China's Toys Industries Outgrown Themselves

This issue will inevitably happen and just as I predicted a few years ago, China will slowly become like Japan. Japan started as one of the manufacturer for cheap products and slowly transformed their way into one of the most expensive nation by today's standard so is China.

Standard of living is rapidly increasing on China and at an alarming rate, employer have no choice but to include the additional overhead into the price of the products itself thus creating more expensive products in the near future, this is further worsen by the evaluation of the Yuan against US dollar. Pretty soon China will not be able to produce cheap toys anymore.

Those whole process is actually a cycle, when the boss is making mpre then the employees will want more too, employees will keep demanding and because China is such a labour intensive country employers have no choice but to give in to the employee's requests and the additional cost is then transfered to the price of the products.

China's toy industry feels growing pains

DONGGUAN, China — At the North Pole, the elves are bustling to fill Santa's sack with toys for the world's children.

In the real world, Christmas looks like Dongguan: a grey, industrial city in South China, where mile upon mile of factories house mile upon mile of uniformed young women toiling on production lines. Within a single generation, they have swept up the global toy business.

But are they bustling hard enough? Reports suggest that America's hottest Christmas toys, such as Mattel's T.M.X. Elmo, are running short this year. And some place the blame on China, where rising labor costs and electricity blackouts have disrupted production. Labor shortages, too, though hard to imagine in the world's most populous country, now affect U.S. firms sourcing from China.

"Wages have gone up, the availability of labor is not as plentiful as before, and power shortages continue to happen," says Tom Debrowski, Mattel's executive vice president of global operations.

Now, those companies face a raft of new challenges as minimum wage laws raise production costs, raw material prices rise and ethical trading concerns force their Chinese partners, already operating on wafer-thin profit margins, to treat the workforce more fairly.

You hardly need look for that "Made in China" stamp. "Consumers are shocked that something is made (in the USA)," says Araten, who still makes the bulk of his toys' rods and connectors in the USA, but assembles 90% of the final product in China.

South China toy center

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. And the bulk comes from Guangdong province, home to more than 5,000 of China's 8,000 toy factories.

At peak times, some 1.5 million workers are making toys in Guangdong, which borders Hong Kong.

Last year, the province accounted for 78% of China's $15.2 billion of toy exports, a 10% jump from 2004, according to customs figures.

The toy migration to mainland China from Taiwan and Hong Kong in the 1960s, sometimes via Japan in the 1970s, is epitomized by Chinese firms such as Lung Cheong.

The 40-year-old firm now employs 5,000 workers, 70% of them women, at its Dongguan plants, which boast their own generators to deal with occasional power shortages. Lung Cheong ranks among the most successful toy companies in Guangdong, exporting $50 million worth of toys to the USA every year, for clients including Mattel (such as the flying Superman toy), MGA and Hobbico.

But the realities of a highly competitive marketplace are forcing change.

"It has become harder and harder to hire people in recent years," says Leung. "Other places in China have developed, and workers want to stay close to home."

To slow turnover and cut operation costs, the company will unify its production next year in a single factory with improved facilities for workers, including basketball courts and karaoke halls.

Those workers include Zhang Hairong, 28, who packages toys on a production line for $88 a month, the local minimum wage (raised 20% this September), for an eight-hour daily shift, 21 days per month.

But business is tough for many Chinese toy companies, says Chen Huangman, secretary general of the Guangdong toy association. "There is so much pressure on prices from foreign companies."

U.S. buyers demand prices that are not reasonable, considering the growing labor costs, says colleague Li Zhuoming. "Wal-Mart in particular puts a lot of pressure on prices, and as they order so much from China, it has a large influence," says Li.

Toys R Us recently opened its first mainland China store to capitalize on growing incomes within China.

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