Thanks to India’s neo buoyant middle class and a fast growing population of children, the demand for toys is on an upswing, and like never before! In fact, India’s toys import is galloping ahead at double-digits with China accounting for about 97% of the total foreign supply. Add high profit margins to demand and you have two big reasons to believe that toy imports is an idea worth toying with!
TDB intelligence unit | January 2017 Issue | The Dollar Business
A toy isn’t just a toy. It’s big business too! Well, that’s what numbers prove. According to StrategyR, a San Jose (California, USA) based market research firm, “The global toys and games market is projected to exceed $135 billion in value by CY2020, driven by innovation, technology development and launch of smart toys and innovative games.” And if you thought India’s market wasn’t part of this growth story, you are wrong. In fact, riding on the back of a neo buoyant middle class and a fast growing population of children, India’s toy industry is expected to grow at a CAGR of 20% by 2020.
However, unlike the global scenario where international brands take the lead, Indian market is dominated by unorganised players that account for about 90% of the total domestic production. If industry experts are to be believed, imports constitute over 50% of the Indian toys market. Are importers listening?!
The Firt Toy
Interesting, but the history of toys dates back to days much before the Mickey Mouses, yo-yos, Legos and Donald Ducks of the world. As per archaeological evidence, Egyptians and Romans used toys that were made of clay, wood, stone, bone, ivory, leather and wax – some of them can be dated back to 100 AD. However, it was only in the 15th Century when modern day doll manufacturing started in Germany.
Today, there are a variety of toys in the market, made from various materials. But, there are some toys that have been enjoying high popularity across the globe for quite some time now. And no matter what toy is being introduced, toys such as Barbie, G.I. Joe, Rubik’s Cube, glow stick, etc., are very likely to remain unbeatable – at least in the near future.
The Chinese Cloak
Like several other sectors, India’s toy industry is facing tough times due to the influx of Chinese products helped by low labour costs and modern technology in China. According to a recent Assocham report, the penetration of Chinese toy products in the Indian market has forced nearly 40% of Indian toy companies to shutdown in the last five years, and about 20% of toy manufacturers are on the brink of collapse.
It might be a very sad story for the domestic manufacturers of toys, but then, at the same time, it’s definitely a great one for its importers. In fact, India imported plastic toys worth $118.60 million from China in FY2016 – this was a 15.24% y-o-y jump from FY2015. What’s more? Imports from China constituted about 97% of the total imports of plastic toys by India in FY2016. Importers attribute this rise to the consistent innovation that China brings to the table compared to the offerings from other countries.
Apart from price, the toy industry in India lags behind China in the manufacturing of electronic toys which now account for around 50% of the total toy market in India. Experts say lack of research and development has given Chinese toys an edge in the Indian market. A lot of Indian manufacturers continue making traditional toys while the market has moved ahead. Electronic and battery operated toys and games are still not manufactured in India at a large scale and hence are being imported from China. Talking to The Dollar Business, Jasdeep Singh Sethi, Owner of Milestone Impex, an importer of toys from China. explains, “China is one nation that believes in quality and quantity at the same time. It is a myth that Chinese products are cheap and low quality. It is their consistent innovation in the kind of products they manufacture, which has made them a global exporter.”
Industry experts attribute this trend to the lack of easy availability of credit, upgraded technology and raw materials, and of course the small scale of domestic production. “Chinese manufacturers offer good quality products at a price that we cannot match. We can offer the same quality, but then the price remains an issue,” says Kartik Jain, Managing Director of Masoom Playmates Pvt. Ltd., a domestic manufacture of toys.
He feels that India is far from becoming a manufacturing hub even after equipping itself with the right mechanism. Jain continues, “The ‘Make in India’ initiative is in full swing, but it hasn’t benefitted the MSME sector. The move is directed towards large companies that are willing to set up their plants in the country. The initiative clearly hasn’t filtered down to the MSME domain.”
Will boycotting help Indian manufacturers? “It must be remembered that the Indian toys market cannot survive without imports from China. Any move to ban the same will only harm us as an industry,” shares Sethi. He also believes that India still hasn’t reached that level to compete with China as far as manufacturing innovative products in a faster turnaround time is concerned.
So far, so good. But, as demonetisation has spared none, its effects are also clearly visible in the sales of toys across the country as they aren’t on the to-buy priority list of consumers. As per toy importers, usually October to December, the festive season, is considered as the peak sales period that significantly contributes to their annual topline. However, the story is different this time. “Demonetisation has hit our business hard. We have excess stock and the new shipments are lying at Chinese ports as we don’t have money to pay the suppliers as sales realisation has been really low this season,” rues Sethi.
Further, depreciating rupee has also been hard on importers and has forced them to cut on down their profit margins. However, the industry is resilient and may surprise the sceptics. Industry players, particularly manufacturers, say a transition is on and the times are changing for the Indian toy industry. Also, they believe, changes in China are also likely to tilt the balance in India’s favour not just within the country but also in the global market. Rising labour costs in China are attracting many western toy companies to look at Indian manufacturers for producing toys. Having said that, an ideal scenario for Indian toy manufacturers is still a distant dream. And until then, it’s the importers that will continue laughing their way to the bank and back.
Apple Of Their Eyes
Toy business, as per importers, is a hassle-free profession, except for the recent developments such as demonetisation. India’s poor position to compete with Chinese products too has stamped a permanent smile on importers’ faces. Plus, the margin is worth the hassle, if any arises. As per toy importers, one can usually expect margins in the range of 10-20% in this business. And if a product is really distinct and innovative, margins can actually be even higher.
Further, importers feel that sourcing from China is most profitable. And when it comes to delivering the goods on time, none but the Chinese can execute it in the smoothest way possible. Though India also imports toys from Italy, Malaysia, US and Thailand, the numbers are too small (totalling only $2.89 million in FY2016). However, according to traders, toys from such countries can also high margins.
Currently, the Indian toy industry is pegged at about Rs.8,000 crore and is growing at 20% CAGR per year.
Not only are the products better in quality, but are also safer, reliable and more kid-friendly. No doubt, prices of products sourced from these countries are much higher than the Chinese products, but then high-end customers do not mind spending money on such niche products.
So, what product categories fetch more money – toys for girls or boys? Well, the opinion varies. Vipul Gupta, owner of Bharat Sales Corporation, believes that the sale of toys for girls has taken a back seat. “There was a time when we used to manufacture toys for girls because of its huge demand in the country. But these days, there are too many toy varieties in the market that toys for girls have ceased to be a significant part of our overall portfolio,” says Gupta. However, importers like Sethi disagree. “We have been witnessing an increase in demand for girl-oriented toys by 20% y-o-y for the last three years. A few years ago, the ratio of toys sold for boys and girls was 70:30 because people primarily bought toys for boys. But, today, the ratio has narrowed down to 50:50,” he says.
A Win-Win Situation?
While manufacturing in India could be an option, importing plastic toys from China makes more sense, as of now. In fact, an importer can expect margins as high as 30-50% (on some high-end toys) if he is willing to take the pain of retailing the product. And with demand for toys expected to move only northwards, margins are bound to expand. Sounds lucrative, doesn’t it?
Jasdeep Singh Sethi Owner, Milestone Impex
TDB: What type of toys do you import? Has there been any change in the import pattern?
Jasdeep Singh Sethi (JSS): We primarily import from China and about 60% of our imports are toys for girls. Barbie and Frozen dolls account for about 80% of our imports because of their high popularity and demand. As for the shift in the import pattern, we have been witnessing an increase in demand for girl-oriented toys by 20% y-o-y for the last three years. Back then, the ratio of toys sold for boys and girls was 70:30 because people primarily bought toys for boys. But, today, the ratio has narrowed down to 50:50.
TDB: Have you ever considered sourcing toys from any country other than China?
JSS: Thailand exports toys, but it imports from China and distributes globally. This is called ‘trading of products’, where one country buys and sells it to another country. For that record, other exporting countries such as US, Vietnam and Germany also import raw materials from China. China houses one of the largest toy manufacturing factories in the world, which is why their prices are very competitive. So, we haven’t really thought about importing from other countries.
TDB: As an importer from China, what is your take on India’s recent attempt to boycott Chinese products?
JSS: It is just not possible to ban imports from China. It would only hurt our economy. When the government decided to ban Chinese firecrackers during Diwali, it did not affect Chinese manufacturers but impacted the business of people operating in India. It specifically affected the traders in tier 2 and tier 3 cities.
TDB: Do you see our manufacturers competing with China any time soon?
JSS: It is not an easy task to make toys, considering the production elements. For example, it costs about Rs.7-10 lakh for a type of dye used in the production. While Indians take around three months to make that one dye, Chinese can produce several innovative products within the same time-frame.
Also, ‘Make in India’ initiative is not a feasible concept. We have a lot of labour, electricity and other problems in the country, which also need to be corrected first. So, as far as innovation is concerned, India still has a long way to go before it can compete with China.
“Indian Toy Industry lacks innovation & Commitment”
Kartik Jain Masoom Playmates Pvt. Ltd.
TDB: As a manufacturer of toys, what kind of challenges do you face?
Kartik Jain (KJ): The biggest challenge is finding and training the labour. Labourers in India often migrate from one industry to the other, which affects the stability of operations. Also, considering that this isn’t a mature industry in India, getting a good designer at a reasonable cost is an issue. We have also not been able expand our global footprints as markets overseas remain dominated by cheaper Chinese products.
TDB: Has the government been of help to the sector? How have you leveraged the ‘Make in India’ initiative?
KJ: The government has no role to play as far as toy market is concerned. Having said that, the government does provide financial aid to MSMEs to boost exports form the country, which is definitely the need of the hour. The government also provides incentives for upgrading technology in manufacturing, but that has no relevance to our industry as it’s a labour-intensive industry.
As for ‘Make in India’, I don’t think it has really benefited MSMEs, especially in our sector. It is for companies that have huge budgets and want to set up manufacturing plants in India.
TDB: So, you’re of the opinion that India is not ready to compete with other manufacturing hubs?
KJ: Well, not at the moment! In terms of manufacturing, India is way behind China, or to say any other country. This is something you will realise when you visit a factory in China. While India takes 30 days to manufacture a product, China takes only 10 days. Also, Chinese are more committed to work, something that we Indians lack. The backbone of manufacturing is the development of new products, an area that India clearly needs to wake up to. For example, if India has the capacity to come up with 10 new products in a year, China has the potential to churn out 50 such innovations annually. We need to walk miles before we come neck and neck with China.
TDB: How do you see the Indian toy market evolving in the near future?
KJ: I don’t know if the market will decline, but I don’t see it growing either. Indian values are changing, replacing toys with smartphones and other gadgets. So, with the change in trend, the market has now become unpredictable.
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