Although 99 percent of all Hong Kong toy exports are re-exports of products from a manufacturing base which over the years has gradually shifted across the border to China, Hong Kong still remains the world's number one toy producer.
Of all the toys, dolls and games exported, Hong Kong is still responsible for the product design, logistics, quality control, production control and exports, without which there would be no manufacturing. In a nutshell, Hong Kong remains, as Daniel Poon, assistant chief economist at the TDC puts it, "the mastermind of production activities across the border."
According to the latest available government figures, the industry's gross output was HK$467 million in 2001 and the number of people directly employed by the trade in Hong Kong was about 32,500. However, in the same year, total exports - including re-exports - reached HK$75,318 million creating employment for a much larger number of people.
"I'd say probably 200,000 people [are employed] including all the related industries, such as logistics, transportation, printing and so on," says Samson Chan, chairman of toy industry giant Manley Toys Ltd and of the Hong Kong Toys Council.
Hong Kong will remain the control centre
Back on the mend
It goes without saying that the past few years have been tough for the economy and Mr Poon says the toy industry has suffered as much as any.
In 2001, exports plummeted 18 percent following the bursting of the IT bubble and 9/11, compared with a 7 percent gain in 2000. In 2002, widespread corporate scandals and the looming threat of war in Iraq affected American buying sentiment and figures were down by two percent. This year things started badly with the Iraq war and just when it seemed things could get no worse, we were struck by SARS.
"Actually, it wasn't such a problem with repeat orders, but new orders were hit hard for a while," says Mr Poon. "Buyers, mainly from the US, were not prepared to meet Hong Kong companies because of the risk of SARS. From June, the US and Europe resumed contact and so there was a glimmer of hope - a lot of companies have caught up and in the first seven months of this year we've seen a rise of four percent. Overall, SARS had minimal impact and has mostly just delayed deals."
While the US economy has not performed well and exports have dropped six percent or so, exports to Japan and Europe have increased by an estimated 14 percent and 24 percent respectively.
Stable course of development
The future of the industry, at least in the medium term, seems bright. "In the toy industry every year there's an increase of a few percentage points," says Mr Chan adding, "If it rains, it rains for everybody."
"There'll be an emphasis on pre-production," explains Mr Poon, "Hong Kong will remain the control centre, a service economy." Large companies, which have set up camp in China, still need Hong Kong services, even though they have no actual presence here. SME's also need an office here. "We can still maintain competitiveness in the medium term as more overseas companies express interest in China. To achieve more, we need more emphasis on product design - it's essential to our activities here."
A big advantage the industry enjoys over the garment industry, is the minimal amount of trade restrictions. Mr Poon says, "Tariffs are quite low. The US is free and there is no quota restriction, whereas garments are restricted."
The introduction of e-commerce, Mr Poon says, has brought about some unforeseen changes in supply and demand practices. "Business to consumer transactions are increasing. Although currently only around two percent of all sales in the US are online, it is making a difference."
Traditionally, stock levels and delivery times were consistent and it was easy enough for retailers to re-order when stock dropped to a certain level. Now, it's not so simple, and the pressure is on local companies to improve the supply chain. Furthermore, recruitment is focusing more on IT based positions.
According to Mr Chan, the main employment opportunities will be in product design and toy engineering, mostly based in China. "Definitely, today in every industry you have to travel to China," he says.
Smart toys are currently top of the Christmas list for a lot of kids around the globe. These are interactive toys, some of which link to the Internet. They are very customisable and offer the buyer a feeling of uniqueness.
Licensing is another potential gold-mine, with movie series tie-ins such as Harry Potter and Lord of the Rings. This year also sees the welcome return of one of the biggest merchandising stories of the 80's, the Teenage Mutant Ninja Turtles, thanks to a new TV series.
The video game market is steadily increasing and offering more opportunities for companies in Hong Kong and China. Collectible toys appear to be gaining popularity among adults and seniors, particularly in the US, Germany and Japan.