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A GLOBAL COUNTRY STUDY PROJECT REPORT ON

China's Toys Industries


Submitted to C K SHAH VIJAPURWALA INSTITUTE OF MANAGEMENT IN PARTIAL FULFILLMENT OF THE REQUIREMENT OF THE AWARD FOR THE DEGREE OF MASTER OF BUSINESS ADMINISTRATION Under Gujarat Technological University UNDER THE GUIDANCE OF Faculty Guide Kunjal Sinha (Asst. Professor) Submitted by M.B.A. SEMESTER III 1.) BUDDHADEV CHINTAN 2.) PATEL GAURAV 3.) PATEL VIPUL 4.) PATEL RAKESH 5.) PANDYA DHAVAL 6.) PADHIAR MINAL 107050592031 107050592032 107050592033 107050592034 107050592035 107050592036

C K Shah Vijapurwala institute of Management M.B.A PROGRAMME Affiliated to Gujarat Technological University Ahmadabad July 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 Peoples 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 Chinas 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 Exports Imports Total Wages Growth 19,932.1 Million USD 10,391.0 Million USD 140.2 Million USD 2510.9 9.20%

Geographic Regional data:


Total Area Population Age Structure: 0-14 years 15-64 years 65 years and over 9,596,961 sq km 1,336,718,015 (July 2011 est.) 17.60% 73.60% 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 worlds 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. Monday-Friday Saturday Sunday Regular 8 hours 6 hours holiday Overtime Premium 150% of wage 150% of wage 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 nations manufacturing hub, according to toymaker attending the fair.

Sources of Chinas 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 1960s and 1970s, Chinas 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. Chinas 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 Chinas 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 Chinas 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 Chinas 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 Chinas proconsumption 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 worlds most populous market. Such investments provide China with access to modern technologies and management systems a catalyst to economic development. Chinas 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%. Shanghais 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 Plans new focus on innovation-based strategic emerging industries energy conservation, newgeneration 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 Factories Turnover Annual growth rate Ranking 1500 USD 1.4 Billion 20 to 30 % 8 th

CHINA 9000 USD 10.08 billion 29.4% on average 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 provinciallevel 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 stateowned 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 countrys 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
Chinas 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. Chinas plastic toys are facing various risks because of the continuously rising price of raw materials, quality and safety issues, etc. And Chinas 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 worlds 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 Chinas 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 newborn 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. Chinas one child policy will continue to have a substantial impact on the future strategy and focus of Chinas 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 online 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 Kids Land, remain the most important channels, as parents and children can try out toys in the store. 5. Healthy growth will continue Chinas 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 Chinas 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.

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