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Fun And Games, Serious Business(HKTDC Enterprise, Vol 10,2007)

Toys & Games Industry Focus


Hong Kong Trade Development Council Toys Advisory Committee Chairman Jeffrey Lam says Hong Kong is known for producing high-quality toys
The toys industry has played a major role in Hong Kong's development during the four decades that Hong Kong Enterprise has been published

From a fledgling and fragmented industry 40 years ago, Hong Kong's toys industry has grown steadily to become the second-largest toy exporter in the world. However, it hasn't all been plain sailing, concedes Jeffrey Lam, Chairman of the Toys Advisory Committee of the Hong Kong Trade Development Council (TDC), who notes that Hong Kong's toy industry mainly focused on simple wooden and pressed metal toys during the 1960s. "Hong Kong's toy industry was at an early stage at that time - we knew very little about the mechanics of exporting and marketing," admits Mr Lam, who is also Managing Director of long-established toy manufacturer Forward Winsome Industries Ltd.

Long before the era of the fax machine and instantaneous email, business communications and placing orders could take up to two months to complete.

"Hong Kong toy manufacturers and their family-style businesses knew very little about the way sales and marketing was carried out in Europe and the US, and communications were mainly conducted by letter," Mr Lam says.

Only a handful of buyers would visit Hong Kong and even fewer Hong Kong manufacturers would travel overseas to meet clients, he adds. "We had to educate ourselves as manufacturers and managers and quickly pass on our knowledge to employees to make sure the businesses developed and prospered," Mr Lam recollects. "Workers were very willing and in plentiful supply, but they needed to be trained."

The use of plastic, new technology and an emphasis on quality and product development helped Hong Kong's toys industry establish - and maintain - its reputation as the place of choice to source products.

One of the most significant boosts to Hong Kong's toys industry was the Chinese mainland's "Open Door" policy, implemented in the late 1970s, which allowed Hong Kong manufacturers to shift their production processes to the southern mainland where space and labour were in plentiful supply.

As a result, Mr Lam maintains, Hong Kong's toy manufacturing industry built one of its most important strengths, namely the ability to source materials and manufacture end-products within a relatively small geographical area.

"Hong Kong manufacturers around the Pearl River Delta have built up their own supply chains from scratch," Mr Lam explains.

"Since the late 1970s, the toys industry has been developing these diverse supply chains to source the raw materials it needs to produce a wide range of products."

In addition, toy manufacturers have access to other well-established supporting industries - such as electronics, plastics, textiles and clothing - so that the quality in each toy segment can be improved with the addition of well-produced accessories.

As a result, Hong Kong manufacturers produce a wide range of high-quality, competitively priced toys with a particular strength in plastic toys, including dolls, dolls' houses and other accessories, action figures, construction sets, toy guns, make-believe toys and theme toys such as beauty kits and doctors' kits.

Other major categories are electronic toys and games, radio/remote-controlled toys, battery-operated toys and metal toys. "Toy makers are also increasingly entering into licensing deals with movie studios to make products featuring film characters," Mr Lam adds.

He says Hong Kong exporters are known for producing high-quality toys, while a large share of industry revenues is also derived from contract manufacturing for overseas manufacturers and licence holders.

"Increasingly, Hong Kong manufacturers are offering expertise in design, engineering, modelling, tooling, quality control and other technical know-how to their customers," Mr Lam says.

Recent years have also seen Hong Kong manufacturers focus more on design and producing added-value products. "The key functions of early-learning toys are the same today as they were 40 years ago - except they are now better quality with better finishing," maintains Mr Lam.

Toy producers have also been tapping into growing international concerns about health and children's well-being. "For example, Hong Kong manufacturers are currently meeting the demands of buyers who are searching for toys that allow children to exercise while playing," Mr Lam advises.

Demand for aquatic toys and equipment is equally strong. "This is a growing trend beyond the industry's traditional focus on mental development and game-play products," he believes.

The rising popularity of Internet technology that assimilates real and virtual toys is another continuing trend. "Hong Kong toymakers are introducing toys capable of linking with the Internet so that toy-playing is extended beyond the traditional use," Mr Lam says.

It's all part of a worldwide mega-trend to integrate electronics and new technology with toys to create new playing possibilities. "Even very successful and popular traditional toys are being refined with electronic features," Mr Lam notes.

These trends aside, however, the Hong Kong toys industry is facing "many" challenges. "For example, safety standards, regulations and codes of practice are major concerns among overseas buyers," Mr Lam concedes.

Other major challenges facing the industry include the rising cost of labour and materials and satisfying buyer demands for shorter product lifecycles.

"Design development, manufacturing and delivery times are at the forefront of every toy manufacturer's operations," Mr Lam says, citing toys linked to movies and promotional campaigns as products that need to be developed quickly and turned around fast.

This in turn requires Hong Kong toy manufacturers and suppliers to invest more in R&D and to develop their own design capabilities and other value-added competitive advantages that cannot be copied easily by competitors.

Another challenge for the Hong Kong toys industry is the fact that today's children are growing up faster than previous generations. "With a better-educated and prosperous global audience growing in size, the market for educational toys is gaining a bigger profile among the industry and consumers alike," Mr Lam observes. "Parents are now looking more at the whole-child perspective, with focus on skills such as listening and inspiring creativity."

This in turn has challenged toy manufacturers to create new, innovative toys that capture the interest of children. "Greater efforts are also being made to introduce toys for pre-schoolers that require a higher level of creative input and help develop the brainpower, coordination and senses of the players," says Mr Lam.

Looking ahead, he predicts the Hong Kong toys industry's growth will be underpinned by video games, educational toys and electronic toys.

"Emerging markets like Russia and Eastern Europe will likely exhibit stronger growth, while burgeoning wealth on the mainland will create tremendous demand for Hong Kong's toys," Mr Lam forecasts.

"Whatever the future holds, however, the Hong Kong toys industry has flourished for the past 40 years and doubtless will continue to grow and prosper during coming decades."

Best In Show

Asia's number one toys and games trade fair has played a major role in helping the Hong Kong toys industry expand business networks, explore market opportunities and promote product image and brand names.

The Hong Kong Toys & Games Fair, which is also the second-largest in the world, has established itself as the perfect launching pad for exhibitors eyeing the global export market.

This year, for example, the fair built on its proud tradition with another successful edition, showcasing the latest innovative products from 1,978 exhibitors representing 37 countries and regions - including group pavilions from the Chinese mainland, Germany, Italy, Korea, Pakistan, Spain, Taiwan and Thailand.

More than 29,000 buyers came from 124 countries and regions, further underscoring the fair's position as the premier sourcing hub for toys and games, while the fair also hosted 79 buying missions from 39 countries and regions.

These achievements in turn helped the Hong Kong toys industry post exports worth HK$52,717m from January-September 2006, mainly composed of the traditional toys that comprised more than 75% of total shipments.

Exports were boosted by a 37% increase in sales to the mainland, while other major markets included the US, the EU, Japan, ASEAN and Canada.