A report this week in the New York Times details how China has become a leader in solar energy. As the reporting says, this growing “dominance” may offset some other challenges the Chinese economy is facing. The goal is also to make China less dependent on energy from other countries—and perhaps help with climate change. (We’ll see on that score.)
As Jay Foreman pointed out in his blog earlier this week, China and China policy are critically important to the toy industry. As we’ve argued consistently, the toy industry is dependent on an interconnected global system, which can be both a blessing and a challenge. (More on that in an upcoming column.)
What’s significant about China’s solar power expansion is that they are able to produce goods cheaply, quickly and at a volume that meets growing demand around the world. It’s become highly competitive, and some in the EU have called it “unfair” that the Chinese government subsidizes the business. Our view is that countries often suffer from short-sighted policies, and in this case, there’s nothing “unfair” about what China is doing. After all, the U.S. chooses to subsidize industries heavily, and many of those are based on politics.
Notwithstanding, there are several ways that this might affect the toy industry in both the near- and longer-term. First the ability to bring down the cost of electricity can make all manufacturing more economical. While largely coal-fired electricity in China has traditionally been less expensive than in other countries, increases in recent years have added to the costs of manufacturing. Solar may be able to hold down or slow those cost increases. It’s been so successful that now the growing solar energy is providing the electricity to manufacture the requisite components, further reducing costs.
Second, and perhaps more interesting, is the speed with which the Chinese have developed the technology needed to outcompete other companies and, in some cases, put them out of business. Chinese companies went from producing for others to creating their own industry in just a few short years.
There are analogies to the toy industry. Chinese companies that had begun as OEM companies have expanded and created their own brands, which are succeeding both domestically and around the world. Moreover, at the Hong Kong Toys & Games Fair in January, more and more Chinese companies were expanding beyond OEM and offering ODM services as well. In a few short years, the toys these Chinese companies are creating have evolved from being heavily influenced by Western products (not to say “knock-offs”) to, in many cases, sophisticated toys that could play easily in either specialty or mass market stores in the U.S. or globally. It’s the same as the solar industry idea writ small, and the potential to change the competitive frame is huge.
If there’s a lesson here, it’s that it’s important to think long-term and adapt business models accordingly. Of course, there will still be the opportunistic element of the toy industry, but just as China analyzed the future of the solar industry and responded aggressively, all of us should be looking at the future of toys and how we need to adapt and expand.
Postscript: A report in 2023, suggested that Chinese factories were using “forced labor,” to produce solar equipment, but even the people who wrote the report admitted that since they didn’t have access to the factories so they couldn’t tell for sure. Reporting on this at the time quoted representatives of other countries concerned about China’s dominance in this field. And yet, none have updated policies to make it easier, more efficient or affordable to manufacture solar equipment. Moreover, the also report also noted that cracking down on China in this area would hurt the U.S. solar business. So, what, we wonder–not too hard–is the point? Perhaps the our global economy needs to rethink what competition is. (Hey, a guy can dream.)
What do you think?
