China's closing toy factories

I have noted in my last several blogs the surprisingly positive outlook held by members of Toy Nation with whom I spoke in Dallas. It was this in mind that I read an article from BBC News entitled: “Anger at China toy firm closure.”

I was struck by the contradiction between the seeming resilience of the US toy industry which actually manufactures little and the haymaker that the Chinese toy industry, which manufactures much, has received over the last year.  

As the report states: “The Chinese news agency Xinhua said 52.7% of the country’s 3,631 companies making toys for export went out of business in the first seven months of the year.  It blamed rising production costs, the stronger yuan and tightened toy safety standards.” Imagine the impact if more than half of the US toy industry’s manufacturers closed this year.

It’s not just small manufacturers who are going out of business. The BBC article reports on the closing of a large factory employing more than 7,000 people and supplying several American firms including Mattel.

“It may get worse for Chinese firms. As quoted in a CNN.com Asia article: “Chan Cheung-yau, chairman of toy and games subcommittee under the Chinese Manufacturers’ Association of Hong Kong, agreed that the outlook was gloomy for toy makers. He predicted that thousands more factories would close in China next year. ‘The tightening credit market has made it more difficult for manufacturers to raise funds,’ he said. ‘It has created a huge cash flow problem.’"

The reality is that we use the term manufacturer to describe US companies that provide products to the industry but in actuality they are not. They are intellectual property creators, sellers and marketers but they don’t actually make anything. That happens in China.

So, it is apparent that the risk inherent in manufacturing transferred to China along with the jobs. What will be the impact of these closed factories: An increase in prices, later shipments and / or increased quality? We’ll soon find out.