China’s Toys and Games Industry: 2015

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A Bit of History

Before 1980s the demand for toys in China was relatively small. Many households were still struggling to secure the basics, like food and clothing. There was little concern about child’s entertainment.

With both the booming economy and one-child policy that took effect somewhat two decades earlier, the 1990s were considerably different for the toys industry. First of all, there was just a single child cared for by the parents and two sets of grandparents, all of whom bestowed their love, attention and spent money upon him. Besides, improving economic situation contributed to the increasing number of wealthier households. Much emphasis was placed on entertaining the child, as well as promoting self-development and academic improvement.

With considerable investment form Hong Kong, Macau and Taiwan, China has become the largest manufacturer and exporter of toy products, manufacturing over 70% of the world's. All that combined fuelled the local demand for toys that varied greatly in term of quality, purpose and safety.

The Golden Years

In the early 2000’s the first generation of one-child-policy children had become parents themselves. These young couples focused more on developing their children and with increasing globalization and peer pressure by other parents, Chinese mothers and fathers started allocating resources to various types of toys, including educational, entertaining and decorative.

China’s toy export industry experienced a golden period between 2005 and 2010, but when the crisis hit in 2012, China’s toy manufacturers and exporters were unprepared. To survive many toy exporters raised the prices, cut headcount, relocated factories to cheaper parts of China, or in cheaper countries.

In light of declining export demands, escalating local production costs and changes in the RMB exchange rate, Chinese toy exporters had come under tremendous pressure and are shifting focus to domestic market.

Domestic Market

Since 2012, the toy industry in China has experienced a major shift to internal market. In 2014, China’s toys and games industry recorded another year of double-digit growth, thanks to steady domestic demand. According to data from Euromonitor’s market research, the total retail sales of toys and games in China have soared from Rmb46.3 billion in 2010 to Rmb74.4 billion in 2014.

It didn’t take long to realize that in order to exist in the China market, ex-exporters shall set up a toy brand, invest in marketing and promotion.

In recent years, many brands have proactively set up sales channels to tap into the local China market, among which are international brand names such as Disney and DreamWorks and local brands like Auldey, Goodbaby and Great Dreams. Nowadays, foreign products and products made by Sino-foreign joint ventures make up 80% of the domestic toy market.

International Competition

The competition is fierce as many foreign enterprises including Mattel Group, Hasbro Group, SEGA and LEGO, etc. have invested heavily in the Chinese market. The high-end of the market is dominated by foreign enterprises while local brands are the mainstay in the medium- to low-end segments of the market.

Insiders point out that there has been essential progress of China’s local toy brands in recent two years, as they have begun to attach importance to independent R&D and proprietary intellectual property rights.

Major Trends

Nowadays, with higher disposable incomes, more parents thrive to upgrade their children’s play experiences and their demands for toys are beginning to change. There is a shift away from traditional, medium- to low-end battery-operated toys, construction sets and decorative toys towards innovative electronic toys, intelligent toys as well as upmarket plush toys and decorative cloth toys.

In general, there is increasing demand for toys that promote outdoor activities and learning skills as well as construction toys and video games.

Interactive, electronic toys with relatively high technology content have emerged as mainstream items. Another growth area is educational toys inspiring children’s imagination and creativity and enhancing their in-hand manipulation skills.

Plush toys in novel and unique designs and especially popular TV drama characters and animation characters have been sought after in the past few years. As well as Plush toys that double as household decorative items have gained favour among many households.

Educational toys like building sets, card games, jigsaw puzzles, DIY toys and 3D construction sets are becoming the latest craze among parents and children. These toys are marked by innovative design, interactive approach and high technology content.

Video games, on the other hand, remained a category in which domestic companies enjoyed competitive advantages. International brands, such as CrossFire, continued to rely on domestic operators, such as Tencent Holdings Ltd, to localize and market their products in China.

Today there are around 223 million children under the age of 14 on the Chinese mainland and based on IPLE-CASS’s data, the number of newborns is reaching yearly 17 million. Large market size coupled with China’s steady economic performance suggest upward prospects for China’s toy and games industry. What's opportunities/threats do you see?

For more China business stories check  www.ajournal.com.hk