For years, China's thousands of toy factories and busy workers have dominated much of the global toy industry but now rising costs and faltering sales have left managers crying over miserly profits.
With four out of every five toys going to the EU last year made in China, business should be booming in the toy capital of the world -- China's Guangdong Province -- but that has not been the case.
The problems began in 2003 with the outbreak of Severe Acute Respiratory Syndrome (SARS), when industry buyers canceled trips to the mainland, leaving sales in tatters and leading to a spate of bankruptcies.
Companies in the south of Guangdong, where more than half of China's toy exporters are based, have since been tested by rising raw material costs, mainly in plastics, as a result of soaring oil prices and a series of product problems which have undercut customer confidence.
Combined, it means that for many of China's 8,000 toy makers and exporters, now 2,000 less than in 2002, the Grinch has already stolen Christmas.
While sales were largely steady in the first eleven months, compared with a drop of nearly 25 percent last year, rising production costs have wiped out their profits, manufacturers say.
"We are no exception," Qiu Suijian, sales manager of Smart Toys based in Dongguan city in Guangdong, said.
Qiu said that to combat falling margins, Smart Toys had tried raising prices by at least 10 percent this year but that did not work either.
"We have changed to make something cheaper. We can't survive making such expensive toys. We just can't sell them," said Qiu, adding that the company was overhauling its export strategy and may instead sell more in the China market.
Tony Ying, president of Yings' Products, used to make wooden and plastic toys but pulled out of the business at the beginning of this year.
"We don't make toys any more," said Ying. "Business has been too tough."
C.K. Yeung, president of Blue Box Toys and vice chairman of the Hong Kong Toys Council, said manufacturers had managed to push sales ahead but this did not translate into greater profits.
"It is an open secret that the industry's profit margin is only razor thin and our business environment continues to get tougher," Yeung said.
"Our wage [costs] alone went up around 20 percent in two years," he said, adding that material costs at the same time rose by about 20 to 30 percent.
China Council for the Promotion of International Trade noted that Guangdong's toy exports for the 11 months to November totalled US$4.25 billion for a gain of only 2.5 percent from a year earlier, continuing to slow from the industry's heyday.
For some, the only way out is to move up the value added chain, producing better and more sophisticated toys.
"Making toys is a business that is easy to come into but hard to stay [in]," said Yeung of Blue Box Toys.
"In order to stay in, companies will have to reposition themselves by aiming at the high-end of the market," he said.
RSS