Time is ripe to enter the toy manufacturing business but you must brave the challenge from China and innovate to score big in the market
Paresh Chawla has been in the business of toys for over a decade now. However, in the course of time, his role has changed from being a toy trader to that of a toy manufacturer.
This Director of Welby Impex used to source toys from local vendors for export until 2001, when all of a sudden some vendors decided to exit the business, leaving Chawla in a lurch. He had orders in hand from his customers overseas but no vendors to supply. “So I decided to buy the factories and start manufacturing myself,” he says. His business has since grown eight times in terms of turnover, and he has introduced a number of new products. Chawla is among the growing breed of toy entrepreneurs in India, who are all out to brave the threat of cheap imports from China.
The Indian market
The Rs 2,000-25,00 crore Indian toy industry has come a long way in the last ten years but is still far from beating China, which sold toys worth $7.1 billion between January and October last year in the international market. “Out of the about Rs 2,500 crore toy industry, around Rs 1,000 crore is in the organized sector and the remaining is in the unorganized sector,” says Vishnu Swarup Agarwal of Toy Association of India (TAI). The association represents 600 toy industry members, which includes dealers and manufacturers.
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The unorganized sector also comprises the companies that heavily import from China. There are around 300 toy manufacturing units in Delhi, and around 100 units in Mumbai. Several very small manufacturers dot Uttar Pradesh, Tamil Nadu and Punjab. This has made it extremely difficult to estimate the correct size of the industry. However, Mattel, Funskool and Hanung continue to lead the toy business.
After import restrictions were lifted in the late 1990s, Chinese toys flooded the Indian market in a big way. Between 1999 and 2003, India was importing around 1.2 million toys from China every week. The Indian toy industry lost almost 80% of its market to Chinese toys. It is believed that only 200 of the 700 companies survived the onslaught.
However, in the last five years, India’s toy industry is again on the upsurge. “The Indian domestic and export market is now growing. But we don’t want people who buy from China and sell here. The manufacturing opportunity is always open,” says Gulu Jhangiani, former president, All India Toy Manufacturers’ Association. Toy exports from India have almost doubled since 2003 from Rs 200 crore to Rs 400 crore. The industry is growing at around 20% annually. The growing market has led to many closed businesses reopening shutters. The domestic market is also seeing robust growth, driven primarily by rising disposable incomes, increase in demand for quality toys and mushrooming shopping malls. Earlier toy sales used to happen mostly during Christmas. But that has changed now, with most companies clocking sales all round the year.
But there are some dampeners too in the form of expensive raw material, stringent labour laws and high taxes.
There are various segments in the toy market. Plastic toys rule the roost followed by soft toys, fabric toys, wooden toys and metal toys. Board games and educational toys are also gaining popularity. Metal toys are considered dangerous for children and over the years have lost popularity.
The China factor
The US presidential candidate Barack Obama was in December quoted as saying that, if elected, he would “stop the import of all toys from China,” citing concerns about lead content. The statement created a furor in Beijing even as China’s foreign ministry issued a statement calling Obama’s expressions “irrational and unobjective.” The reaction was understandable in the light of the fact that more than 80% of the toys sold in the US carry the ‘Made in China’ tag. Obama, however, later clarified that he was only referring to “harmful toys.”
This incident came in the backdrop of Mattel, the world’s largest toy maker, having recalled more than 18 million China-made toys from the market last year, denting the dragon country’s image of being the world’s ‘toy factory’. The recalls were based on concerns about toxic lead paint and magnets considered harmful for kids. According to estimates, China exported over 22 billion toys in the international market in 2006, while till October last year, the Asian giant had sold toys worth $7.1 billion mostly in the US and Europe market.
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