Toys and Sporting Goods

SIC 3940

NAICS 33992, 33993

Manufacturers in this industry produce toys, dolls and doll clothing, stuffed toys, children's vehicles (except bicycles—see SIC 3751), games (except electronic game cartridges—7372), and sporting and athletic equipment. Excluded from this discussion is athletic apparel (SIC 2300), athletic footwear (3021), small arms (3484) and small arms ammunition (3482).

INDUSTRY SNAPSHOT

According to the ICTI, in 2003 sales of traditional toys around the world was US$59.4 billion. While the toy market always had an international flavor—the creations of German toy makers delighted U.S. children in the nineteenth century—by the 1990s the industry had become truly global. This continued to be the case as the industry entered the mid-2000s. Giant toy makers, such as the United States' Mattel Inc., Denmark's Lego, and Japan's Nintendo, generated much—if not most—of their revenue overseas. Indeed, parents in Moscow sometimes gave up a month's wages so their daughters could own Mattel's Barbie, the most popular doll in the world and a US$1.5 billion annual revenue producer worldwide.

Like the toy business, the sporting goods manufacturing segment is also global in nature. Speaking at the World Sports Forum in Lausanne, Switzerland, in 2002, Margaret Mager (President of Research at Goldman Sachs) and Andre Gorgemans (Secretary General of the World Federation of Sporting Goods Industry) indicated that the world sports market was worth US$92 billion, with the United States accounting for 50 percent of sales and the European Union taking a further 38 percent. However, these markets were maturing and the U.S in particular was showing a decline in interest for sports. New growth was expected to come from Asia and other developing markets in the mid-2000s. Around the world, several brand names dominate the industry, with Nike, Reebok and adidas-Salomon providing one-fifth of the market. Sporting goods manufacturers have also come under criticism for several issues, with the most predominant involving the use of child labor.

Common to both industries is the fact that the majority of manufacturing facilities are located in China, although these are primarily third-party manufacturers doing contract work for companies from other countries. By 2005, according to the International Council of Toy Industries (ICTI), 75 percent of the world's toys were being produced in China.

In 2005, the toy industry continued to face the concerns of consumers, workers, environmental groups and human rights organizations. These concerns covered a number of issues, including the use of PVC and chemicals in toy manufacturing, packaging and electronic waste, the effects of electromagnetic interference, working conditions in factories, the use of child labor, and sales and marketing practices aimed at children. From a business-to-business perspective, the industry itself faced the ongoing problem of toy counterfeiting.

ORGANIZATION AND STRUCTURE
Toys

While the largest market for toys continues to be the United States, by far the largest source for toys is China. According to the China Plastics and Rubber Journal, China's more than 6,000 toy manufacturers were producing 70 percent of the world's toys in 2004. However, approximately two-thirds of the toys produced use designs and raw materials supplied by other countries, and a large share of the revenues come from contract manufacturing for large toy companies and license holders.

Four large companies dominate the global toy manufacturing scene: Mattel, LEGO, Bandai, and Hasbro, with Bandai and Mattel having a marketing alliance. However, on the whole, the industry is very fragmented and more regionally based rather than globally based. In addition, many toys are produced on behalf of license holders, including Disney, Warner Brothers, and McDonalds.

According to business researchers from INSEAD, about 95 percent of toys are sold via retail outlets. Few manufacturers sell directly to the final consumer. However, by 2005 there were an increasing number of partnerships between manufacturers and fast-food chains, cinemas, and direct-sellers, including Avon. In addition to traditional retailers, an increasing number of sales were being made through new Internet-based companies.

Since the early 1980s, U.S. law has enforced standards for small parts, breakability, paint, and other points of safety in children's toys. The standards have been effective in reducing deaths and injury, but children under three, playing with the toys of their older siblings, still posed a major safety problem. According to the Consumer Product Safety Commission (CSPC), 143,000 children were treated each year in hospital emergency rooms because of toy-related injuries.

Although manufacturers are regulated by the governments of the companies in which they operate, the toy industry has faced growing concerns from consumers, labor and human rights groups, environmentalists, and trade associations for increased global regulations. The International Council of Toy Industries (ICTI), based in New York, is made up of toy associations from Australia, Austria, Brazil, Canada, China, Chinese Taipei, Denmark, France, Germany, Hong Kong, Hungary, Italy, Japan, Mexico, Russia, Spain, Sweden, the United Kingdom and the United States. Among other objectives, the ICTI promotes ethical and safe working practices, establishes toy safety standards, and attempts to reduce or eliminate trade barriers. According to the code of business practice of the ICTI, member companies and their suppliers must not use forced or underage labor and must provide a safe working environment. In 2004, the council established a committee to draft a voluntary code for advertising aimed at children. This code was expected to follow guidelines set by the U.S.-based Better Business Bureau.

Sporting Goods

The sporting goods segment includes a wide scope of businesses and products, and there are numerous participants. A few large companies might dominate a specific sector, however. For example, Calway is the world's leading supplier of metal golf clubs. Nike and adidas-Salomon are among the most recognizable names in the world, but they are predominantly footwear and apparel manufacturers. However, their acquisitions into the sports equipment field and the licensing of their brand on many related products have made them industry leaders in the equipment arena, too.

BACKGROUND AND DEVELOPMENT
Toys

The first toy was probably made around the time the first child was born. The children of ancient Egypt played with balls, tops, and pull-along animals, and kites were developed in China around 200 B.C. Germany, however, was generally considered the pioneer in toy making as an industry. By the end of the eighteenth century, one German toy firm, Bestelmeier of Nuremberg, was issuing a catalog with more than 1,200 entries. At the beginning of the twentieth century, toy making was one of Germany's most important industries, and one-fourth of the toys produced there were exported to the United States.

Because of the reliance on European toy makers, the industry in the United States developed slowly. But U.S. toy makers received a strong boost at the start of World War I, when shipments from Germany were cut off. Imports from Germany rose after the war, but the U.S. Congress installed high tariffs on imported goods, thereby protecting U.S. manufacturers. By 1939, some 95 percent of all American toys were manufactured domestically, compared with 50 percent in 1914. The toy industry in the United Kingdom followed relatively the same pattern as the United States—initially a heavy reliance on Germany, and then strong growth in the first decades of the twentieth century. In its infancy, the toy industry in Japan gained a reputation for shoddy workmanship, since inexpensive labor allowed it to flood European markets with cheap toys. As in many other industries, however, Japan gained a reputation for fine products.

In the postwar period, toys dealing with the United States' Wild West were popular in both Europe and North America, and construction toys, pioneered by the Danish firm Lego, also captured kids' imaginations. Television also contributed to the spread of toy culture, fueling the mass merchandising of toys that were considered requisites in mainstream households. Two of the most successful toys in history were Barbie and G.I. Joe, introduced, respectively, in 1959 by Mattel and in 1964 by Hasbro, bringing both companies to the forefront of the industry. By 2002, Hasbro had decided to put more marketing attempts into these perennial favorites and family games such as Monopoly eschewing the sometimes lucrative but often boom-or-bust toy fads that led to some rocky economic times for the company.

By the mid-1990s, the world's two largest markets, the United States and Japan, showed signs of maturity, while Southeast Asia had the fastest growth. The video game craze, which had come to Europe later than to the United States, shored up European markets. In the United States, sales of so-called traditional toys (which excludes video games) rose only 1.6 percent in 1993, but video game volume jumped 18 percent. The...

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