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Hong Kong struggles to retain crown as world’s king of toys

Nearly 70 years after he produced Hong Kong’s first plastic duck, toy industry veteran LT Lam’s factories in China now churn out everything from Transformers to Play-Doh.

But with costs rising in China and the industry fragmenting because of technological advances and changing consumer tastes, the 93-year-old worries that Hong Kong could lose its decades-long role at the heart of the global toy industry.

“We started with nothing but our 10 fingers and our fighting spirit,” he says. “I think we still have some good opportunities for the next five to 10 years, but the contract manufacturing business is declining.”

Generations of children grew up in the 1970s and 1980s with “made in Hong Kong” toys, from Star Wars and GI Joe action figures to Rubiks Cubes and water pistols.

The manufacturing shifted to neighbouring Guangdong province in mainland China, where wages were substantially lower, from the early 1980s onwards.

Francis Choi of Early Light, which manufactures toys for market leaders such as Hasbro and Mattel © gcmt – Imaginechina

But Hong Kongers such as Mr Lam and Francis Choi, known as the “king of toys”, still control the Chinese factories that produce much of the output for global industry leaders such as Hasbro and Mattel.

Dominic Tam, president of the Toy Manufacturers Association of Hong Kong, estimates that about two-thirds of the world’s toys are made by Hong Kong companies operating in mainland China and employing hundreds of thousands of people.

The global toy industry is worth roughly $90bn, with sales in the biggest market, the US, of $20bn last year, according to NPD, a data analysis company.

Although sales have been growing at a rate of about 3 per cent a year since 2011, traditional Hong Kong toymakers such as Mr Lam’s Forward Winsome and Mr Choi’s Early Light Industrial remain under constant pressure.

Play-Doh, manufactured by LT Lam’s Forward Winsome © AFP

While low-cost Chinese rivals are snapping at their heels, their customers are squeezing profit margins and demanding more stringent safety and labour standards after a series of product recalls and worker maltreatment scandals in the past decade.

“Hong Kong companies have a reputation for strong business ethics and our international partners trust us to respect their intellectual property rights,” says John Tong, a factory owner and chairman of the Hong Kong Toys Council, another industry lobby group. “But there’s tremendous price pressure and the Chinese will catch up eventually.”

Hong Kong toymakers are also suffering because of the increasingly short life cycle of products, mirroring the rise of the fast fashion sold by Zara and H&M. About a third of US toys are licensed products linked to hit Hollywood films, television shows or computer games.

Makers of traditional toys have been hit by the short shelf-life of toys such as Angry Birds © London Media

But while older brands such as Star Wars and Transformers have maintained their buzz for decades, newer ones such as Frozen, Angry Birds and Finding Dory have a much shorter shelf life.

“The popular licences rarely last longer than a few years because there’s too much choice,” says Mr Tong. “Frozen had a good two-year run but Pokémon only lived for three to six months and didn’t drive that many product sales.”

A case in point is Playmates, a Hong Kong-listed company that makes the Teenage Mutant Ninja Turtles action figures. It sales have soared and plummeted over recent years, depending on the movie release schedule.

The increasing use of smartphones and tablets represents another big challenge to the industry, especially for companies targeting those over six years of age, who are spending more time with electronic products.

Some Hong Kong companies such as VTech are responding by producing smart toys, for example simple laptops and smartwatches designed to promote early learning.

More traditional manufacturers such as Mr Lam, who still carries the mould of his first plastic duck with him, are sticking to what they know.

“There are several hundred million children in China and they can’t all play computer games,” says Mr Lam, who is launching a new version of his yellow plastic duck aimed at the Chinese market.

But Mr Tong says the only sustainable future for Hong Kong toymakers is for them to move into branding and marketing rather than just contract manufacturing, following in the footsteps of the Japanese companies that dominated global toy exports before the 1970s.

“These Japanese companies now have great influence on culture worldwide,” he says. “In future, we can’t just produce for Lego, Mattel and Hasbro, we have to evolve.”

Via FT