TROUBLED TIMES FOR THE CHINESE TOY INDUSTRY

PRESENTED TO: PROF. K.K .JainDate-8 Aug’2011

BY:Akshay HandaAmit ThakranMonika JainNeha BhatiaRahul Gupta

Introduction & Background to Case Study “Trouble times for the

Chinese Toy Industry”

Background

• Toys have a prime place since Chinese ancient times.• 1900’s the start, 1910’s the first tin toy was made.• 1919’s the growth took a major speed. Shanghai

became the hub.• Germans always offered better quality.• Japanese with modern technology – but with

efficient logistics, established industries, low labor cost & Economies of Scale China became the largest exporter of TOYS.

Troubled Times for Chinese Toy Industries…

• “Its quite urgent that we re-construct the Chinese toy industry or else we will not only loose the domestic market but also the global market.” – As quoted by president of China Toy Association 2002.

• “As China’s share of the U.S. toy market has grown, so have the number toys that have had to have been recalled for safety hazards” –New York Times – June 18th 2007.

• “This is the last warning, if there is an unsatisfactory report, we will impose next layer ban on products.” – by EU commissioner of Consumer Protection.

• “A lot of products being recalled is because it violates the law such as use of excessive levels of Lead Paint Loose Magnets” – CPSC.

• India Bans import of Chinese products for 6 months this year in January.

Consumer Perception

What do we associate China Products with??

• LOWEST POSSIBLE PRIZE

• CHEAP QUALITY

Reasons for decline in Chinese Toy Industry

2007 “The Year of Recalls”.

• Perception of the consumers.• Global competition.• High quality standards of competitors.• Price rise of raw material, labor wages also additional R&D cost.• Decreasing margin of profits.

Also,

• Use of harm full chemicals.• Bad finishing, being hazardous to health & life.• Defected products.

WHAT IS FUELLING THE DOMESTIC TOY MARKET?

• The disposable income of people has grown very fast in the last three-four years - led to several changes in the shopping pattern.

• Gifting stuffed toys has caught on in a big way.• Mushrooming of shopping malls has also

worked in our favor. • The increase in foreign trips undertaken by a

large number of people - exposes them to international stuffed toy brands.

Growth of Chinese toy industry

• Benefited from the reforms initiated in China in 1979.

• Special economic zones attracted several international toy makers.

• Scale Economies and cheap labor.• Efficient network of supporting industries.

Cont…

• The Pearl River region of Guangdong Province, owing to its open industrial policy, got new toy factories.

Cont…• In 1987, country’s first toy design institute was

set up at Tianjin Science and Technology University.

• Accession into World Trade Organisation.• Organised its first international toy exposition

in October 2002.• With more than 9,000 plants, the toy industry

is now one of the country's major industries employing almost 3 million people.

Cont…

• Export value and growth rate of toys made in china, 2001-10.

SOME ANCIENT CHINESE TOYS

THE PROBLEMS THAT CHINESE TOY INDUSTRY FACED

PROBLEMS

Rising costs and declining prices

Increasing Labor and raw material

cost

Pressure to maintain High

labor standards.

Pressure from Wal-Mart.

Forced overtime

Low Wages

No social insurance

No freedom

Sweatshop

Chinese Toy manufacturers shifted the blame onto western retailers

Liu kaiming(ICO): “Western retailers

(Wal-Mart) are squeezing their

margins”

Bama Athreya: “Wal-mart bears a lion share of responsibility

for pushing the toy industry to a place

where worker health and safety are basically

nonexistent”

Prices of many exported Chinese toys were a fraction of the prices of similar toys manufactured in developed countries

THE PROBLEMS…• Repeated inspections caused lower

productivity.• 2005– International toy producers demanded

International Council of Toy Industries (ICTI) Code certification by January 1, 2006

• 2006–Chinese government imposed the China

Compulsory Certification (CCC) scheme on toy makers–China’s General Administration of Quality

Supervision and the EU’s Health and Consumer Protection agency signed a draft guide for strengthening the Sino-EU cooperative Action for Toy Safety

SOME ACTION TAKEN BY ACTION

• Children’s Day Guangdong quality inspection authority found

45% of toys did not meet quality and safety standards• Michael Araten, President of K’Nex Industries and Tom Debrowski, Executive Vice President of

Mattel have positive image.

• Dec 2006–Warning issued by CPSC in USA regarding some

Chinese toys. Reasons include:• High lead content• Battery leakage• Inflammable parts• Some products could be easily separated, and held the

risk of ‘choking’ among childrenSeveral retail outlets in US issued warnings and recalled

Chinese products

THE SPATE OF RECALLS

– EU issued safety warnings for 15 made-in-China toys which includes

-Christmas lights -Decorative string lights -Fruit shaped erasers -Toy telescopes -Toy air guns -Toy riffles

• Feb 2007– CPSC and Hasbro recalled 985,000 China-made Easy bake

ovens. The reasons were:• Door of the toy oven could trap children’s fingers and cause burns

• June 2007– 1.5 million Thomas & Friends wooden toys were recalled.

The reasons were:• Surface paint contained high content of lead• Under US regulations, children’s products containing more than .06%

of lead were subject to recalls

2007 – THE YEAR OF RECALLS

• July 2007– CPSC and Hasbro again recalled about 1 million ovens citing the

same reasons• Along with it, more instances of burn were cited. They

were:– 249 fresh cases of children getting their hands caught in ovens

and getting burnt– 77 cases of burn– Out of these, 16 cases of second and third degree burns– One report of a 5 year old girl suffering from a serious burn that

required amputating her fingers

RECALLS CONTD. AND WHOLE LOT OF NEGATIVE PUBLICITY FOLLOWED

• August 2007–Mattel twice recalled toys (1 million) owing to

higher than permissible levels of lead

• September 2007–Again recalled 844,000 toys for the same reason

THE MATTLE FIASCO AND THE EVENTUAL U-TURN

• Consumers in US started looking for alternatives to Chinese toys

• This lead to higher demand, and consequently higher sales of US toys

• US toy manufacturers even hired new people

• 2007– EU introduced new environmental safety rules, including those

that banned the sale of toys containing over 1% phthalate

THE IMAPCT OF RECALLS

Contd• US producers able to compete against low-cost

Chinese toys.• MADE IN USA labels• Bring photos of manufacturing facilities to toy

fairs • Drive the point that their quality standards

were much higher.

Other Issues

• Threat from Vietnam and Eastern Europe• Appreciation of YUAN.• Lack of brand power.• Weak market knowledge and product

promotion.• Lack of designers.• Low level of technology.• Changing trends in toy industry.

Government Measures• Training

• Lecturers from multi-national companies

• Measures to deal with high lead levels

• Suspension of export license

• Conspiracy against Chinese toy industry

Obstacles Faced

• Adverse effect of Recession

• Rise of Crude Oil

• Chinese toys still sold

• Future Outlook

Thank You!!!