American companies have long paid for Chinese-made toys. But there's a new trend: Chinese manufacturers buying American toy companies. The World's Jason Margolis has more.
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LISA MULLINS: One industry that's very sensitive to global economic trends is the toy industry. American toy companies have long had their products made in countries where labor costs are lower. Now, there's another global trend affecting toymakers, as The World's Jason Margolis reports.
JASON MARGOLIS: Every kid loves to blow bubbles. Jim Engle, the President of the company Little Kids in Providence, Rhode Island, knows a thing or two about that. He's been selling his “no spill bubbles†for 15 years.
JIM ENGLE: And every time people see it for the first time, they can't imagine how simple it is – that you could have a bubble toy that you turn upside down, and no bubble solution comes out of it. We've now sold about 40 million different bubble containers.
MARGOLIS: I met Engle this week in New York at Toy Fair, a massive international gathering of hundreds and hundreds of toymakers trying to sell their items to toy stores and retailers across the globe. For toymakers like Jim Engle, it's become an increasingly complex industry, guessing what Asian, European, and American kids want to play with.
ENGLE: We sell product in the UK, we sell product in France, Spain, Portugal, Central America.
MARGOLIS: Bubbles are a pretty safe bet. Generally, kids from Tokyo to Munich to Cleveland like blowing bubbles. But being a successful toymaker requires a lot more than just having a cool toy. Engle has a lot of factors to consider.
ENGLE: The cost of the raw materials, and the bubble solution, and the bottle and label, that's all a function of the cost.
MARGOLIS: And shipping costs and labor in Chinese factories where most American toys are built. Basically, there are a lot of factors Engle can't control. Last year was the perfect storm for toymakers. The cost of raw materials like plastic, paper, and zinc skyrocketed. More stringent testing regulations drove costs even higher. Then, last fall, consumer demand plummeted. Add all this up and –
ENGLE: Last year has probably been the most challenging of any of the 30+ years I've been in the toy business.
MARGOLIS: Taken as a whole, sales for US toymakers were off more than 5 percent in the 4th quarter last year. That might not sound too bad, but it's as bad as things have been in three decades. That's leading to an emerging trend: Chinese manufacturers buying American toy companies.
IRENE NGAI: Actually our helicopter is very easy to control. You can make it steer left and right.
MARGOLIS: Irene Ngai operates a radio-controlled helicopter that hovers just above our heads. Technically, Ngai works for the New Hampshire company Kid Galaxy. But a few years ago, Kid Galaxy was bought by the Chinese toy factory operator Lung Cheong. As bad as it's been for American toymakers, it's been worse for Chinese toy factories. Thousands shut their doors last year. Irene Ngai says getting directly into US sales helps diversify their business.
NGAI: Because being a manufacturer is being tough and tough, so -- and also we are pretty strong at R & D, so we want to give us opportunity to try and sell our brand and build our brand instead of helping others.
MARGOLIS: Now Ngai is one of 15 employees in New Hampshire, selling Chinese made and owned toys to American kids.
SEAN MACGOWEN: I think that's a trend that has been growing and will probably accelerate.
MARGOLIS: Sean MacGowen has been following the toy industry for 23 years, and is now a managing director with the investment bank Needham and Company. He says it's natural for Chinese manufacturers to want to move up the food chain, but this isn't necessarily a harbinger of the end of the American business dominance.
MACGOWEN: I don't really see how it's really that different from an American company buying an American brand. Clearly capital has moved in a big way to the Far East, so they're just another market. They're another interested acquirer or investor. It may mean there's more of an opportunity to sell a piece of intellectual property because you have more bidders for it. So it could actually be positive for those who have intellectual property, but I don't really see it changing things that much.
MARGOLIS: Also, those increasingly blurred lines between companies across continents do have positive aspects for some American toymakers. Take Jim Engle, the bubble King of Rhode Island. Four years ago, he introduced the “Junk Ball.
ENGLE: And basically it was a new generation whiffle ball. So you see how it curved out and around.
MARGOLIS: Kids or adults can pretty easily throw sliders, knucklers, and curve balls. Turns out, Japanese kids love throwing the junk.
ENGLE: This was promoted in convenience stores in Japan last year. The product did so well that it's – we're on our fourth version. We'll have three more versions this year.
MARGOLIS: The success of the Junk Ball underscores the key point for toymakers. Forget everything else: costs of shipping, raw materials, labor. IF you have a good toy, it's going to sell. For The World, I'm Jason Margolis.
MULLINS: And you can see a slideshow of the Junk Ball and other toys at the New York Toy Fair at theworld.org
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Audio slideshow: International Toy Fair
