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competitors gets in first, we may never catch up. But our
results have been a little
sluggish recently, and we must avoid too much exposure in
high-risk markets. So far,
our U.S. headquarters has received seven letters of enquiry from
potential distributors,
and we have identified five additional candidates. One of these
is a company which
manufactures and exports jeans and also runs a chain of four
modern sports equipment
stores in Ho Chi Minh City; they are also talking to our
competitors. Right now, thereare only about 20 retail outlets where
athletic footwear is being sold in a half-decent
manner. There are a lot of counterfeits on the streets.
Children Corporation
Founded in 1945.
Global leader in the manufacturing and marketing of branded
toys.
By 1996, the firm's 15 manufacturing plants were located in the
United States, Canada,Mexico, UK, Italy, Malaysia, Indonesia, and
the People's Republic of China. Children
used consumer packaged goods marketing practices such as
copromotions, in-store
merchandising and, above all, television advertising, to expand
its market. The
company had developed several well-known brands within its
product line, which
provided a backdrop of continuity to the annual seasonal launch
of its new products at
the toy industry's buying fairs. In addition, it had benefited
in a number of countries
from a shake-up in the retail sector, with category killer
hypermarkets and new
entrants such as Toys 'R' Us often transforming what the firm's
senior executives claimed
had been a cottage industry of mom-and-pop stores.
The president of the international division identified three key
success factors: First,
we're the best at understanding children's play patterns, which
are pretty similar
around the world.
Second, our manufacturing operations can deliver good-quality
innovative product at
the competitive price points needed to open up the mass
market.
Third, we communicate well with our market through advertising,
co-promotions with
other entertainment companies, and cooperation with retailers in
merchandising.
As described by one of the firm's country managers: Wholesalers,
distributors, and
retailers are typically all servants of many masters. They never
want one player to grow
too strong. To gain market leadership, we have to get control of
our own business and
innovate. Despite this, Children recognized the value of
independent distributors as
market entry partners, given the closed character of
distribution systems in many
country-markets, and had never entered a new country-market by
establishing a
wholly owned subsidiary at the outset. Asia/Pacific was the
firm's smallest region in
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terms of sales revenue, accounting for 11% of 1995 sales, but
was regarded as having the
greatest long-term potential.
After an unevenhistory in Asia, attributed to the complex and
protectionist
distribution systems in the region, recent sales growth was
strong, especially in Japan,where several previous ventures had
ended in failure. The regional vice president
commented: Some of my colleagues say it's far too early to enter
Vietnam, because of
the undeveloped retail sector. We need the right retail
environment to support our
brands, which despite our best efforts will be more expensive
than the toys currently on
offer. But I believe that we should appoint a distributor to
start selling in Vietnam now.
In fact, our best-selling products are already available in the
airport duty-free shops in
Ho Chi Minh City and Hanoi. Demand would be very concentrated in
the two largest
cities, so we could easily identify the special gift-oriented
distribution channels. Also,
television broadcasting is relatively advanced, so advertising
would be possible from
day one.
We have been approached by two SOEs that make toys. Their
products are low quality
and retail on average for $3 a unit, compared to our $15.
However, these SOEs claim to
have access to over 1,000 retail distribution points throughout
the country, and the top
managers in one of them seem young and aggressive. But Id be
concerned about our
molds being duplicated without our knowledge. We have also been
asked whether wed
be interested in a processing contract, using excess capacity at
one of these SOEs to
assemble our toys for export. Given current labor rates, we
could save $1 a unit if we
assembled some of our more labor-intensive toys in Vietnam.
