According to Global Sources' China Sourcing Report: Toys & Games, 51 per cent of manufacturers interviewed for the report said the EU is expected to be their main market in the next year, while 29 per cent plan to boost shipments to the US.
At the same time, many suppliers are striving to strengthen their presence in emerging markets such as Africa, the Middle East, Eastern Europe, and South and Central America.
Report publisher, Spenser Au said: "Even amid the major economic slowdown in the US and EU markets, these remain the top export markets for China's toy and game manufacturers.
"However, new product legislation is forcing suppliers to conduct a greater amount of testing and to use more expensive raw materials. Despite the higher costs of compliance, most manufacturers said they are keeping prices stable to boost demand and gain market share."
47 per cent of toy and game manufacturers cited their biggest challenge for the next year as stricter overseas compliance standards; 19 per cent said price competition was the biggest stumbling block and 19 percent cited the cost of raw materials.
As a result, 81 per cent of suppliers surveyed said they are increasing investment in R&D and other capital expenditures, with about one-third increasing spending by more than 20 per cent.
Au said: "Since last year, nearly half of China's toy manufacturers have shut down. Surviving manufacturers, particularly on the low-end, are finding their margins have all but disappeared. This has led a significant number of suppliers to invest more in R&D to create differentiated products that can generate higher margins.
"Suppliers are upgrading product lines with the expectation that the market may recover in the next 12 months. More than half of respondents predicted exports to grow in the year ahead.
“Based on the surveys, buyers sourcing from the region can expect to find a larger number of higher-end products available at prices that today's more frugal consumers are willing to pay."
The China Sourcing Report: Toys & Games provides detailed profiles of 21 suppliers with verified manufacturing and export credentials and contact details of an additional 16 exporters.