Prepared for Hong Kong Trade Development Council January 2007

1Hong Kong Toys & Games Fair 2007

Prepared for Hong Kong Trade Development Council

January 2007

Hong Kong Toys & Games Fair 2007


Fieldwork period : January 7-9, 2007

Target group : 402 exhibitors; 706 buyers

Data collection : Face-to-face interview at the

Exhibition Venue

METHODOLOGY


EXHIBITORS’ AND BUYERS’ BACKGROUND

INFORMATION


Respondents: 402 Exhibitors

Hong Kong60%

Overseas40%

Exporter/Re-exporter

24%

Others7%

Manufacturer63%

EuropeGermany

UKFranceItalySpainOther Europe

AmericasUSCanadaLatin America

Asia Pacific

Chinese MainlandJapanAustraliaHong Kong

Other AsiaMiddle EastAfrica

%

Company BaseCompany Base Major Export MarketMajor Export MarketNature of BusinessNature of Business

EQ A1-3, A5

41

35

21

1

1

8

8

4

4

2

15

31

3

1

7

5

3

2

4

Wholesaler6%

Composition of manufacturers’ business

OBM: 54%ODM: 20%OEM: 25%Others: 1%

EXHIBITORS’ PROFILE


Respondents: 706 Buyers

Hong Kong42%

Chinese Mainland

22%

Others 2%

Europe7%

Asia Pacific (excl. PRC, Japan, HK)

19%

Exporter/ Re-exporter

32%

Chain Store/

DepartmentStore3%

Importer13%

Others4% Wholesaler

13%

Manufacturer28%

N. America6%

BQ A1, A3

Company BaseCompany Base Nature of BusinessNature of Business

BUYERS’ PROFILE

Japan2%

Commission Agent

3%

Independent Retailer

4%


Baby toys & products

Battery operated & electronic toys & games

Educational toys & games

Dolls & soft toys

Outdoor & sporting items

Hobby goods & collectible toys

Paper toys (e.g. puzzle & board games, party items)

Action figures

Toys parts & accessories

Die cast toys

Candy toys

Computer toys & games

Others (each less than 1%)Respondents: 402 Exhibitors

706 Buyers

% %

EQ A6/BQ A5

17

15

13

12

10

6

4

4

4

2

2

1

ExhibitorsExhibitors BuyersBuyers

MAJOR MANUFACTURING/ TRADING & SOURCING ITEMS

16

23

12

9

6

4

3

4

7

3

2

6


TOYS & GAMES MARKET OVERVIEW

AND FORECAST


28

39

29

3

26

45

24

4

1

1*

*

Better than 2006

Slightly better than 2006

Same as 2006

Slightly worse than 2006

Worse than 2006

Uncertain

%

EQ/BQ B1

Respondents: 402 Exhibitors706 Buyers

Exhibitors

Buyers

OUTLOOK OF OVERALL MARKET FOR 2007

* Denotes less than 0.5%

67%

[vs. 61% in 2006]

71%[vs. 60% in 2006]


Respondents: Those who expect a better overall market prospect in 2007

270 498

EQ/ BQ B2a,b

EXPECTED GROWTH IN OVERALL MARKET IN 2007 AS COMPARED WITH 2006

More than 20%

16% - 20%

11% - 15%

6% - 10%

1% - 5%

AVERAGE 12% 10%

% %


17

39

15

17

12

24

43

16

8

9


65

35

25

13

Emerging markets (incl. Chinese Mainland, Southeast Asia, India, Russia, Central & Eastern Europe)

US

Western Europe

Japan

Others (each 6% or less)


%

Average Estimated Growth Rate in 2007

%

14

14

16

16

EQ B3

REGIONS WITH BIGGEST GROWTH IN TOYS & GAMES RETAIL MARKET

ExhibitorsExhibitors

[ Chinese Mainland: 29%Eastern Europe (including Russia): 22%Central Europe: 12%]

2005%

40

52

58

14


PRODUCT AND MARKET TRENDS


20

17

33

10

3

10

16

20

20

19

7

3

1

4

Asia Pacific Chinese (excl. Chinese

Overall N. America Europe Japan Mainland Mainland, Japan, HK)

Educational toys & games

Computer toys & games

Battery operated & electronic toys & games

Baby toys & products

Dolls & soft toys

Outdoor & sporting items

Hobby goods & collectible toys

Action figures

EQ/ BQ D1

%

ExhibitorsBuyers

% % %

17

16

16

16

10

5

5

4

13

24

23

13

7

5

3

4

FASTEST GROWING TOY CATEGORIES IN 2007

# Small base; ## Very small base

%

-

15

18

16

14

12

7

4

4

17

28

23

9

6

6

2

2

19

13

13

19

11

5

5

3

8

21

22

16

7

7

3

4

11

21

14

11

4

14

7

11

16

24

24

14

6

2

5

4

-

11

16

32

11

16

5

4

33

17

13

6

4

2

6

-

-

%

Respondents: 402 Exhibitors; 706 BuyersExhibitors targeting respective markets (N. America: 138; Europe: 166; Japan: 19##; Chinese Mainland: 30#; Asia Pacific: 28##) Buyers targeting respective markets (N. America: 176; Europe: 189; Japan: 48#; Chinese Mainland : 70; Asia Pacific : 154)


Asia Pacific Chinese (excl. Chinese


Birth to 3 years old

Over 3 – 6 years old




Adults

Seniors

EQ/ BQ D2

%

ExhibitorsBuyers

% % %

14

25

23

14

13

10

1

11

18

32

22

11

5

CONSUMER SEGMENT WITH HIGHEST GROWTH POTENTIAL IN TOYS MARKET

%

17

26

19

17

9

11

1

13

24

29

14

14

6

1

15

23

21

15

12

12

11

21

28

20

12

8

**

3

20

27

17

13

20

11

29

17

14

14

14

18

7

18

21

21

14

11

19

30

22

8

10

- -

- - -

11

16

21

11

5

37

8

8

23

23

21

15

2

-

Respondents: 402 Exhibitors; 706 BuyersExhibitors targeting respective markets (N. America: 138; Europe: 166; Japan: 19##; Chinese Mainland: 30#; Asia Pacific: 28##) Buyers targeting respective markets (N. America: 176; Europe: 189; Japan: 48#; Chinese Mainland : 70; Asia Pacific : 154)

%

* Denotes less than 0.5%# Small base; ## Very small base


Price

Educational value

Brand

SafetyLook and feel (e.g. colour, design, size)

Excitement

Durability

Ease of use/ setting up

TrendProducts with professionalrecognition/ certification

EQ/ BQ D3


% %

37

28

27

30

19

13

17

8

4

6

ExhibitorsExhibitorsBuyersBuyers

PERCEIVED MAJOR SELECTION CRITERIA OF CONSUMERS IN PURCHASING TOY PRODUCTS

38

32

28

25

20

17

16

8

5

5


EDUCATIONAL TOYS


12.4 12.2 12.610.8

13.1 12.7

Asia PacificChinese (excl. Chinese


% % % % % %

EQ/ BQ D4

EDUCATIONAL TOYS – EXPECTED PERCENTAGE GROWTH IN 2007

Respondents: 1,108 Exhibitors & Buyers Exhibitors & Buyers targeting respective markets (N. America: 314; Europe: 355; Japan: 67; Chinese Mainland: 100; Asia Pacific: 182)


EQ/ BQ D5-6

MOST POPULAR TYPES AND RETAIL PRICE OF EDUCATIONAL TOYS IN 2007

Exhibitors Buyers

32

35

26

7

26

39

25

10

Most popular retail price range of education toysMost popular retail price range of education toys


% %

49

43

31

17

16

13

10

52

47

31

14

14

14

12

Creativity related

Logic & IQ related

Language related

Personality shaping & EQ related

Music related

Numbers & Mathematics related

Science related

Others (each less than 10%)

Most popular types of educational toys in 2007Most popular types of

educational toys in 2007%

≧US$ 31

US$ 21 – 30

US$ 11 – 20

≦US$ 10

AVERAGE US$17 US$18



TOYS AND GAMES FOR ADULTS


EQ/ BQ D10


GROWTH POTENTIAL OF TOYS & GAMES MARKET FOR ADULTS IN 2007

High growth potential

Moderate growth potential

The same

Decline

%

25 23

59 60

13 14

32

%



EQ/ BQ D11

Respondents: 1,108 Exhibitors & Buyers

MOST POPULAR TOYS & GAMES PRODUCTS FOR ADULTS IN 2007

Portable video games (e.g. PSP, NDS)

(39%)

TV/ computer/ internet games (37%)

Electronic toys (e.g. remote control helicopters) (25%)

Artificial intelligence/ robotic pets (e.g. AIBO, I-Pony) (21%)

Hobbies and Collectibles (19%)


Department stores

Shopping malls

Internet Retailers

Toys outlets

Auction sites on internet

Superstores


BQ D12


42

36

24

21

20

17

%BuyersBuyers

PLACE WHERE CONSUMERS PURCHASE TOYS AND GAMES FOR ADULTS


LICENSED CHARACTERS


EQ/ BQ D8MOST POPULAR LICENSED CHARACTERS IN 2007

Respondents: 1,108 Exhibitors & Buyers

Disney characters (43%)(excluding Winnie the Pooh & Disney Princess)

Winnie the Pooh (23%)

Disney Princess (19%)

Spiderman (16%)

Hello Kitty (13%)

45


More than 40%

21 – 40%

11 – 20%

6 – 10%

1 - 5% No premium charged

EQ/ BQ D9



PREMIUM CHARGED TO RETAIL PRICE OF LICENSED CHARACTER TOYS

AVERAGE 29% 26%

11 11

21 22

25 30

2020

20 14

32

%


2005 (%) 15 13 13 23 19 19

2224

21

26

2022

Asia PacificChinese (excl. Chinese


% % % % % %

EQ/ BQ D7

EXPECTED SHARE OF TOYS & GAMES WITH LICENSED CHARACTERS IN MAJOR MARKETS

Respondents: 1,108 Exhibitors & Buyers Exhibitors & Buyers targeting respective markets (N. America: 314; Europe: 355; Japan: 67; Chinese Mainland: 100; Asia Pacific: 182)


INDUSTRY TREND


EQ C1-2

Respondents: 255 Manufacturers


MAIN PRODUCTION MATERIALS

Others

10%Metal Alloy

8%

Plastic

76%

Paper

3%

Change of production cost due to the increase in price of main production materialChange of production cost due to the increase in price of main production material

%

Production cost increased

Production cost has not changed

95

5

Cloth

3%


Measures taken to comply with new regulations and practicesMeasures taken to comply with new regulations and practices

%

Respondents: 313 Exhibitors who complied with new regulationsand practices

Used environmental friendly packaging

Adopted green product design

Applied green labels to the products

Changed the product design to ensure product safety

Improved factory safety condition

Replaced chemical substance to ensure product safetyBetter managed/ selected suppliers to ensure compliance with the regulations

Provided staff training and education

Highlighted the green attributes of the product in marketing

Improved labour condition

Adopted green manufacturing processes/ facilities

56

55

47

40

32

31

30

28

27

25

25

EQ C3-4


%


MEASURES TAKEN TO COMPLY WITH NEW REGULATIONS AND PRACTICES

New regulations and practices complied with

New regulations and practices complied with

78

17

5

58

50

29

16

Taken measures to comply with new regulations and practices

- RoHS

- EN71 – Part 9

- WEEE

- The CARE Process

Did not comply with new regulations and practices

Not aware of the new regulations and practices


EQ C5-6

Respondents: 313 Exhibitors who complied with new regulations and practices


EFFECT OF THE NEW REGULATIONS AND PRACTICES ON PRODUCTION COST

Change of production cost due to the new regulations and practicesChange of production cost due to the new regulations and practices

%

Production cost increased

Production cost has not changed

90

10

Average increase in production cost: 14%

Strategies to offset the effects of increased production costStrategies to offset the effects of increased production cost

%

47

41

26

12

8

6

9

Discuss with buyers the possibility of sharing the increased cost

Modify the design of existing product lines to lower production cost

Develop new product lines with lower production cost

Sell more products with lower production cost to offset the loss from the high cost items

Discontinue partnerships with buyers who are not willing to absorb some of the cost

Discontinue product lines with negative margin


No strategies currently undertaken


BQ E1-2


REACTION OF BUYERS ON THE NEW REGULATIONS AND PRACTICES

Strategies to deal with the increased prices of productsStrategies to deal with the increased prices of products

%

32

29

24

21

18

11

12

7

Share part of the cost with manufacturers for better quality products

Transfer the cost to consumers

Source new product lines with lower sourcing prices

Source from different suppliers who can offer lower sourcing prices

Source more products with lower sourcing prices to offset loss from the high cost items

Target higher-end markets with higher purchasing power


Company has not been affected/ Not aware of the new regulations and practices

No specific actions currently taken

% willing to pay more for products complying with new regulations & practices

% willing to pay more for products complying with new regulations & practices

%

BuyersBuyers

More than 10%

6-10%

1-5%

Not willing to pay a premium

49

27

14

10

Average % willing to pay: 8.7%


EQ C7

Respondents: 381 Exhibitors who are aware of the new regulations and practices


COMPLYING WITH NEW REGULATIONS & PRACTICES WOULD ENHANCE COMPETITIVENESS

Yes

79%

No

21%


SOURCING PRACTICES


49

26

48

64

81076

%

Number of QuantityOrder of Each Order Unit Price Lead Time


[Mean: 18%] [Mean: 15%] [Mean: 14%] [Mean: 11%]

BQ C2a-d

INCREASED

DECREASED

SOURCING PATTERN (2006 VS. 2005)

BuyersBuyers


BQ C1a

BuyersBuyers


ODM

28%

OBM

34%

OEM

33%

DISTRIBUTION OF BUYERS’ PROCUREMENT FROM RESPECTIVE MANUFACTURERS

Others

5%


EQ A4/ BQ C1bPREMIUM FOR BRANDED TOYS

More than 30%

21-30%

11-20%

6-10%

1-5%

Not willing to pay a premium

Average: 28% 31%



12 7

2420

2829

1618

19 23

21

%


Southern China & Hong Kong

Shanghai and its neighboring provinces

Rest of the Chinese Mainland

Southeast Asia

Taiwan

Japan and South Korea

US and Canada

Western Europe

Russia, Central & Eastern Europe

Latin America


65

36

22

10

10

10

9

8

4

2

%

EQ E3/ BQ C3


PREFERRED REGIONS/ COUNTRIES FOR NEW SUPPLIERS

BuyersBuyers


EXECUTIVE SUMMARY


SUMMARY - I

MARKET OUTLOOK

Both exhibitors and buyers are very optimistic about the market prospect.

About 70% of them expect a better market outlook in 2007 (vs. around 60% in 2006).

Among those who anticipate a positive market growth in 2007, majority expect an increase of 6% or above.

Exhibitors anticipate that the highest growth would be in emerging markets (65%), particularly the Chinese Mainland (29%) and Eastern Europe (22%). Growth in mature markets like US (35%) and Western Europe (25%) is less prominent.


PRODUCT & MARKET TRENDS

“Computer Toys & Games”, “Battery Operated & Electronic Toys & Games” and “Educational Toys & Games” are regarded as the three categories with the fastest growth in 2007.

Consumers aged 6 to 10 are the key segment driving the growth across different markets. The adult segment would also contribute to the growth in Japan, the Chinese Mainland and other Asia Pacific countries.

Besides price, educational value, brand and safety are the other major selection criteria for purchasing toy products.

Educational Toys

Positive growth potential is expected for educational toys, as traders are anticipating a growth rate of over 10% across different markets.

Creativity, logic & IQ and language related educational toys are seen as more popular.

SUMMARY - II


PRODUCT & MARKET TRENDS

Toys and Games for Adults

Over 70% of the traders anticipate a moderate to high growth potential in the adult toys and games market.Portable video games and TV/computer/internet games are the most popular for adults.Consumers usually purchase toys and games for adults from department stores and shopping malls.

Licensed Characters

Characters from the Disney family are still the most popular, followed by Spiderman and Hello Kitty.Both exhibitors and buyers think that around 25% premium can be charged to the retail price of licensed character toys. Traders expect that licensed characters would represent over 20% of their export/import in major markets.

SUMMARY - III


INDUSTRY TREND

95% of the manufacturers experienced an increase in production cost due to the increase in price of the main production material used.

Most exhibitors (78%) are complying with new regulations & practices (e.g. RoHS, EN71-Part 9) in their production process. They think that this would enhance their competitiveness. Measures commonly taken include using environmental friendly packaging, green product design and labeling.

Exhibitors who complied with these regulations generally agree that production cost would increase as a result. Besides modifying the design of current product lines to lower the cost, they would also discuss with buyers the possibility of sharing the increased cost.

Majority (90%) of the buyers are willing to pay more for products complying with these regulations & practices. Buyers would take various actions to deal with the increased prices, including sharing the cost with manufacturers, transferring the cost to consumers, and sourcing new product lines with lower sourcing prices.

SUMMARY - IV


SUMMARY - V

SOURCING PRACTICES

It is encouraging to learn from buyers that the number of orders and quantity per order are substantially higher in 2006 as compared with 2005, yet allowing an increase in sourcing price and lead time.

Almost all traders believe that a premium can be charged to branded toys. Most think that a premium of at least 11% can be imposed.

Buyers prefer sourcing products from Hong Kong/ Southern China, followed by other regions in the Chinese Mainland.


Documents

Prepared for Hong Kong Trade Development Council January 2007