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Toy Industry in Hong Kong

  • Hong Kong produces a wide range of toys with particular strength in plastic toys, including dolls, doll houses and other accessories, action figures, construction sets, toy guns, make-believe toys and gimmicks such as beauty kits and doctor's kits. Other major categories are electronic toys and games, radio/remote controlled toys, battery-operated toys and metal toys. Taken together with re-exports, Hong Kong was the world’s second largest toy exporter in 2018.
  • Hong Kong exporters are known for producing high-quality toys, with a large share of industry revenues generated from contract manufacturing with overseas manufacturers and license holders. To reduce operation costs and stay competitive, the majority of Hong Kong toy makers have set up production facilities offshore, mainly in mainland China. The role of their Hong Kong office has shifted towards quality control, management, marketing, product design and production planning.
  • Amid growing concern over product safety and environmental protection in overseas market, toy safety standards and regulations have become increasingly stringent. Hong Kong toy exporters are advised to keep themselves informed of the regulatory changes in different markets and comply with the new requirements.

Industry Features

Table: Industry Features (Toy Industry)
Table: Industry Features (Toy Industry)

Hong Kong toy makers produce a wide range of items, including dolls, doll houses and other accessories, action figures, construction sets, toy guns, make-believe toys (toy versions of adult "objects", e.g., kitchen implements, vacuum cleaners, etc.) and gimmicks such as beauty kits and doctor's kits. Other major categories are electronic toys and games, radio/remote controlled toys, battery-operated toys and metal toys.

To reduce operation costs and stay competitive, most Hong Kong toy makers have set up production facilities offshore, mainly in mainland China. As such, many toy companies in Hong Kong have been reclassified as import-export establishments, contributing to the apparent decline in the number of toy makers locating in Hong Kong.

Meanwhile, the role of their offices in Hong Kong shifts towards quality control, management, marketing, finance and accounts, product design, and production management. This skew towards higher value-added activities is sharpening the competitive edge of Hong Kong toy makers, while expanding production capacity through relocation.

Production on the mainland has been facilitated by an efficient network of supporting industries and services. This has greatly enhanced the competitiveness of Hong Kong toys in terms of its productivity, quality, reliability and delivery. Building on the base of plastic molded toys, Hong Kong toy manufacturers have added production skills from the clothing industry, the electronics industry and the metal goods industry.

The toy industry employs a wide range of manufacturing technologies. Computer aided design and manufacturing systems (CAD/CAM) are most commonly used. Many manufacturers have earned the International Organisation for Standardisation (ISO) 9000 certification and some have the CARE Seal of Compliance certificate.

Competition remains keen, especially from indigenous Chinese enterprises in open items. The rapid expansion of production capacity on the mainland set up by Hong Kong manufacturers also put much downward pressure on prices and profit margins. Orders received are smaller in lot size, and shorter delivery lead time is generally required.

Performance of Hong Kong Toy Exports [1]

Table: Performance of Hong Kong Toy Exports
Table: Performance of Hong Kong Toy Exports
Table: Performance of Hong Kong Toy Exports (by market)
Table: Performance of Hong Kong Toy Exports (by market)
Table: Performance of Hong Kong Toy Exports (by category)
Table: Performance of Hong Kong Toy Exports (by category)

Source: Hong Kong Trade Statistics, Census and Statistics Department

Adversely affected by the hardware transition underway as the next-generation video game consoles are only on the horizon, Hong Kong’s toys market started to lose momentum since the second quarter of 2018 and finally fell into negative territory with a 1% decline on total toys exports in 2018. Notwithstanding a 7% growth witnessed in ASEAN, the export performance worsened entering 2019, with a 33% year-on-year plunge recorded during the first half of 2019. Weaknesses were seen across most of the major markets, with exports to the US, the EU, Japan and mainland China down 37%, 28%, 40% and 48%, respectively.

Item-wise, electronic and video games were the most affected trade category, with exports plummeting 55% year-on-year in January-June 2019, along with an 8% decrease on traditional toys and games exports. The share of electronic and video games in Hong Kong’s toys exports therefore shrank from 53% in 2018 to 37%.

Sales Channels

Hong Kong exporters are known for producing high-quality toys. A large share of industry revenues are generated from contract manufacturing with overseas industry giants, brand owners and licence holders, such as Disney, Hasbro, Mattel and Warner Bros. in the US, Zapf in Germany, as well as Bandai and Takara Tomy in Japan. Production specifications and product designs are usually provided by these overseas buyers. This type of arrangement, in effect, minimises local manufacturers' risks relating to product designs, inventory taking and marketing. However, Hong Kong manufacturers have increasingly offered expertise in design, engineering, modeling, tooling, quality control and other technical know-how to its customers, and developed their own brands. Some well-known brands of Hong Kong companies include Hero Cross, Playmates and Vtech. On the other hand, some manufacturers also export generic products as open items. Trading companies source a wide range of open items from different small manufacturers.

In order to expand business networks, explore market opportunities, and promote product image as well as brand-names abroad, Hong Kong toy makers participate in well-organised and influential international trade fairs. Below is a list of some major trade fairs:

Table: List of Some Major Trade Fairs (Toy Industry)
Table: List of Some Major Trade Fairs (Toy Industry)

The HKTDC also organises study/match-making missions for Hong Kong manufacturers through arranging visits to specific markets for new business relations establishment.

Industry Trends

According to Euromonitor International, global toys and games retail sales grew by 3%, reaching US$219 billion in 2018. Major markets include the US, Western Europe, mainland China and Japan. While electronic and video games are expected to maintain its growth momentum across all regions, emerging market is expected to be the driver for sales in traditional toys and games.

Retail consolidation in overseas markets amid the flourishing of e-commerce have changed the business landscape for toy exporters. In the US, major retailers are competing for a larger market share after Toys “R” Us pursued a wind-down of its 60-year-old US business in March 2018. While traditional toys and games stores saw a sales decline, other channels, such mass merchandisers, warehouse clubs and variety stores as Target and Walmart, registered growth in 2018. Meanwhile, the importance of the online channel is increasing. In the US, according to Euromonitor International, the online channels made up of 46% of total toys and games sales in 2018, up 14% percentage points from 2013. In this regard, Amazon continued to fare well in 2018, while other digital players such as Best Buy have emerged in the post-Toys “R” Us era.

The mass market depends on aggressive advertising campaigns or promotional tie-ins for success. Gradually, more toy manufacturers are entering into partnerships with companies from other industries, especially fast-food chains, in their promotion campaigns. Toy makers are also engaged in licensing deals with movie studios, making products featuring film characters, such as Minions, Marvel’s heroes, Batman and Disney’s characters. Successful products can also come from phone apps/games, such as Angry Bird, Candy Crush and Pokémon GO. On the other hand, social marketing has become an increasing important promotional strategy in driving toys and games sales amid the blossoming of mass consultation and social media influencers.

Safety standards, regulations and code of practices have long been major concerns among overseas buyers. In this regard, the International Council of Toy Industries (ICTI), alongside active involvement of Hong Kong toy makers, has introduced the ICTI Code of Business Practice and an associated auditing process known as the CARE Process, to manufacturers, distributors and retailers of toys and related merchandise in its member countries.

Meanwhile, as the life cycle of toys is becoming shorter, this increases the risk of product development. The impact of this will not only be reduced profit margins for Hong Kong suppliers, but more importantly, it signals the need to invest in R&D, develop own design capabilities and create value-added edges so that products cannot be replicated by competitors easily. Against this backdrop, an increasing number of toy companies have started to create unique toy collections. For instance, TINY, a Hong Kong brand of toys and models owned by Toyeast Limited, is producing different scale models (1/18, 1/43 & 1/64) of Hong Kong feature models and model cars accessories and scenes that have gained wide recognition among collectors and the younger generation.

Today's children, for their part, are growing up faster than a generation before. Kids aged 12 or above turn to non-traditional playthings such as video games, computers, music and cosmetics. This development is challenging toy manufacturers to create innovative toys that capture the interest of children. At the same time, greater efforts have to be made for pre-school toys due to an increasing demand for toys that can develop brain power, creativity, coordination and senses of players. Educational and high-tech toys featuring science, technology, robotics, engineering, arts and maths (STREAM) topics have therefore been gaining greater attention in toys ang games fairs worldwide. To this end, some local educational toys shops such as “Me100fun”, have included on their websites blogs or discussion forums providing professional advice and solutions to parents.

CEPA Provisions

Under the Mainland and Hong Kong Closer Economic Partnership Arrangement (CEPA), the mainland has given all products of Hong Kong origin, including toys, tariff-free treatment starting from 1 January 2006. According to the stipulated procedures, products which have no existing CEPA rules of origin can enjoy tariff-free treatment upon applications by local manufacturers and upon the CEPA rule of origins being agreed and met.

The promulgated rules of origin for toys to benefit from CEPA's tariff preference are similar to the existing rules governing Hong Kong’s exports of these products. Generally speaking, for toys manufactured from textile fabrics, cutting and assembling, identified as the principal processes for the purpose of delineating their origin, must be done in Hong Kong. For toys manufactured from plastic sheets, the principal processes are cutting of plastic sheets, joining of plastic sheets by heat sealing and setting of a valve, which must be done in Hong Kong. Detailed information is available here.

General Trade Measures Affecting Toy Exports

Systematic obstacles to toy trade are minimal in the traditional markets. There are no quantitative restrictions for toy imports into these markets. This applies to both Hong Kong and mainland China products. In particular, the EU has completely abolished the import quotas on Chinese toys since January 1998. Import tariffs on toys imposed by the EU and Japan stayed largely in the 0-5% range, while tariff-free access is granted by the US. On the other hand, product requirements on safety and environmental protection have become more stringent in overseas markets.

In the US, the Consumer Product Safety Improvement Act (CPSIA) was signed into law in 2008. This legislation forms part of a comprehensive effort by the US government to enhance safety requirements of imported consumer goods. As a result, it becomes more difficult and costly to export to the US, since higher safety requirements means additional hurdles for the entry of these items. The requirements of CPSIA are wide-ranging. For example, any products that are designed for children cannot contain more than a certain amount of lead and will be prohibited if otherwise. Manufacturers are also required to add a tracking label or other distinguishing permanent mark on children’s products such that manufacturers, retailers and consumers can ascertain the manufacturer or private label, location and date of production of the product, and cohort information (batch, run number or other identifying characteristic). The US Consumer Product Safety Commission (CPSC) approved the new third-party testing lab accreditation requirements to come into effect at the end of 2011. Starting from January 2012, toys that are manufactured or imported into the US has to be certified for ASTM F963, the mandatory toy standard, based on testings conducted by a CPSC-approved third-party lab.

In the EU, Directive 2009/48/EC on the safety of toys (the "Toy Safety Directive") laid down the safety criteria that toys must meet before they can be marketed in the EU. The general provisions of Toy Safety Directive came into effect on 20 July 2011, while the chemical safety requirements went into force on 20 July 2013. The new Directive has updated measures, taking into account of technological developments and new safety concerns. It complements and adds to existing provisions regarding to warnings on toys and importers’ responsibility. In addition to the expanded general safety requirement, those relating to physical and mechanical properties, flammability, chemical properties, electrical properties, hygiene and radioactivity have been set out. More stringent rules apply to chemical hazards, such as certain chemical substances, fragrances and noise that are released from toys. In particular, the European Commission has recently approved Germany’s request for a stricter rule on chemical detection limits. These restrictions do not cover all chemicals that are listed in the Directive. Thus Hong Kong exporters have to be particularly aware of the level of lead, barium, nitrosamines and nitrosatable substances in the toys that are exporting to Germany.

In Japan, toys that intended for children up to the age of 6 and designed to or likely to come into direct contact with children’s mouths are required to comply with the Japan Food Sanitation Law (JFSL). On the other hand, toys intended for children up to the age of 14 can comply with the voluntary Japan Toy Safety Standard (“ST Standard”). Established by the Japan Toy Association (JTA), ST Standard consists of three safety standards, namely mechanical and physical properties, flammability and chemical properties.

Starting from June 2007, the China Compulsory Certification (CCC) scheme on toys has become effective. Six types of toys, namely children's vehicles, battery-operated toys, plastic toys, metal toys, toys with shot projectiles and dolls, are subject to the CCC certification. The above products which have not been certified or do not carry a CCC mark are not allowed to leave the factory, be sold in, imported to, or used in other business activities on the mainland. In addition, The Measures for the Administration of Inspection and Supervision of Toy Imports and Exports (Revised) sets out provisions for supervision and management of the recall of defective import and export toys that may cause injuries to children. Since May 2019, the General Administration of Customs (GAC) has been designated as the governing body for the inspection and supervision of imported and exported toys. For the import of all toys listed in the Catalogue of Products Subject to Compulsory Product Certification (the “Catalogue”), original CCC certificates are now required by the GAC. Otherwise, they will remain subject to spot-checks in accordance with the prevailing GAC regulations.

Product Trends

Continued growth in video games market: Video games have been gaining popularity globally, creating a huge demand for online and mobile games. The ownership of gaming devices soars as mobile phones, tablets and laptop computers become increasingly a daily necessity. With higher disposable incomes and easier access to the internet, video, especially online games showed an exponential growth in recent years, also thanks to the rise of online and mobile gaming and electronic sports (e-sports). On the back of rapid product development and innovation, the latest models of PlayStation and Xbox, which support 4K Ultra High Definition (UHD) and High Dynamic Range (HDR) video graphics, have brought gaming experience to a new, higher level. In addition, Nintendo Switch, which is both a static and a handheld gaming device, has also opened a new market of miniature multimode gaming. The upcoming release of Microsoft’s Xbox Project Scarlett and Sony’s PlayStation 5 are expected to drive the sales of video games.

Sustained interest in licensing: Licensing has been a key driver of toys sales globally, particularly for traditional toys. While a certain proportion of licensed toys is associated with evergreen characters such as Hello Kitty and Mickey Mouse, blockbuster movies and TV cartoons remain the major source of properties. Big players like Mattel and Lego often create “special edition” lines on the latest movies. Recently, a number of Hollywood-created properties including Frozen, Minions and Star Wars have created unprecedented success for the licensees. However, in general, the trade of licensed toys of movie characters is subject to a rather short boom-and-bust cycle. According to market research firm the NPD Group, sales of movie-related toys experience a quick growth in the three weeks prior to cinematic release, then a slowdown in the six weeks after the movie has come out. On the other hand, video games and social media are now constantly inventing new characters. Angry Birds and Minecraft are the prominent examples.

Clear focus on educational values: Parents increasingly emphasize on children’s development and realise the importance of learning through play. Manufacturers are seen to respond by designing toys that aim to enhance children’s intellectual, social, emotional, and/or physical development. Interlocking bricks like Lego, puzzles and construction sets that improve hand-eye coordination, patience, creativity and spatial skills continue to be highly sought-after; board and card games that develop skills such as turn-taking and decision-making remain popular as well. Examples include STREAM toys such as robots, science and experiment kits, and arts and crafts. A Hong Kong company Fame Master, has developed 4D (3 dimensions with details) educational puzzles on animals and human organs. Meanwhile, some internet retailers provide subscription box services and regularly send curated educational toys to children based on the areas of interest previously indicated by the parents. This kind of curated subscription box service has become more prevalent in countries like the US, as it is a convenient method for parents who are looking for toys tailor-made for their children.

Tech-based toys gaining popularity: The worldwide mega-trend is to integrate electronics and new technology with toys. Many dolls and toy robots can now be remote-controlled by an Android or iOS device and updated with apps to create additional and new playing possibilities. Recently, the tiny robot BB-8, a character in the Star Wars franchise, has gained a lot of attention. The companion app is packed with official Star Wars sound effects and other features like recording holographic messages. Other traditional toys are also increasingly connected with the digital world. For example, LEGO has launched a social networking mobile apps that allows children to upload photos of their building sets to socialise with other users, while the Hong Kong-based WowWee is famous for making tech-based toys such as Miposaur, an intelligent robot dinosaur which is equipped with the latest sensor technology enabling it to respond to the swipe of hand and play with a trackball. On the other hand, toys incorporating virtual, augmented and mixed reality are expected to be big hits.

The rise of kid tablets: Tablets and apps for children are on the rise. It comes as no surprise that children now enjoy watching cartoons and playing games with tablets. At the same time, parents are eager to allow them to have access to lower-price, kid-size versions of electronic products for learning purposes such as reading e-books and watching educational videos. In recent years there has been an influx of learning tablets for children with features including parent control, drop resistance and pre-loaded educational apps and games. Hong Kong manufacturer V-tech has developed Innotab 3S, a Wi-Fi learning tablet which also allows kids and parents to exchange and share their text messages, photos, etc.

A thriving collectable market: For many reasons including reliving their childhoods, some adults and even seniors are collecting toys. Today, the collectables market has grown to become a significant portion of the toy industry. High spending power characterises these consumers, who show great interest in vinyl toys, model cars, action figures and statues, etc. With sophisticated molding and manufacturing technology available, manufacturers are able to design and make high-quality collectables which are scaled and detailed meticulously. Hong Kong-based manufacturer Hot Toys is well-known for making very high-quality action figures from popular movies, video games, comics and celebrities. It is also common for traditional toy manufacturers to introduce two lines for the same product, one for kids and the other for collectors. For example, Mattel has a strong collector business in Barbie dolls, Matchbox die-cast cars and the Hot Wheels racing system, in addition to the children's line of these toys.


[1] Since offshore trade has not been captured by ordinary trade figures, these numbers do not necessarily reflect the export business managed by Hong Kong companies.

Content provided by Picture: Charlotte Man
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