Shifting Toy Manufacturing: The Complex Transition from China

Toy manufacturers are facing challenges as they attempt to relocate production from China to more cost-effective regions. Six years ago, Hasbro, the maker of Monopoly, approached Indian aerospace supplier Aequs for a potential shift in manufacturing. Aequs agreed, setting a goal of securing $100 million in business over the following years.

Today, Aequs operates two large facilities in Belgaum, India, producing various toys for Hasbro and others, including Spin Master. However, manufacturers like Aequs acknowledge that India and other countries cannot match China’s efficiency levels. India, in particular, lags behind in infrastructure, such as port and road facilities, which China has refined over the last three decades.

The COVID-19 pandemic exposed the risks of relying heavily on China for toy production, as Chinese ports faced difficulties in exporting goods. This situation, coupled with rising labor costs in China, prompted manufacturers across various industries to diversify their production geographically.

Investment trends reflect this shift. U.S. and European greenfield investment into India increased by $65 billion (400 percent) between 2021 and 2022, while investment in China decreased. Mexico, Vietnam, and Malaysia also attracted some of this redirected capital.

Still, the toy industry struggles with the transition, as China made 79 percent of toys sold in the U.S. and Europe as of the first seven months of last year. This is down from 82 percent in 2019, but still significantly high. The apparel industry, by comparison, saw a more substantial reduction in its reliance on China.

The process of moving production from China is complex and time-consuming, particularly for toys. Their seasonal nature and strict safety standards complicate the transition. Labor costs in China are higher than in India, but setting up new manufacturing facilities or sourcing from other countries can take up to three years.

Toy prices have been rising, partly due to increased wages in China. In the UK, for instance, toy prices went up by about 8 percent in the first half of 2022. The potential revocation of China’s “permanent normal trade relations” status in the U.S. could further impact prices.

Manufacturers like Bandai UK and MGA Entertainment are exploring alternatives like India, Vietnam, and Thailand. However, infrastructure challenges and regulatory complexities in these countries hinder the diversification process.