China's quality troubles help toy makers target China

SHANGHAI, China — For 24 years, toy maker Yoshiritsu has resisted the pull to move to lower-cost China, sticking it out in more costly Japan to meet the exacting demands of its picky customers.

But that strategy may be starting to pay off in a new market: China itself.

"We came to see what the market is like," said Hideyuki Noguchi, sales manager for Yoshiritsu, while demonstrating his LaQ brand blocks at the recent Shanghai Toy Fair. "So far, the reaction is good," he said, citing a number of inquiries. It was the company's first time at the annual fair, where foreign companies were looking to sell license rights or products to the booming Chinese market.

"Our products are 100 percent made by us in Japan," Noguchi said. "We have to use top quality materials ... and still customers are pushing us to improve quality."

China's reputation as the world's toy workshop — it handles 60 percent of global toy manufacturing — has taken a battering amid recent recalls. So far, the uproar has had little impact on toy exports, which are up 28 percent in the first eight months of the year compared with the same period in 2006, according to Chinese government figures.

Brands like LaQ can't compete with Chinese factories on price, Noguchi admits.

But toy makers like Yoshiritsu and others are finding that the greater focus on improving standards offers them greater hope of making inroads into this still undeveloped market. The closer international and domestic scrutiny means that retailers and consumers are more willing to pay a bit more for better quality, those working in the industry say.

"The potential for the toy market here is huge," said Alice Tang, managing director for AT Licensing & Merchandising Ltd., a Hong Kong-based company that acts as licensing agent for Tezuka Productions and other brands.

Chinese families still tend to spend less on toys for children than parents elsewhere, but with increasing household wealth, demand is growing. China's policy of limiting most couples to just one child means that parents and doting grandparents have more cash to splash out on the best for their one and only progeny.

"In China, with the one-child system, they really care. They do care about quality," Tang said.

Given the controversies over toy exports from China, and the potential they see in China, she says foreign toy companies are turning their attention to the local market. With more than 300 million children under the age of 14, there's huge room for growth.

"There's a big market on their doorsteps," she said.

Kwon You Kook, vice president of Kidswell Co., a Shanghai-based exporter of tot-sized trampolines and other exercise equipment, says that after years of selling to South Korea, Japan and Europe he's looking for a dealer in China.

Until recently, Kwon didn't really consider the local market because his prices are too high, he said.

"Our costs are rather high because we have been using plastics, foams and other materials that conform with overseas safety and environmental standards," Kwon said. "Maybe now there will be more of a market for such better quality here."

The renewed focus on quality has been a mixed blessing for some companies.

Tomy Co., a Japanese maker of toy cars and Barbie-look-alike Licca-chan dolls, had its own China episode: In August, it announced it was recalling Chinese-made toy cars it markets and sells for Mattel Inc. in Japan after excess lead was found in the paint.

But after years of contending with rivals that undercut its business by selling counterfeit, inferior versions of its toys, the company is finally seeing stricter enforcement of standards its own manufacturers have been meeting all along, said John Zhu, a senior sales manager for Shanghai Kaleeto Industrial Co., which represents Tomy and other brands in China.

And the controls are getting tighter. As of June 1, Chinese trade regulations require companies that import toys or export made-in-China toys for reimport to acquire so-called "3C," or "China Compulsory Certification," a safety and quality rating.

Companies that already meet such standards stand at an advantage, Zhu said.

"This has been great news for us," he said. "Consumers are paying attention and demanding higher quality products."