Internal Market, Industry, Entrepreneurship and SMEs

The EU Toy Industry - The Economy of Child’s Play

The EU Toy Industry - The Economy of Child’s Play
Published on: 17/11/2014
Every Christmas the toy industry enjoys a flood of sales, but with challenges such as counterfeiting, demographic changes and technology advancements, they must adapt to stay afloat and at the same time ensure that toys are safe.

The EU is setting a clear framework for toy producers in Europe – the world’s second-largest toy exporter behind China – as well as outside Europe to stay on the path of success in the EU.

Several challenges await the EU toy industry. First, the number of children under the age of 15 in Europe and the U.S. is likely to decrease in approaching years, and in China, a major market for EU toys, the one-child policy has led to a decline in the child population. Furthermore, video games and other electronics, such as applications for tablets, are increasingly popular and pose threats that didn’t exist in decades past. The combined effect of the ageing of the population and the increased competition of electronic toys is likely to negatively influence the demand for traditional toys.

With this in mind, the ‘Study on the Competitiveness of the Toy Industry’, an analysis released in 2013, addressed both the hurdles and opportunities that lie ahead. Indeed, it is not all bad news: The EU market for traditional toys and games – such as dolls, construction toys, sports toys, board games and puzzles – was worth a robust €15.8 billion in 2011 at retail selling prices, ahead of both the US and China. The UK, France, Germany, Italy and Spain are the largest toy markets in the EU. Overall, the EU market currently represents 28% of worldwide traditional toys and games sales. Moreover, the market for traditional toys and games experienced a speedy recovery after a decline in the early 2000s, and global toy consumption is projected to rise by about 7.5 % annually until at least 2016.

The economic importance of the EU toy industry

The EU toy industry encompasses around 5,300 enterprises and employs an estimated 51,000 people in Europe. SMEs represent the lion’s share of EU toy industry: on average, about 84 % of companies in the sector have between 0 and 9 employees. However, firms of medium or large size account for 66% of persons employed in the toy industry. As regards geographical distribution, Germany, Italy and Spain clearly emerge as the largest toy industries in Europe. Germany is by far the largest producer in terms of both employment and turnover, accounting for a quarter of all people employed in the EU toy industry.

Safety and competitiveness of EU toys: two sides of the same coin?

The study underscored factors that may stunt the toy industry’s growth. In addition to the shift towards electronic games and the decrease in the child population, costly regulatory burdens are a concern for producers, especially small and medium-sized enterprises (SMEs), which account for an overwhelming majority of enterprises in the toy sector. Furthermore, counterfeit products (see box) pose a threat both to producers, which cannot compete with counterfeit prices, and consumers, who are vulnerable to these products’ lax safety standards.

There are around 80 million children under 14 in the EU. Ensuring safety requirements and standards keep up with the latest toy trends is vital, especially as new materials and manufacturing processes are constantly being developed. The Toy Safety Directive (TSD), published in 2009, provides the framework for manufacturers and importers to ensure that toys are safe in the EU. Because competition to lower retail costs is reflected in production strategies – with many producers outsourcing production to China to lessen costs – it is important that administrative and compliance costs linked to the TSD remain limited to those guaranteeing safe toys for our children. The differences in toy safety regulations between the EU and external markets are another factor leading to additional costs.

Although costs and burdens may negatively impact the competitiveness of small toy producers, it is also true that toys produced in the EU in highly automated factories can also be cost competitive, especially if the relevant inputs can be found locally and transportation costs from China are high. This is why some firms deliberately choose to produce in the EU.

A number of trends reinforce the outlook of growth for the market of traditional toys. First, purchasing power is substantially increasing in emerging markets – especially in China. Second, the increasing popularity of cross-over toys and games – namely those allowing traditional games to be played on electronic platforms and interaction between physical toys and games and applications on tablets and smart phones - may favour the EU toy industry over its competitors. Furthermore, licensed toys and niche markets (such as fair trade and eco-design toys) provide attractive opportunities for European producers. Last but not least, the study observes that the main trend in retail of traditional toys across Europe is the rise of Internet sales.

Keeping up with the trends

New ICT (information and communications technology) products are fast becoming popular substitutes for traditional toys. Video games, smartphones, tablets and other entertainment products are popular among children in both mature and emerging markets.This new challenge presents a new opportunity and several EU producers of games and toys have recognised this market opportunity, often entering these platforms in collaboration with the digital entertainment industry.

Counterfeiting remains a huge problem for the toy industry, affecting EU producers’ ability to innovate and compete. This may be particularly problematic for SMEs, as they lack the financial capacity to initiate litigation measures.

From 2010-11, the Commission reported 872 registered infringement cases for toys with a retail value of €16 million, and 2,585 registered infringement cases for games with a retail value of €20 million. The two main places of origin were China (88 %) and Hong Kong (10 %).

The European Commission is stepping up its fight against counterfeit products, with the recently-launched ‘Stop Fakes’ campaign, designed to strengthen the enforcement of IPR within the EU and abroad.