturing, but for how long it can remain so is an ever more uncertain question.

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