GlobalBusiness
Aug. 10 from the certificate requirement.
china
bottlenecks
in toyland
New inspections have Chinese suppliers
scrambling to ship in time for Christmas
A
By chi-chu tschang
s beijing cracks
down on unsafe toy
exports and demands
more testing for quality,
many small toy produc-
ers in China are feeling
a financial squeeze. The
increased testing “has created real havoc
for some retailers in the States and man-
ufacturers” in China, says Ron Rycek,
vice-president of toy sales at Hilco Corp.,
which sells toys such as Sonic Skillball to
Toys “R” Us and Amazon.com.
Late summer and early fall are typi-
cally the peak season for China’s toy
factories. But in August, the govern-
ment ordered more spot inspections and
required toymakers to provide detailed
information on the paints they use. In
the past, exporters were able to ship their
goods as soon as they rolled off produc-
tion lines, but now they’re forced to keep
toys in warehouses while authorities test
samples for safety before they can be
certified for export. “Our products were
held for 15, 20 days before they were
released,” grouses He Shiming, ceo of
Yunhe Lixin Arts & Craft Factory, which
makes wooden xylophones, blocks, and
cars for kb Toys Inc. and others.
Some smaller manufacturers, espe-
cially makers of wooden
toys, are getting hit hard.
Under the old policy, toys
Testing may
made of wood didn’t need cull vendors
a certificate to be exported.
But that changed after lead looking for a
paint was discovered on
shipments of Thomas the quick buck
Tank Engine. The change
has been devastating for
the likes of Zhejiang Yunhe Xinfeng
Art & Craft Factory. Last year, it booked
sales of $400,000, with half of the orders
for its 3D wood puzzles coming in Sep-
52 | BusinessWeek | October 15, 2007
tember and October. The company had
expected this year to be even better, but
customers now worry that Xinfeng won’t
get an export certificate,
so no new orders have
come in since the summer.
The company has since
laid off about 90 of its 100
workers. “We’ve stopped
production until we get
the certificate,” says man-
ager Chen Shaoping.
The good news is that
most toys intended for this year’s holiday
season will likely arrive in plenty of time to
be wrapped and placed under the tree. The
new policy exempts orders placed before
By August, “probably 80% of the toys for
Christmas are already on the water,” says
Peter Fishel, who ran a Hong Kong trading
company specializing in low-cost toys for
more than three decades before retiring in
2004. Still, many companies that haven’t
shipped yet report that toys ordered now
will likely reach U.S. ports about five or six
months after they’re ordered, up from a
three- to four-month lag before the crack-
down. The rules “will affect [manufactur-
ers] next year, for sure, because they’re
going to have to change testing systems,
timing, and so on,” says Fishel.
But even some companies that are
able to keep operating feel the pinch. Man-
ufacturers generally don’t
get paid until they ship
their products, and they
usually take out loans to
buy materials, pay wages,
and cover other expenses
until customers transfer
funds. With toys now sit-
ting in warehouses while
samples are sent to labs,
producers can’t repay
those loans as quickly as
they had expected. The
testing “is holding up
our capital and our ware-
house space,” says Leona
Lam, ceo of Leconcepts
Holdings, a Hong Kong-
based subcontractor that
supplies parts to factories
making plastic toys for
the likes of Mattel Inc.
and Fisher-Price. Kwok
Nam Po, managing di-
rector of Herald Metal &
Plastic Works, which pro-
duces G.I. Joe, Star Wars,
and Batman action figures
for Hasbro Inc., says his
company has been feeling
too small? a credit crunch from the
Testing toys delays. “It’s a burden,” he
in Hong says. “A lot of pressure.”
Kong for The increased testing
choking
hazards
is also expensive. amw
h.k. Ltd., which makes
bobby yip/reuters photo archive
doll dresses and other
toys for Mattel, has seen its costs for test-
ing jump by more than 10%, and is now
building an in-house lab to meet Mattel’s
new standards. Still, that may not be such
a bad thing for stronger players. “Cheap
vendors aren’t going to be in the market
anymore,” says amw boss Katherine
Geicke. “They can’t afford it. It’s going
to weed out the ones who compromise
safety for a quick buck.” zz