Ricardo Venegas: “The Umbilical Cord to China Is Not Going Away Anytime Soon”

By Ricardo Venegas

Ricardo Venegas is the President and CEO of Snap Toys, a toy provider that combines classic play patterns with innovative and modern appeal. Ricardo sent me an excellent response to my article, “The Future of China and the Toy Industry; it’s time to talk about it.” I was so impressed that I asked him if I could publish it. He said yes. I hope you find it as thoughtful as I did.

I am in Asia as part of a month’s-long trip to the region which is taking me to Vietnam, Singapore, HK, and India.  I thought to write to you and provide my perspective after having read your recent article on China sourcing.  While I respect other people’s POVs, to hear that companies will be fully removed from China seems difficult to accept.  

The umbilical cord to China is not going away anytime soon China provides a seamless, vertically integrated, reliable solution that has yet to be replicated.  And this is coming from someone that has been in Vietnam for 15 years and who is eyeballing India for future production. Ignoring the political aspects of your article, on a pure production basis, China, in my POV, will continue to play a major role in the toy industry for the foreseeable future, whether it be for finished goods or the raw materials that other manufacturing venues need – i.e. Vietnam. 

Throughout the region, labor cost increases have also crept their way in, thus eliminating to a large degree the benefits that these markets had once offered.  So as Adam Smith pointed out in his Wealth of Nations, where is the next low-cost manufacturing hub? 

India is the talk of the town, as you well know, but India has yet to establish a vertically integrated sourcing and manufacturing process and continues to rely on the China umbilical cord for many of its raw materials.  Until that is resolved, I don’t believe there will be a market that provides a true ex-China solution.  There have been many companies that have gone to India with the same intentions, only to move production back to China.  The same for Vietnam.

The above does not, of course, eliminate the fact that a diversification strategy is most definitely needed.  That is one of the primary objectives for my current travels throughout Asia, and for SNAP Global, going forward.  But based upon the input I am receiving from my sources, there isn’t an easy solution to diversification.  It will not only require a supply-side solution but also a willingness on the part of the buyers to accept the nuances that come from new sources.  Will they have the patience to support the initiative?  Will they accept prices that match China but not improve upon them, just to ensure diversification takes place?  It would be welcoming to hear from the Retail trade how they feel about these questions.

Thanks for raising these important discussion topics on your site. 

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