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While rising inflation and tightening of liquidity provision by the country’s central bank remain constraints on production, China still offers the most cost-effective manufacturing solutions for toys. Click to tweet! However, there are now more concerns and more questions are asked about the possible scenarios as well as their prospective impacts on the overall industry.
In the third and last article of the global toys manufacturing series, Euromonitor International analyses the global toys and games production for coming years and the likely scenarios for China.
China will still be world’s number one toys manufacturing hub and also expected to record one of the fastest growth rates in toys and games production (turnover) alongside India over 2011-2016. Click to tweet! Other key destinations for toys production such as USA, Germany and Japan will see their global presence eroded as emerging economies including Brazil, Indonesia, Turkey and Russia begin to take their place.
Source: Euromonitor International, Industrial
Also includes tricycles, manufacture of articles for funfair, table or parlour games, pin-tables, coin-operated games, billiards, special tables for casino games, automatic bowling alley equipment and video games hardware.
With the USA experiencing difficult economic conditions and stagnating manufacturing levels throughout 2011, the production capacity gap between China and its closest competitors will likely increase further in 2012 and beyond. However, Chinese manufacturers may be affected by falling demand as a result of the eurozone sovereign debt crisis. China is expected to see annual real GDP growth of 9.2% in 2011 slowing to an estimated 8.3% in 2012.
Rising living standards, greater demand for urban office jobs and increasing wages are all factors that may stunt manufacturing expansion in China. According to sources in EU Chamber of Commerce, the cost to manufacture in the country could soar twofold or even threefold by 2020. Continued increases in the old-age dependency ratio (the percentage of persons older than 65 per persons aged 15-64), which is expected to rise from 13.0% in 2010 to 18.2% by 2020, will also restrict the labour pool for manufacturing sector employers.
Another issue is that Chinese factories are mainly powered by coal and the cost has gone up. In a typical free market economy, the cost of electricity would also go up in line with the cost of coal, but, not in China. The reason is that the government is not allowing electric power companies to put up their prices. Concerned that they will go bankrupt many of them are cutting back on production, closing for maintenance during the summer. Air-conditioning is being the main problem; this is certainly the worst time for the factories to close. This is raising serious concerns over production since, as a seasonal industry, the majority of toy manufacturing occurs during the hot summer months.
To remain competitive, some of Chinese manufacturing has migrated westwards to cheaper Chinese provinces. Additionally, Chinese workers have become increasingly reluctant to leave their home towns for work on the coast where most of the country’s toys manufacturing has historically taken place. The country’s 12th Five-Year Plan (2011-2015) also looks to move China away from being a cheap goods producer and into a more design-based global role. As part of this, the Chinese government has been rather supportive of plans moving toy manufacturers from the coast so that higher value goods such as automotive and high-tech electronics can take their place. Therefore, it is fashionable to think that China’s inland factories could eventually surpass its coastal ones.
The cost of manufacturing goods in China will undoubtedly increase as the plants move further away from the coast. Some of the cost-related challenges could be rather unexpected. For example, relatively new labour laws in wealthy regions such as Shenzhen make it more expensive to close down factories there. Managers and high-skilled staff often demand high remuneration to leave sophisticated coastal cities for inland. Above all, most importantly, toy manufacturers will have to truck goods over long distances. As the country’s shabby trucking system will make moving freight within China more difficult, businesses may have to rethink their strategy over the longer term as disruptions and higher prices could be expected.