No child’s play: India’s potential to tap the global toy market
It has been a year since Prime Minister (PM) Narendra Modi Mann ki baat on toys awakened a fragmented industry whose survival depended heavily on China.
His call for âvoice for the localâ focused on toys for the domestic market, urging companies to take inspiration from India’s history in traditional toys. His subsequent address to the industry at the first Toycathon-2021 in June gave new impetus to the ‘toyconomy’, bringing export opportunities to India’s toy history.
Even though India’s shot at the global toy market predates the Prime Minister’s initiative, it has sparked a wave of expressions of intent and a series of actions from various sides. The current momentum has the potential to harvest a globally competitive industry, creating millions of job opportunities in this labor-intensive industry.
Still, a lot of potential remains unlocked, with no focused endgame strategy, with key fruits at hand that are not being reaped.
In the global toy market of around $ 100 billion, India is only $ 1.5 billion a year. About 80% of this amount is covered by imports, mainly from China. Of the $ 30-40 billion global supply value, Chinese contract manufacturers hold nearly 70 percent of the pie, with Vietnam accounting for the lion’s share of the rest. Mexico and India are the next challengers in this equation. Some brands have traditional manufacturing in Indonesia and Malaysia, and tactical sourcing in Turkey, Brazil and Eastern Europe.
It took more than three decades for China to reach this peak, as it built megaecosystems to meet the entire supply chain for making toys.
The toy and gift capital of China, Chenghai District in Shantou City, Guangdong Province, is one such ecosystem. Spread over 345 kmÂ², Chenghai is home to more than 5,000 units which represent 30% of toys in the world. Other major production centers in Guangdong Province include the cities of Shenzhen, Dongguan, Guangzhou, and Foshan.
December 18, 1978 marked an important transition in Chinese history and the start of the Boluan Fanzheng period during which it opened up its economy. He ushered in pro-industry policies to attract global supply chains and talent to China. The toy industry, which was then largely based in Hong Kong, moved en masse to China.
In a decade, Hong Kong has reinvented itself to become a center of design and development. Major American and European brands are setting up their sourcing offices in Hong Kong, which are to this day the all-powerful decision-makers in the fate of sourcing supply chains.
Hong Kong manufacturers and brands transferred manufacturing technology to Chinese factories that made toys at a fraction of the cost in the United States or Europe. It was a win-win game for all chain partners.
Besides building scale, Chinese manufacturers have moved up the value chain, adding technological capabilities and expertise to encapsulate the entire supply chain.
The potential in India
However, change is the essence of progress, and as China moves towards a developed nation, the cost advantage it has long enjoyed wanes. Vietnam surged due to its proximity to China and capital inflows.
However, with a limited labor pool and the simultaneous influx of many industries into Vietnam, the country’s long-term prospects in the toy industry remain limited. Chinese entrepreneurs are turning to the production of high-tech and high-value toys.
This is where India can step in.
India’s demographic advantage is its greatest asset, with labor rates being one-third that of China and half that of Vietnam. This needs to be reinforced by appropriate skills and labor development policies in line with growth mindsets as opposed to archaic socialist mindsets.
However, some critical parts of the supply chain continue to reside in China. The big brands, with their excessive outsourcing, have no manufacturing capacity to transfer. India needs to use its engineering and entrepreneurship skills to develop these supply chains.
Industry associations and governments need to link with global networks to influence decision making. This will need to be supported by flawless service delivery creating a positive flywheel.
The role of the state in nurturing this is paramount in creating a level playing field globally through fair incentives and targeted force multipliers such as exports.
Despite the progress, the speed of administrative decision-making and the quality of basic physical infrastructure remain major concerns for India. In addition, entrepreneurship in India, traditionally oriented towards the software industry, small and medium-sized manufacturing and commerce, needs to shift towards mass manufacturing.
Toy making isn’t child’s play: focus on the ladder
Compared to the more than 5,000 units in China’s Chenghai District alone, India has roughly 4,000 units, mostly in the unorganized sector. This fragmented nature of the Indian toy industry works against it.
That making toys is just a small-scale craft activity is a myth. Economy of scale plays an important role not only in attracting Original Equipment Manufacturers (OEMs) and global brands, but also in creating sustainable sourcing in the domestic market.
Plus, toy making is not child’s play. It is a confluence of art and science, requiring low-cost high and nuanced precision engineering, and technical skill, as well as experienced aesthetic sensitivities.
While barriers to entry may seem low, the confluence of low cost engineering with the supply chain, continuous technology upgrades, product development capabilities, design and manufacturing capabilities ‘tools, skilled manpower and state guidance, must come together for industry to pull on a global scale.
The Chinese ecosystem is a networked environment, where expertise and scale have been built by various partners as a targeted part of the supply chain. India needs to adapt and configure mid-sized integrated ecosystems to build capacity quickly.
The ripple effect of toy clusters
It is likely that several toy clusters will be announced. But building an ecosystem in clusters is a daunting task and would require a focused, long-term approach.
The Koppal Toy Cluster – India’s first modern toy cluster – growing in northern Karnataka is one such ecosystem that is building a full value chain of capabilities. With co-located globally assembly and packaging capabilities, a 400-acre toy unit is on the way – a mini-Chenghai, if you will.
With the planned investment of ??7,000 crore over the next decade, the 400+ acre integrated manufacturing ecosystem will provide end-to-end toy development and manufacturing capabilities. It will house more than 100 large and small manufacturing units in the Special Economic Zones (SEZs) for exports and the Internal Tariff Zone (DTA) for the domestic market. It will provide direct employment to more than 25,000 people.
India’s toy story can support more toy groups as long as they don’t get mixed up with land hoarding and real estate play, under the guise of manufacturing.
It will be a daunting task for the industry to develop such citadels of excellence without the right political support and the right incentive mechanism. For example, while the Indian government has put in place the National Toy Action Plan, the proposals require details on each element of the toy manufacturing value chain.
Likewise, the much-talked-about Production Incentive Program (PLI), although available for more than 13 sectors, does not cover the toy industry. Export incentives such as the Export of Goods from India (MEIS) program have been removed with no viable alternatives in place.
Representation of toys continues to be a sub-part of the sporting goods industry and therefore is not focused on decision making. The orientation of policies towards traditional and low-capacity manufacturing will not create economies of scale for India to emerge as a global force.
Besides, flames import duties are not a panacea for domestic manufacturing. The supply chain of critical raw materials is starved and the toys that complement our capabilities are losing an economic business opportunity.
Traditional and modern toy factories must coexist in the value chain. Traditional manufacturers could very well occupy low volume, higher margin specialty toys, while the big ones could take over the world.
The key to “homemade” toys is not just traditional manufacturing, but the creation of private labels such as Chota Bheem and the exploration of this intellectual property to create world-class toys in modern toy factories.
The toy sector has enormous potential for job creation. For every $ 10 million in revenue generated, the industry has the potential to create 1,000 direct jobs, not counting downstream jobs. With the right political support, a capacity of $ 2-3 billion is achievable in a short period of time. This will lead to 2 to 3 million jobs. To put this in perspective, India’s information technology (IT) industry as a whole employs only 4.6 million people.
Focusing on the faster development of India’s toy sector, with the right policies, the right infrastructure and the right entrepreneurship, can transform India’s economy and social footprint.
Amit Chakraborty is President, Toys Business Segment, Aequs
Opinions expressed are personal