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Playing Partners(HKTDC Enterprise, Vol 06,2007)

Playing Partners




Hong Kong is able to make high-end toys while the mainland specialises in mid-range to low-end products

The Chinese mainland and Hong Kong toy industries are long-established partners as well as keen competitors, according to an industry expert who has a wealth of experience in both areas.

China Toy Association executive director, vice president of The Toys Manufacturers' Association of Hong Kong vice president and managing director of locally-listed toy manufacturer Lung Cheong Int'l Holdings Ltd C. M. Leung explains that Hong Kong companies began outsourcing production to mainland factories in the 1980s.

"Some mainland companies exported their products through Hong Kong firms in the 1990s, but now more and more buyers source straight from China and mainland firms now take part in overseas trade fairs to market their products themselves," Leung says.

He concedes that China's toy industry has developed quickly in recent years. "Mainland enterprises have been benefiting from low operating costs and overheads," Leung explains. "Production of traditional toys presents no difficulty to them at all."

However, he is quick to point out that the strength of the Hong Kong industry lies in upmarket, value-added items. "Hong Kong is able to make high-end toys while the mainland specialises in mid-range to low-end products," Leung maintains.

He adds that mainland companies have an edge in tapping the vast China market, which is expanding in tandem with the country's economic development. "It is a huge market, with more than 300 million children under the age of 14," Leung notes.

"Mainland enterprises have easier access to these consumers as they need to go through fewer procedures and they have a better grasp of the market needs and trends."

He foresees stronger cooperation between the two manufacturing centres in the future as the mainland market continues to mature and demand more sophisticated products.

"The way forward for Hong Kong's toy industry is to become a centre for R&D and the creation of intellectual property (IP)," the 28-year industry veteran believes. "We can then sell our designs and IP to mainland companies, while those Hong Kong firms with designs but no manufacturing facilities can outsource production to mainland factories."

This symbiotic approach would be a logical development for Hong Kong, which has been closely involved with the mainland virtually since the industry was established in the 1940s.

Leung notes that this mainland connection has enabled Hong Kong to offer the competitive pricing for which it is world-renowned. "Most Hong Kong manufacturers have factories in the Pearl River Delta, especially Shenzhen, Dongguan and Zhongshan," Leung says.

Some industry players estimate that there are more than 4,000 Hong Kong toy manufacturers, with a total workforce of more than 30,000 in the territory and roughly 2.5 million on the Chinese mainland.

The efficient network of supporting industries and services on the mainland also enhances the competitiveness of Hong Kong's toy industry by raising its productivity, product quality and reliability.

Manufacturing on the mainland enables Hong Kong toy companies to focus on management, marketing, research and development, product design and production planning in Hong Kong. "We operate on the ‘shop in the front and factory at the back' model, which adds to our strengths," Leung believes.

This concept has proven so successful that Hong Kong is currently the world's second largest toy exporter, having boosted shipments to HK$17.19bn in the first quarter of 2007.

Today, Hong Kong produces an extensive array of toys, ranging from plastic dolls to electronic games, radio- or remote-controlled items, battery-operated products and metal playthings.

"Hong Kong's toy industry is largely OEM-based," Leung remarks, noting that a significant share of the industry's revenues is derived from contract manufacturing for overseas industry giants and licence holders such as Disney, Hasbro, Mattel and Warner Bros in the US and Zapf in Germany, as well as Bandai, Takara and Tomy in Japan.

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

"It is only in recent years that more companies have been engaging in ODM and OBM, although a number have long been involved in these activities," Leung says, adding that many Hong Kong manufacturers have also achieved ISO 9001 certification to enhance quality management and increase buyer and consumer confidence.

Clearly, the winning combination of the mainland's production advantages and Hong Kong's expertise in upmarket, value-added services ensures that both areas will work increasingly closer together to dominate the serious business of toy manufacturing for many years to come.



China Toy Association executive director, C. M. Leung