Hasbro, the world’s second-largest toymaker, says its China-based suppliers are increasingly shifting production away from the coastal industrial regions as they face rising costs.
David Hargreaves, chief financial officer, said the company expected a 14-15 per cent increase this year in the costs of made-in-China products, due to higher labour, commodity and currency costs, as well as the impact of additional product safety testing in the aftermath of last year’s US toy safety recalls.
“Some of our vendors are moving further into China in order to obviate the higher labour costs,” he said.
Al Verrecchia, chief executive officer, predicted that suppliers would respond to the rising prices by gradually extending their own supply chains to factories based around inland cities and away from the coast.
“I think you are liable to see more people moving inland into China, and...probably over a longer period of time, you’ll see some sub-assemblies, some painting operations moving inland, and then final assembly continuing to be done at existing factories,” he said.
Expanding production to inland regions, which often lack infrastucture for modern manufacturing, presents significant challenges for suppliers.
But Mr Verrechia said inland China still seemed more attractive than shifting production to neighbouring Vietnam, which was limited by its smaller size, language issues and a lack of support services and infrastructure.
“You start to develop new vendors in places like Vietnam, you’ve got to start all over again with issues of quality and safety and product reliability,” he said.
Hasbro says it currently sources “the substantial majority” of its toys from China.
The company yesterday reported that its fourth- quarter earnings rose 23 per cent to $133.7m, beating Wall Street’s expectations, with support from strong sales of its toys linked to last summer’s Transformers live action film. Revenues increased 16 per cent to $1.3bn
Mr Verrechia, 64, will step down in May after five years as CEO.