A

GLOBAL COUNTRY STUDY PROJECT REPORT

ON

“ China's Toys Industries ”

Submitted to

C K SHAH VIJAPURWALA INSTITUTE OF MANAGEMENT

IN PARTIAL FULFILLMENT OF THEREQUIREMENT OF THE AWARD FOR THE DEGREE

OFMASTER OF BUSINESS ADMINISTRATION

UnderGujarat Technological University

UNDER THE GUIDANCE OF

Faculty Guide

Kunjal Sinha(Asst. Professor)

Submitted by

M.B.A. – SEMESTER III

1.) BUDDHADEV CHINTAN 1070505920312.) PATEL GAURAV 1070505920323.) PATEL VIPUL 107050592033 4.) PATEL RAKESH 1070505920345.) PANDYA DHAVAL 1070505920356.) PADHIAR MINAL 107050592036

C K Shah Vijapurwala institute of Management

M.B.A PROGRAMMEAffiliated to Gujarat Technological University

AhmadabadJuly 2011

Introduction

A toy is any object that can be used for play. Toys are associated commonly

with children and pets. Playing with toys is often thought to be an enjoyable means of

training the young for life in human society.

About Industry:

The toy industry was the term used to describe a number of industries that

produced small goods in any material; hinges, buttons, belt buckles and hooks are all

examples of goods that were once considered "toys" and could be produced in metal,

leather or glass, amongst others.

Chinese Toy Industry:

Cheap, plastic toys, the kind found in stores, fast food restaurants, fairs,

daycare centers, cereal boxes and homes across the United States, almost all come

from China. The Chinese toy industry, the largest in the world, generates billions of

dollars in export profits and employs millions of people in thousands of factories. These

factories are an important part of the economic boom that has lifted many out of

poverty in the People’s Republic , but they have a dark side, too: excessive work hours,

dangerous equipment and chemicals, cramped employee dormitories, abusive

managers, crooked hiring practices, and pay below even China’s minimum wage .

Customs statistics state that China's toy exports, In 2010, the export value of

Chinese toys reached USD 10.08 billion, up 29.4% from a year earlier, taking 70% of

the world toy market.

China, the world's largest toy maker, takes up about 70 percent of the global

market share and accounts for about 80 percent of Europe's imports of toys.China's

toys now constitute 75% of world output, according to the China Chamber of Commerce

for Import and Export of Light Industrial Products and Arts-Crafts.

China is now the world's largest toymaker and exporter. According to the

China Toy Association, there are more than 9000 toy manufacturers in China, producing

more than 30,000 kinds of toys.

China itself is a large toy market. There are more than 300 million children

under 14 in the country, a quarter of whom live in cities. Industry insiders predict China's

toy market will grow 40% annually.

In the past ten years, China's toy industry enjoyed significant growth rates

and the number of toy manufacturers has increased dramatically. With more than 9,000

plants, the toy industry is now one of the country's major industries employing almost 3

million people. China is the world's largest toy manufacturer, producing 75 percent of

the world's toys and exporting toys to more than 100 countries and regions. In 2003, the

country's toy exports exceeded 10 billion US dollars.. While most international toy

companies source their toys from China, until now only very few successfully entered

the Chinese toy market itself. The Chinese toy market is often portrayed as the

potentially largest worldwide. No other country has more children living in its

boundaries.

Major Companies In Toy Industry

1 . Hongma Toys Industry Co. Ltd.

2 . Shantung Chengdu Toys base Factory

3 . Liven Industrial Corporation

4 . Yipe Hole-Toys Co., Ltd.

5 . Victory (HK) Craft & Gift Intel Co., Limited

6 . Zhengzhou Potential Toy Co., Ltd.

7 . Planting Environmental Protection Household Utensil Ltd.

8 . Yipe Arequipa Imp & Exp Co., Ltd.

9 . Qingdao Shijiazhuang Co., Ltd.

10 . Guangzhou Alpha Animation and Culture Co., Ltd.,

11 . Xingu Hui Auto Model Co., Ltd.,

12 . Goldilocks Toys Holdings Co., Ltd.,

Financial Data Of Toy Industry

Industry Revenue 19,932.1 Million USDExports 10,391.0 Million USDImports 140.2 Million USDTotal Wages 2510.9Growth 9.20%

Geographic Regional data:

Total Area 9,596,961 sq kmPopulation 1,336,718,015 (July 2011 est.)Age Structure:0-14 years 17.60%15-64 years 73.60%65 years and over  8.9%

Export And Import Of China Toy Industry

Export Value of Chinese Toys Increases by 29.4%, reaching $10.08 billion in

2010. In 2010, the global toy sales achieved USD83.3 billion, up 4.7% Yo Y, wherein,

the Asian toy market climbed to the world’s second largest toy market with the strong

growth of 9.2% on average. Meanwhile, influenced by fluctuations in the exchange rate,

the European market dropped to the third place. Being as the largest toy market

globally, followed by Japan, China, UK and France, the American market contributed the

sales of USD21.9 billion in 2010.

In 2010, the export value of Chinese toys reached USD10.08 billion, up 29.4%

from a year earlier. Compared to the Yo Y fall of 9.9% in 2009, the export value of toy

industry witnessed substantial increase in China in 2010, which was beneficial from the

gradual recovery of global economy as well as favorable factors such as implementation

of economic policies in China and the re-stocking of foreign toy dealers, etc.

In 2010, ten out of 11 categories of exported China-made toys, except toy electric

train, experienced rapid growth; of which, the export value of animal toys registered

USD1.665 billion, up 22.08% Yo Y; and that of intellectual toys and toy sets amounted to

USD690 million and USD645 million, respectively, increasing by 33.4% and 28.58%

from the previous year. In terms of the export ratio, the market shares occupied by

traditional toys such as plush toys and plastic toys further shrank, while that of

intellectual and electronic & electric toys constantly increased.

Facing the rising market demand, the capital demand of Chinese toy

manufacturers keeps growing considerably. The enterprises have successfully sought

financing by listing on the stock market in succession, such as Guangzhou Alpha

Animation and Culture Co., Ltd., Xingu Hui Auto Model Co., Ltd., Goldilocks Toys

Holdings Co., Ltd., Guangzhou Aweigh Toys Craft Co., Ltd.

In 2010, ten out of 11 categories of exported China-made toys, except toy

electric trains, experienced rapid growth; of which, the export value of animal toys

registered USD1.665 billion, up 22.08% Yo Y; and that of intellectual toys and toy sets

amounted to USD690 million and USD645 million, respectively, increasing by 33.4%

and 28.58% from the previous year. In terms of the export ratio, the market shares

occupied by traditional toys such as plush toys and plastic toys further shrank, while that

of intellectual and electronic & electric toys increased.

Apr. 2011, Guangzhou Queuing Toys Joint-Stock Co., Ltd. raised RMB 680

million from the IPO, over collected RMB420 million. Among the fund raising projects,

the growth rates of newly increased capacity of child vehicle, electric vehicle and

computer learning machine will see over 250%, 70% and 120%, respectively.

WAGES

A wage is a compensation, usually financial, received by workers in exchange

for their labor. Compensation in terms of wages is given to workers and compensation

in terms of salary is given to employees. Compensation is a monetary benefit given to

employees in return for the services provided by them.

The Kari Long factory implements two types of wage paying practices: piece

rate wage for handcraft workers and hourly wage rate for machine operators. Wage

stubs provide the workers with their working records every month, displaying a clear

break down of all parts of the monthly salary. It should include information on the hours

worked or Produced units, the basic wage, overtime remuneration, deductions for food

and accommodation etc.

Wages is paid according to below table.

Regular Overtime PremiumMonday-Friday 8 hours 150% of wage

Saturday 6 hours 150% of wageSunday holiday 200% of wage

Chinese labor law stipulates an eight-hour(8 hrs) day with a maximum three

hours(3 hrs) of overtime, These standards generally incorporate the official minimum

wage, which is set by local or provincial governments and ranges from 1,100

yuan($175) a month. but the situation is not as per law. Workers worked 12 hours a

day, six days a week, for $120 to $200 a month, far less than they are required to be

paid by law. But in the HUB city for Toys Market Guangzhou Worker salaries have

almost doubled in the past year to 2,000 yuan ($308) per month in factories in

Guangzhou province, the nation’s manufacturing hub, according to toymaker attending

the fair.

Sources of China’s Price Competitiveness

As China's economy recovers from the global downturn, the most recent retail

sales figures show strong and steady growth over the last year. It's clear that higher

incomes continue to fuel consumer thirst in China for a wide range of goods.

Marketing has an important role to play in the success of these brands and in

the development of the Chinese market. It will be an economic accelerate, informing

consumers about new products, facilitating the market penetration of many brands and

sparking innovation as consumers look for next-generation goods.

Marketing will also play a role as a social accelerate, embedding values of trust and

reliability into the market with every successful transaction between seller and buyer.

Ten Reasons Why China is Cheaper :

1. Strategy. Since 1953, China has framed its macro objectives in the context of

five-year plans, with clearly defined targets and policy initiatives designed to hit

those targets. The recently enacted 12th Five-Year Plan could well be a strategic

turning point – ushering in a shift from the highly successful producer model of

the past 30 years to a flourishing consumer society.

2. Commitment. Seared by memories of turmoil, reinforced by the Cultural

Revolution of the 1960’s and 1970’s, China’s leadership places the highest

priority on stability. Such a commitment served China extremely well in avoiding

collateral damage from the crisis of 2008-2009. It stands to play an equally

important role in driving the fight against inflation, asset bubbles, and

deteriorating loan quality.

3. Wherewithal to deliver. China’s commitment to stability has teeth. More than 30

years of reform have unlocked its economic dynamism. Enterprise and financial-

market reforms have been key, and many more reforms are coming. Moreover,

China has shown itself to be a good learner from past crises, and shifts course

when necessary.

4. Saving. A domestic saving rate in excess of 50% has served China well. It

funded the investment imperatives of economic development and boosted the

cushion of foreign-exchange reserves that has shielded China from external

shocks. China now stands ready to absorb some of that surplus saving to

promote a shift toward internal demand.

5. Rural-urban migration. Over the past 30 years, the urban share of the Chinese

population has risen from 20% to 46%. According to OECD estimates, another

316 million people should move from the countryside to China’s cities over the

next 20 years. Such an unprecedented wave of urbanization provides solid

support for infrastructure investment and commercial and residential construction

activity. Fears of excess investment and “ghost cities” fixate on the supply side,

without giving due weight to burgeoning demand.

6. Low-hanging fruit – Consumption. Private consumption accounts for only

about 37% of China’s GDP – the smallest share of any major economy. By

focusing on job creation, wage increases, and the social safety net, the 12th

Five-Year Plan could spark a major increase in discretionary consumer

purchasing power. That could lead to as much as a five-percentage-point

increase in China’s consumption share by 2015.

7. Low-hanging fruit – Services. Services account for just 43% of Chinese GDP –

well below global norms. Services are an important piece of China’s pro-

consumption strategy – especially large-scale transactions-based industries such

as distribution (wholesale and retail), domestic transportation, supply-chain

logistics, and hospitality and leisure. Over the next five years, the services share

of Chinese GDP could rise above the currently targeted four-percentage-point

increase. This is a labor-intensive, resource-efficient, environmentally-friendly

growth recipe – precisely what China needs in the next phase of its development.

8. Foreign direct investment. Modern China has long been a magnet for global

multinational corporations seeking both efficiency and a toehold in the world’s

most populous market. Such investments provide China with access to modern

technologies and management systems – a catalyst to economic development.

China’s upcoming pro-consumption rebalancing implies a potential shift in FDI –

away from manufacturing toward services – that could propel growth further.

9. Education. China has taken enormous strides in building human capital. The

adult literacy rate is now almost 95%, and secondary school enrollment rates are

up to 80%. Shanghai’s 15-year-old students were recently ranked first globally in

math and reading as per the standardized PISA metric. Chinese universities now

graduate more than 1.5 million engineers and scientists annually. The country is

well on its way to a knowledge-based economy.

10. Innovation. In 2009, about 280,000 domestic patent applications were filed in

China, placing it third globally, behind Japan and the United States. China is

fourth and rising in terms of international patent applications. At the same time,

China is targeting a research-and-development share of GDP of 2.2% by 2015 –

double the ratio in 2002. This fits with the 12th Five-Year Plan’s new focus on

innovation-based “strategic emerging industries” – energy conservation, new-

generation information technology, biotechnology, high-end equipment

manufacturing, renewable energy, alternative materials, and autos running on

alternative fuels. Currently, these seven industries account for 3% of Chinese

GDP; the government is targeting a 15% share by 2020, a significant move up

the value chain.

Marketing Promotion

Marketing theory distinguishes between two main kinds of promotional strategy

- "push" and "pull".

Push

A “push” promotional strategy makes use of a company's sales force and trade

promotion activities to create consumer demand for a product. The producer promotes

the product to wholesalers, the wholesalers promote it to retailers, and the retailers

promote it to consumers.

Pull

A “pull” selling strategy is one that requires high spending on advertising and consumer

promotion to build up consumer demand for a product. If the strategy is successful,

consumers will ask their retailers for the product, the retailers will ask the wholesalers,

and the wholesalers will ask the producers.

10 Steps Of Marketing Promotion :

Step 1. Develop A Promotional Filing System.

Step 2. Evaluate And Brainstorm

Step 3. Develop Your Strategic Plan

Step 4. Involve Your Team

Step 5. Plan Out The Details

Step 6. Reserve And Design Advertising

Step 7. Contact The Media

Step 8. Create Attention Getting Direct Mail

Step 9. Develop Promotions Based Around A Theme

Step 10. Plan An OTB Increase For Special Events

Comparision Of Indian & Chinese Toy Industries:

INDIA CHINA

Factories 1500 9000

Turnover USD 1.4 Billion USD 10.08 billion

Annual growth rate 20 to 30 % 29.4% on average

Ranking 8 th 2 nd

Operating Cost Structure

Different Steps:

1. Low wages for high quality work

2. Piracy & counterfeiting

3. Minimal worker health and safety regulations

4. Lax environmental regulations and enforcement

5. Export subsidies

6. Industrial network clustering

7. The catalytic role of FDI

8. A chronically undervalued currency

Availability of Infrastructure Facilities

Transportation is a major factor in China's national economy.

1.Rail roads:

By 1984 China had 52,000 kilometers of operating track, 4,000 kilometers of

which had been electrified. All provinces, autonomous regions, and special

municipalities, with the exception of Izanagi Autonomous Region, were linked by

rail. Many double-track lines, electric lines, special lines, and railroad bridges

were added to the system. Railroad technology also was upgraded to improve

the performance of the existing rail network.

China's railroads are heavily used. In 1986, the latest year for which statistics

were available, railroads carried 1 billion passengers and 1.3 billion tons of cargo.

The average freight traffic density was 15 million tons per route-kilometer, double

that of the United States and three times that of India. Turnaround time between

freight car loadings averaged less than four days.

2.Highways and Roads:

Almost 800 national highways were used for transporting cargo. Joint provincial-

level transportation centers were designated to take care of cross country cargo

transportation between provinces, autonomous regions, and special

municipalities. The number of trucks and buses operated by individuals,

collectives, and families reached 130,000 in 1984, about half the number of state-

owned vehicles. In 1986 there were 290,000 private motor vehicles in China, 95

percent of which were trucks. Most trucks had a four- to five-ton capacity.

3.Inland Waterways:

Inland navigation is China's oldest form of transportation. By 1984 China's

longest river, the Chang Jillian, with a total of 70,000 kilometers of waterways

open to shipping on its main stream and 3,600 kilometers on its tributaries,

became the nation's busiest shipping lane, carrying 72 percent of China's total

waterborne traffic. The Chihuahua Canal in northern Anouilh Province opened to

navigation in 1984.

4.Civil Aviation:

In 1987 China's civil aviation system was operated by the General Administration

of Civil Aviation of China (CAAC). By 1987 China had more than 229,000

kilometers of domestic air routes and more than 94,000 kilometers of

international air routes. CAAC had 274 air routes, including 33 international flights

to 28 cities in 23 countries, such as Tokyo, Osaka, Nagasaki, New York, San

Francisco, Leos Angles, London, Paris, Frankfurt, East Berlin, Zurich, Moscow,

Istanbul, Manila, Bangkok, Singapore, Sydney, and Hon Kong. Almost 200

domestic air routes connected such major cities as Beijing, Shanghai, Tianjin,

Guangzhou, Hangzhou, Kunming, Chengdu, and Xi'an, as well as a number of

smaller cities.

Barriers to Entry

Under the new standard, the lead limit in paint and other surface coating

materials was reduced to 0.009 percent of the total weight of a product, from the

previous 0.06 percent. The total amount of lead allowed in a toy was lowered to 0.06

percent of the product weight, and will be decreased to 0.01 percent three years

after the implementation of the act.

A study commissioned by the International Council of Toy Industries (ICTI)

has shown that the world toy market is constantly growing. By 2010 the

worldwide toy sales are expected to grow to ($86.4bn), an increase of 14%

since 2008.

In 2007, 60 percent of the inspected toys that came from China had to be

recalled due to quality problems.

Chinese toy industry has been hurt badly since last August when U.S.

toymaker Mattel Inc. recalled more than 18 million toys made by its Chinese

suppliers. During the first seven months this year, China exported US$ 4.18

billion worth of toys, down 22.4 percent year on year. In Guangzhou, the

effectual center of the country’s toy industry, 3,600 small and medium sized

toy companies have withdrawn from export market. That amounts to 78

percent of the total number of toy companies in the region.

Technology & Systems and Domestic & International markets:

The world's leading toy manufacturers in the development of the contrary, they

generally do not build their own toy factory, and in research and development,

technology , sales channels and brand promotion on a large investment, has

introduced high technology, innovative product, and then output through technical

and brands, global market expansion.

The Technology and Systems section acknowledges the latest technology

and/or systems available to this industry within the country. Technology refers to

machinery and equipment and systems refers to methods of production that enable

better and more efficient production.

How to create a well-known brand of the toy industry, now has attracted the

attention of many people of insight. Following the relevant annual Toy Fair held in

Shanghai in China, the toy industry has been concerned about the development of

Beijing Technology Development Co., Ltd. Weber giant with Chinese technology Art

Institute of Professional Committee of toys and other units, will be June 18 this year,

-6 21, held in Beijing Exhibition Center "2003 National toys, stationery and gifts New

Product Exposition", is a national toy manufacturers display their image,brand

promotion of technical exchange and the stage, and as soon as possible so as to

promote China's toy industry out of a lack of technology and brand development

"bottleneck."

In this case, China's toy makers, if not innovative, core technology, corporate

image and brand development and promotion of the upper and lower King F, will be

difficult to win a bigger market and profit margins.

Domestic Market

China’s plush toys enjoy relatively large shares in European & American

market, but the low-price edge and processing trade only brings along meager profits

and more than 90% are OEM products. With the appreciation of RMB as well as the

rise of labor cost, the manufacturing cost of plush toys goes up and the market share

decreases gradually; wooden toys approximately occupy 10% of the market share,

with the focus shifting from traditional wooden toys to intellectual wooden toys, pet

wooden toys, etc. China’s plastic toys are facing various risks because of the

continuously rising price of raw materials, quality and safety issues, etc. And China’s

intellectual toys have a broad prospect, but relevant standards need to be released

so as to guarantee the healthy development of the market.

From the perspective of annual average consumption of toys by children

worldwide, China sees only US$20, while Australia and the USA reach respective

US$401 and US$280. At present, the population of Chinese juvenile and children

has hit 300 million, so, there is huge potentiality of toy consumption in domestic

market. On the other hand, as we entering 2010, the Echo Boomers born in 1980s

will become the main force of toy consumption. It is predicted that the demand of

domestic toy industry will increase dramatically in the following several years.

International Market

The USA, Japan, and China rank the Top 3 of toy sales worldwide with the

respective sales of US$21.5 billion, US$5.8 billion, and US$4.9 billion, while Britain,

France, Germany, Brazil, India, Australia, and Canada take the 4th-10th position.

The Top 10 countries occupy 66% of the global total sales of toys.

In 2010, the global toy sales achieved USD83.3 billion, up 4.7% Yo Y, wherein,

the Asian toy market climbed to the world’s second largest toy market with the strong

growth of 9.2% on average.

While the export value of intellectual toys and toy sets amounted to US$520

million and US$500 million, respectively, up 6.6% and 1.5%. In pace with the

upgrading of technology, changes have been made to the toy export industry:

developed countries have diverted their demands of toys to top-grade types such as

adult toys, high-tech electric toys, intellectual & educational toys from traditional

medium and low-grade products like plastic toys and stuffed toys. Electric toys and

online toys produced with high & new tech become the new development orientation.

EXECUTIVE SUMMARY

1. Solid growth in toys and games market

China’s toys and games market experienced solid growth in 2010 due to the

combined effects of overseas and domestic demand. With the recovery of export

markets, China toys and games companies were in a stronger financial position and

were able to develop new products for the domestic market. Disposable incomes in

China have been growing faster than GDP growth, making toys more affordable for

parents and children.

2. Demographic changes impact market

China completed its sixth population census in 2010. The complete report has

not yet been published, but it has already been disclosed that the population of new-

born babies is increasing, while the school-age population is declining. Parents in

urban areas are facing not only economic pressure but also continuing policy

restrictions regarding the number of children permitted; however, parents appear to

be willing to spend more money on their only child. China’s “one child” policy will

continue to have a substantial impact on the future strategy and focus of China’s

toys and games manufacturers.

3. Competition increases

Despite the recovery of export markets, toy manufacturers are still suffering

from lower export demand than that seen before the global economic downturn.

Slower demand in foreign markets and continuing healthy economic growth in the

domestic market have motivated manufacturers to focus more on their domestic

market, which has fueled market competition. Locally manufactured toys tend to be

more price-flexible and this has stimulated a boom in toy discounter stores in China

in 2010. Pr-school toys account for a substantial proportion of toy sales, and have

become a significant battlefield for both multinational and domestic toy companies.

Pr-school toys with electronic features have proved popular because they allow for

more interaction and opportunities to educate. However, cultural differences remain

a major obstacle for global brands aiming to enter the Chinese market.

4. Distribution channels diversify further

The distribution channels for toys and games in China diversified further in

2010. Early education stores have established a presence in toys and games

retailing as they have started to sell toys as an alternative revenue stream, while on-

line retailing is taking market share from traditional distribution channels, like

department stores and traditional toys and games stores. However, established

channels, characterized by retailers such as Ba DA Xian, Toys “R” Us and Kid’s

Land, remain the most important channels, as parents and children can try out toys

in the store.

5. Healthy growth will continue

China’s economic fundamentals are predicted to remain solid, with increasing

disposable incomes and GDP growth, thus it is expected that China toys and games

market will maintain its momentum over the forecast period. One lesson that China’s

toy manufacturers have learned from the economic crisis is to reduce their

dependence on export market, thus there is likely to be something of a shift from a

focus on fulfilling export demand with low margin OEM manufacturing towards efforts

to stimulate domestic demand.

Conclusion

Marketing Strategies for Profitable Growth focuses on the keys to creating

and maintaining customer relationships in order to sustain profitable growth. You will

learn how to identify and segment customer groups, improve customer acquisition

and retention rates, manage product portfolios, build quality brands, enhance sales

and distribution efforts, and effectively expand into new markets.