China’s incredible economic development
This economic growth has largely been caused by China’s huge movements in terms of the evolution and advancement of the economy in a country which until the mid-1970s was a poor and internationally isolated agrarian economy. Since Deng Xiaoping began the process of opening up China’s economy to the world in the late 1970’s China’s economic miracle has been astounding, and in just a few decades China (arguably) has the world’s biggest economy today, with a surge in consumer spending driven by this economic uplift and an affinity for luxury and branded items.
The One-child policy in China has had a considerable impact on the country. For decades China’s citizens were (mostly) limited to having one child per couple to attempt to restrain population growth in such a populous nation. Since 2015 though, China returned to a Two-child policy. The implications of this relatively recent change for the toy business are clearly positive in theory because the more children people are able to have the more children there are who will receive toys throughout their childhood. Since the Two-child policy was readopted birth rates in China do not appear to have upsurged, but with around 15m babies being born each year in China it represents a very significant market opportunity for the toy business nevertheless compared with just under 4m births per year in the USA for example.
In summary, economic drivers and more spend per child seems to be driving up China’s toy consumption, not demographic trends.
Cultural and Language Differences
China obviously has a very unique and distinctive culture and language, with the Han culture dating back more than 4,000 years. For those of us in the toy business used to working with Hong Kong SAR, it is important to recognise that there can still be significant cultural differences between Hong Kong SAR and mainland China. For example, around half of Hong Kong’s citizens speak Mandarin (China’s primary language), around half speak English and the vast majority speak Cantonese. In our experience, it is going to be very difficult to make any progress with a toy business in mainland China without Chinese staff, agents or distributors, and we shouldn’t presume that staff from Hong Kong SAR will necessarily be able to work efficiently in terms of commercial roles in mainland China.
China as the world’s toy manufacturing hub
As China’s economy developed and the economic wealth of citizens grew in China, disposable income became available to spend on toys and other items for children. Due to China’s large-scale toy production, locally sourced toys dominated the market originally. In recent years though as the economy has continued to power up, Chinese consumers are increasingly looking for known brands with kudos. Aside from a knock off culture which has diminished somewhat (but is certainly not gone), this led to Chinese consumers wanting more than just generic toys made in the local factories.
Looking forward, due to China’s rising labour costs, alternative toy manufacturing hubs have arisen in places like Vietnam and China. So those toy factories which remain in China are moving towards automation on evergreen products or towards stepping up the value chain to become toy brands themselves, which in turn is likely to affect China’s domestic toy market.
Toy product culture in China
One of the reasons why action movies are routinely rolled out globally, including in China, is because action and movement is easier to understand across different countries versus deep dialogue and cultural nuance. As such, China is a major focus for Hollywood, and the success of many toyetic movies in China has seen China emerge as a significant market for movie driven toys.
The desire for aspirational international brands from consumers, and the need for a different brand building strategy on behalf of toy companies can be exemplified by Lego’s significant progress in China. Whereas Lego has become engrained in consumer play culture in the West over many decades, Lego didn’t have that luxury in China. Lego has deployed a major store opening program across China in order to build awareness of, and kudos for the brand and play pattern. According to media reports, The Lego Group run 220 stores in China by the end of 2020 and plans to open another 80 stores in China alone1, which shows the scale of the opportunity in this country.
China’s toy retail
Aside from Lego, China’s toy retail structure is a mix of general retail chains along with a significant specialist toy channel. There are numerous local chains, as well as a raft of international heavyweight retailers.
The major retail event in China is Singles Day, which is now the largest single retail event in the world, coming every year on November 11th. Singles Day drives $tens of billions in retail revenues.
Seizing the opportunity: Growth market China
In conclusion, China’s toy market has fast developed into the biggest growth market in the world for major toy companies and established international brands. Smaller companies and less well-established brands find it harder to enter the market successfully due primarily to local cultural differences and competition from locally manufactured generic toys, but they probably should not stop trying bearing in mind the size of the opportunity!