Jot – toy case study The date of the case is set at 1 November 2012 Industry background
There is a large number of companies of various sizes which design and sell toys to retailers globally. Most toy companies outsource the manufacture of their toys and currently 86% of the world’s toys are manufactured in China. Most of the rest of the world’s toys are manufactured in other Asian countries, with only low volumes of products manufactured in Europe and the USA. The toy market is divided up into a variety of sectors, by children’s age range and the type of toy. There are different sectors with toys aimed for babies under one year old; children aged 1 to 3 years and pre-school children of 3 to 5 years. There is a further sector for children of school age of 5 years and upwards. Additionally the toy market is broken down into categories of toys. Research has shown that children aged 2 to 4 years old receive the most toys in quantity but that the most money is spent on toys for the 6 to 8 year age group. Toys sold in the market to those children aged between 9 and 11 tend to be more sophisticated. Some of these games need access to the Internet and most involve more complex programming. The other feature of this age group is that the ‘buyer’ tends to switch to the child from the parent. That is not to say that the child pays the money, more that the child drives the buying decision, always subject to the budget and final say so of the parent. The current trend in toy sales is towards electronic toys and computer assisted learning. Many of these electronic toys are highly developed to be attractive to children. Sales of traditional toys and games have achieved relatively low growth in the European market over the last 10 years, whereas electronic toys and merchandise from popular films and TV programmes have seen reasonable growth. Merchandise from films and TV programmes are licensed to toy manufacturers or toy retailers that can achieve high short-term profits depending on the licensing arrangement and the volume of sales. However, fashion trends are difficult to predict and toy retailers can be left with large volumes of unsold inventories if the toys are unpopular or less in demand than originally anticipated. The toy market is highly seasonal and is dominated by the pre-Christmas sales period. Typically, around 30% to 55% of toy sales occur in the fourth quarter of the calendar year (October to December). China has established itself as a high quality, low-cost manufacturing base for a wide range of consumer products for global markets. It does not, as yet, principally design and create new products, but instead is capable of manufacturing products that have been created by Western companies. It is necessary for the companies which create the designs, whether the product is a toy, a range of clothing or a computer chip, to ensure that the design is protected by registering the design for intellectual property rights (IPR’s). However, in many instances small changes can be made so that ‘copies’ of the design do not breach the IPR. Legal protection of IPR’s is becoming increasingly important in today’s global markets, where resources are sourced in one area of the world, manufactured into finished products in another area (principally in China and other Asian countries) and then sold in other geographical markets. Most toy retailers procure a range of products from many different toy companies. There is a wide range of companies, from small to very large multi-national companies, which operate as toy design and distributing companies. These companies design, patent or license the toys and then outsource the manufacture to specialist toy manufacturers. Most toy companies outsource the manufacture of toys. Contracts are usual in the industry and would normally include clauses concerning design quality, delivery schedules and penalties for breaches of contract. The toy companies then sell their products to toy retailers. There...
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