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The World's Toy Shop 2007(HKTDC Enterprise, Vol 01,2007)

Hong Kong Toys & Games Fair 2007



Most cities wouldn't normally accept the term "toy town" as a compliment, but in Hong Kong's case it is a title hard-earned and proudly worn.

Over the last half-century Hong Kong has accumulated an unrivalled wealth of experience and expertise in designing, making and marketing the world's playthings.

During this time it maintained its competitiveness by moving much of its manufacturing base to the low-cost Chinese mainland, which has helped the city remain the world's second-largest toy exporter and the driving force behind the industry's steady expansion on the mainland.

"Hong Kong started as an OEM base and we have grown to become a leading toy exporting centre," states Jeffrey Lam, chairman of the organising committee for the Hong Kong Toys and Games Fair, which is the biggest toys exhibition in Asia and the second-largest in the world.

These impressive accomplishments have been built on the ability to respond fast and flexibly to changing market conditions in a field that is evolving ever more rapidly.

Today children around the world are acquiring increasingly sophisticated toys at younger and younger ages, while the mainland is emerging as a largely untapped market.

Hong Kong companies are meeting these diverse challenges by moving away from basic toys made for customers towards higher-end production and building their own brands.

"In the last few years we've broadened our base and extended into other mainland provinces," Lam explains. "Now a lot of toys made by Hong Kong companies are marketed on the mainland."

There has been an equally rapid expansion in Hong Kong's offerings, with video and computer games and other hi-tech playthings becoming increasingly important.

Nevertheless, the demand for traditional plastic toys, construction sets and battery-operated toys remains strong in established markets. "The US is still the leading export market followed by the EU, which keeps adding additional members," Lam observes.

"Eastern Europe and Russia are emerging markets that have grown extremely rapidly in the past few years, although their purchasing power is not comparable to Western Europe."

Japan is also an important market for Hong Kong toy companies and demand is increasing in the ASEAN countries, the Middle East and South America.

Fully 33.1% of the HK$52,717m worth of toys and games Hong Kong exported from January-September 2006 went to the US, 30.3% to the EU, 11.6% to Japan and 8.7% to the mainland. "Exports to the mainland were up fully 37% over the equivalent period in 2005," Lam adds.

He notes that much of this total comprised perennially popular pre-school toys. "Traditional toys sell well and will continue to constitute a good proportion of total toy sales, but now there are many more electronic toys such as hand-held, TV and video games and that area will continue to grow," Lam predicts.

Significantly, the period during which children play with traditional toys has shortened, with many youngsters now being given their first video and computer games at the age of eight or nine.

Equally importantly, the fields of play and education overlap and further convergence is being fuelled by the development of "smart" or "intelligent" toys and others capable of being linked to the Internet.

Lam also notes a movement away from products licensed from the makers of hit TV programmes and big-box-office films. "There was a period when one movie product could dominate the market, but we haven't seen that for some years," he recalls.

Some companies don't like to invest in those products because they come and go very quickly, but Lam feels the industry is getting a better balance and developing its own momentum.

"Hong Kong manufacturers are working towards having their own design teams in mechanical and electronic areas as well as aesthetics," Lam declares.

He admits that it's "difficult" for them to enter the US market with their own products, but the neighbouring mainland market is a different matter. "They don't have any established toy brands, so Hong Kong companies should move towards building their own brands and designs," Lam maintains. "The market is still US-led, but in 20 years the mainland could take the lead."

However, the Hong Kong toy industry still has to face a number of challenges, including the rising costs of materials and labour. "A few months ago we experienced an increase of over 20% in the minimum wage in the Pearl River Delta area, which obviously affects our costs," Lam notes.

The implementation of measures to ensure that toys comply with new safety and environmental directives also has a big impact on the bottom line.

For example, the EU's Directive on Waste Electrical and Electronic Equipment (WEEE) and the Directive on the Restriction of the Use of Certain Hazardous Substances (RoHS) have imposed new requirements on the development and production of toys.

"The mainland has also strengthened environmental regulations, especially over the last two years, in response to comments from other countries," Lam says, adding that "most" mainland factories are better than their American or European counterparts because they are newer.

He stresses that Hong Kong companies have been strong supporters of the CARE (Caring, Aware, Responsible and Ethical) programme, introduced by the International Council of Toy Industries and supported by the Hong Kong Toys Council.

So far approximately 650 Hong Kong factories, employing an average of 1,400 workers each, comply with the programme, which guarantees fair compensation, reasonable working hours and a high standard of safety in the workplace.

Local toy companies have also contributed towards the programme funding. "Buyers have to understand that this is a partnership situation," Lam asserts. "Everybody wants to buy low and sell high, but we have to strike a balance as manufacturers can only shoulder so much of the responsibility."

Looking ahead, Lam sees Hong Kong maintaining its competitive edge, with stronger growth in emerging markets and Hong Kong's unique position compensating for slackening of demand in traditional markets. He says Hong Kong is well-positioned to take advantage of the mainland's emergence as a major toy market.

"Tastes differ in different markets," he explains. "Our industry is very experienced in meeting the requirements of buyers in different parts of the world - understanding the trends, knowing what they want - which gives us an advantage over some manufacturing countries like Vietnam and India."

He expects to see demand for educational toys and video and computer games grow, while the popularity of traditional toys will shrink in percentage terms.

"All in all I think 2007 will be somewhat like 2006," Lam concludes. "But we have to go in with good service, good information, good products and a good price - qualities synonymous with the Hong Kong toy industry."