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German toymakers rethink China manufacturing

Some production heads back to Europe to speed up market response times

Production at Simba-Dickie's Eichhorn toy factory near Prague (Photo courtesy of Simba-Dickie)

HAMBURG, Germany -- Bucking the conventional wisdom that toy manufacturing can only be competitive in China, some German toymakers are shifting production back to Europe, including to Germany. Others are flourishing despite never having embraced low-labor-cost destinations.

"Although the focus is still on China, we have been recording certain changes, with the ratio of China-based production dropping by around 10% in the last two years, to around 70%, with Eastern Europe taking up most of the remainder," said Uli Brobeil, director of the German Toy Industry Association, known by its German initials DVSI.

Brobeil said the principal rationale was manufacturers' awareness of the crucial importance of responding quickly to clients' demands, especially ahead of the Christmas shopping spree, when DVSI member companies typically earn around 40% of their annual revenues. "If you ship things in from China in containers, it can be difficult to get timely follow-up supply for a big retailer in the [members'] main market, Europe," he said.

However, here have also been concerns about the safety of some toys made in China, and allegations -- denied by German manufacturers -- that child labor has been used in some Chinese factories making toys for sale by German companies. With retail sales of $7.5 billion in 2016, Germany is the world's fifth-biggest toy and games market after the U.S., China, Japan and the U.K., according to Euromonitor International, a London-based research organization.

Simba-Dickie's BIG Bobby Car production line in Burghaslach, Germany. (Photo courtesy of Simba-Dickie)

The latest example of a German toymaker rethinking its China presence is Autec, based in Nuremberg, Bavaria, which makes the slot car racing system Cartronic. In late January Autec said that from this spring it will manufacture only in Nuremberg, having invested between 3 million and 4 million euros ($3.16 million and $4.21 million) in a new high-tech factory.

Autec's founder and CEO Kurt Hesse, who began producing slot car racing systems in China in 1995, said he hoped the shift to Germany from Chinese contract manufacturers would improve quality consistency and allow flexible annual planning, while eliminating long and costly transportation.

"A slot car racing system is a relatively complicated product, and delayed production at the Chinese factories over quality issues had been causing sales collapses," Hesse told the German online daily

Simba-Dickie, based in Fuerth, Bavaria, has also reduced manufacturing activity in China recently. The company started in the 1980s as an importer of inexpensive Chinese plastic toys, but has since become Germany's fourth-largest toy manufacturer, with brands such as Eichhorn wooden toys, BIG Bobby Car, and Noris board and party games.

Simba-Dickie produced toys in China with a local partner until 2013, when the joint venture was abandoned amid allegations of embezzlement. The partner subsequently went out of business, and Simba-Dickie has since reduced its reliance on China. With an eye on improving quality, it has set up its own factories in Europe, including in Fuerth and Burghaslach, also in Bavaria, which now produce most of its products.

Ravensburger, the second-largest supplier in the German toy market, has limited China-based production to approximately 10% of output, with the remainder in Ravensburg, Bavaria, and the neighboring Czech Republic. China is now mainly a source of electronic and plush toys, which cannot be manufactured in Europe at competitive prices, according to Ravensburger spokesman Heinrich Huentelmann.

Smaller German toymakers with production based in Germany have also managed to stay competitive, despite much lower labor costs in China. Rolly Toys, based in Coburg, Bavaria, which mainly makes go-kart tractors, said it has never contemplated shifting production to Asia.

"Even with a small inventory we can quickly react to market requirements, such as putting an additional accessory into the box as part of a retailer's promotion campaign," said Frank Schneider, Rolly Toys' CEO. "Labor costs are much lower in China, but the prices of plastic granules and the other raw materials we use are about the same all over the world, unless you buy in huge quantities of over, say, 50,000 tons," he added.

Safety concerns

Svenja Kruchten, a research analyst at Euromonitor International, said German customers have greater trust in German-manufactured toys than in those made in China, because of Germany's high manufacturing standards. "While it is more expensive to manufacture toys locally, consumers value the peace of mind that the toy will not harm the child and thus are ready to pay a price premium for such toys," she said.

Schneider said he "hopes, but is not too sure" that the Made in Germany label pays off by reassuring safety-conscious consumers. But Brobeil stressed that Chinese contract toy manufacturers and their international clients have come a long way since 2007, when the sector was shaken by a gigantic recall of nearly 19 million Chinese-made toys by Mattel of the U.S. because of dangerous magnets and lead-paint coatings.

In addition, there have been allegations of child labor in some Chinese factories producing toys sold by German companies. Schleich, Schwaebisch Gmuend, a Baden-Wuerttenberg-based producer of hand-painted toy figurines, was alleged in 2015 to have sold toys made by over-worked children in in China. The company dismissed the allegations as a misunderstanding.

Brobeil said that Chinese manufacturers are now well-versed in relevant European Union and U.S. safety and health standards, in part because of schemes such as the DVSI's transnational Toy Safety Training Program for Chinese toy factory managers. China is also implementing its own safety regulations as it becomes richer, making it difficult for German toymakers, which are typically small and medium-sized enterprises, to tap into the fast-growing Chinese market.

By contrast, most international rivals, such as Denmark's Lego and Mattel and Hasbro of the U.S., are large-scale enterprises for which China is a priority market. Euromonitor International estimates that China's toy and games market had a retail value of $34.2 billion in 2016 -- almost as much as the total for the eurozone, the 19 EU countries that use the euro as their currency.

"There is this barrier, the China Compulsory Certification, or CCC, which is hard to take for our smaller members with production outside China, since it would involve them shouldering the significant costs of facilitating annual onsite audits by Chinese delegations," Brobeil said.

This is reflected in a recent DVSI member survey suggesting that China will lose importance as a location for German toymakers during the rest of this decade, to the benefit of the Czech Republic, Poland, Hungary, Sweden and the U.K., as well as Southeast Asia.

However, DVSI said its members' combined revenues reached a record 3 billion euros in 2016, up 5% year on year. This compared with a 4% decline in sales in 2016 for Mattel.

"It's no secret that production is cheaper elsewhere, but we maintain our commitment to Germany and the EU," said Bjoern Seeger, a spokesman for geobra Brandstaetter, which produces Playmobil plastic figures in Germany, Malta and Spain.

"This is necessary to create toys of the highest quality that are passed on from generation to generation within families, despite the fast pace of toy trends amid the digital revolution," Seeger said.

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