India Attracts Toy Manufacturing; Why Now?

Headerf

MAKE1_0

China is still the place to be.   Strong interpersonal relationships and a powerful infrastructure will continue to make it hard to leave.


In my last article, I wrote about a New York Times article reporting that Hasbro and other large companies (General Motors, FoxConn, etc.) are moving some production out of China and into India.  What has changed in the last few years to make India so compelling.  

Well its certainly not India's infrastructure or fresh air.  Here is how Keith Bradsher puts it in that New York Times article, "India’s Manufacturing Sector Courts the World, but Pitfalls Remain:"

Progress in improving the country’s [India's] inadequate roads, rail lines and ports has been slow. Corruption remains pernicious. Urban air pollution is even worse in India than in China, and could deteriorate further as more factories are built.  Plans to rewrite labor and land laws, and to overhaul state taxes, have stalled in Parliament. 

That doesn't seem very attractive.  Here are some thoughts on what is happening in China and India that may explain why:

India

 1.    India's Legal System -  India was a former British colony and as a result employs English Common Law with its strong respect for property rights (physical and intellectual).  Western companies are find this far more comfortable.  

2.     India's Giant Labor Force - According to Bradsher, 10 million new adults enter India's labor force every year and there are not enough jobs for them. That means lower labor costs and fully manned factories. 

3.    India's Open Door - India is aggressively recruiting new manufacturers under its "Make It In India Program."  Is it working, according to Bradsher "foreign direct investment in India is up 46 percent over the last two years. It is down 1.3 percent in China."  

China

 1.    China's New Worker - China's young workers not that long ago were will to move hundreds of miles for a factory job; not so much anymore.  Today's young worker  is a product of China's "One Child Policy."  These children, nicknamed "the little emperors" when they were children, have been understandably indulged by their grandparents, aunts and uncles.  They have no brothers and sisters so they have not had to put up with older siblings nor learn how to get along with younger ones.  They are a management challenge.

2.    Chinese Labor Shortages – China's workers have become better educated and desire white collar jobs.  This has resulted in labor shortages that not only impact wages but present a challenge to getting orders out the door.

3.    Chinese Labor Costs Are Up – Because of numbers 1 and 2, labor costs have been steadily going up in China for years.   When the cost of labor goes up, a country begins to move out of the low labor cost sweet spot at other times in history owned by Japan and Hong Kong. 

China is still the place to be.   Strong interpersonal relationships and a powerful infrastructure will continue to make it hard to leave.  Still, things are changing and companies are hedging their bets.  We'll keep watching this situation.

 

 

2 thoughts

  1. I feel the time is right for Toy Companies to look at manufacturing in India. The worlds second largest toy company like Hasbro will not decide to manufacture in India if it does not make sense. Having been in India for the past 30 years they know Indian market better than any other toy company in the world.There was a period when all toy companies of the world shifted their manufacturing from US, Europe and UK to China.As history repeats it is the period when companies are looking at alternate manufacturing destinations. The arguments that you have made against India does not hold good because India exports the following major products most of them to US markets. Automobiles all major companies have their manufacturing plant in India, textiles again India is a biggest exporter, all your Gap, Banana Republic, US Polo association, Van Heusen and many other brands are manufactured in India. The other exports are gems, jewelry, agricultural ( because of your recent ruling you are missing out on the king of fruits Indian delicious mangoes) and I can go on and on. All these products pass through the inadequate roads, rail system and legal hurdles and corruption. Perhaps you have not seen the new developed India. Recently a delegation from your TIA attended Kids India Toy fair organised by Speilwarenmesse and if you ask them they will be able to tell the emerging opportunities available in India. India is ready to be exploited. You know the major IT force working in US are from India. The major advantages in India is not only the large work force which are young adults but unlike China most of them can understand and speak English. I know some companies who have shifted their manufacturing to India and they are very happy with their decision and many are exploring for partners.
    With the Prime Minister of the country pushing for Make in India whichever country he is visiting, you know the serious intent of the country to make that happen.

  2. Great article Richard. As an executive living in the world of toys, your blogs are informative and very interesting.
    The world is always changing and as you stated on a previous article, we have to adapt.
    Perhaps at the end of the road we will just need to buy blueprints for toys, print them ourselves and less and less production will be required from manufacturers.

Leave a Reply