Richard Gottlieb

Hong Kong Day 6: Summing up
January 9, 2008

Today is my last full day in Hong Kong so I thought I would begin to do some summing up. This has been a very interesting week in which I have had the opportunity to meet with Chinese, European and American toy industry leaders as well as reps and buyers. 

Based upon these conversations as well as I what I have read and seen. I would characterize Hong Kong this year as a place of boisterous dynamism playing out against a backdrop of quiet anxiety. 

The dynamism is real. Despite a challenging 2007, the newspapers here are trumpeting double digit increases in toy exports. In addition, the show appears to be well attended in both Kowloon (where the American and Canadians show) and Hong Kong island (where the rest of the world shows). In short, everything appears to be robust.

Yet, conversations I have had with all of the constituencies over the course of the week expose an underlying anxiety on the American and European sides. They are concerned that the Chinese government may not find the toy industry to be worth the bother. They fear that the Chinese government may make it more difficult to manufacture toys and that the toy industry will be forced to migrate somewhere else. With the Chinese percentage of the world’s toy production now being pegged in the high 80’s this is no small worry. After all, where would we go? There is no clear answer to that question hence even more anxiety.

Contributing to this worry are articles in Hong Kong based newspapers questioning whether Chinese manufacturers can continue to operate unless the pressure to push for ever lower prices lets up.   An article in the Standard, a Hong Kong based newspaper, entitled “Toymakers hit overseas squeeze” quoted Jeffrey Lam, chairman of the “Toy Advisory Committee of the Trade Development Council” as making a plea for foreign companies to stop making demands on Chinese factories to reduce their prices. Specifically, Mr. Lam states that “[r]etailers and buyers should not pay prices that are too low. It’s not healthy.” 

So what to make of all of this? First of all, I don’t think the Chinese government wants to push the toy industry out of China. If they wanted that they would also have to push out the food, pet food and toothpaste industries, all of whom have had their share of safety problems this year. 

I do, however, think that they want the Europeans and Americans to believe that. Here is why. I think the Chinese government and the Chinese private sector intend to break the paradigm that has characterized the toy industry’s relationship with China for the last decades. They no longer intend to be the bargain basement for production.  They are sending a message that, unless the toy trade gets more profitable for the Chinese side, they are prepared to live without it.

In summary, I believe that the Chinese government, the press and the Chinese private sector are doing some posturing but I also believe that they mean business. They fully intend to create a new relationship. 

Toy buyers who think that, as in the past, they are negotiating price with factories will be mistaken. They are negotiating with China itself.  The Chinese are in the driver’s seat. Expect higher prices and expect the way business is done to change. We will all need to stay tuned.

Posted by Richard Gottlieb on January 9, 2008 | Comments (0)