22 December 2011 Last updated at 12:07 ET

Toy town: Hong Kong's toy makers seek wider recognition

By Katie Hunt Business reporter, BBC News, Hong Kong

Hong Kong has been making many of the world's toys for the past 60 years

Your kids may believe that the toys they received this Christmas came from Santa, but toy industry veteran C K Yeung knows differently.

While production takes place in Chinese factories, he says it is Hong Kong that is responsible for the action figures, dolls and remote-controlled cars placed under Christmas trees the world over.

"We are the major source of the world's toys," says Mr Yeung, the executive vice president of the Toy Manufacturers Association of Hong Kong.

"Seventy percent of global toy products are made by Hong Kong-run companies."

But despite employing hundreds of thousands of workers and shipping millions of products worldwide, the industry has remained firmly in the shadows of the big-name brands for which it manufactures.

Mr Yeung hopes a new exhibition he has organised at the Hong Kong Design Institute of more than 1,000 Hong Kong-made toys will showcase the former British territory's toy making roots and may eventually lead to a permanent museum.

It features all types of playthings, from rare Qing dynasty figurines to the Cabbage Patch dolls and Teenage Mutant Ninja Turtles produced during the industry's 1980s heyday and the latest digital toys that hook up to iPods and iPhones.

Rising wages

The exhibition also comes at a turning point for the toy industry, which has experienced little Christmas cheer over the past few years.

C K Yeung has worked in the toy industry for 35 years

It is struggling with rising manufacturing costs in China and sluggish demand in Europe and the US, where parents are spending less on toys in the wake of the 2008 financial crisis.

Eddie Wong, the deputy chief executive of Silverlit Toys, which makes remote-controlled helicopters and cars, says the minimum wage in Dongguan, the southern Chinese city where his company manufactures, rose 18% last year and is expected to rise another 15% in 2012.

"But even with rising wages, there is a big shortage of labour along the coastal cities," he says.

"The new generation of workers, unlike their parents 20 years ago, do not need to travel to the far south to look for work, because many landlocked cities have been growing fast in the last five years.

And for them, the quality of living is another consideration... these young men and women have become disgruntled about too much or too monotonous work duties."

According to a survey of 149 Hong Kong toy manufacturers in December, almost two-thirds saw turnover fall this year, and 57% expect business performance to further deteriorate in 2012.

Brands

Most Hong Kong toy makers agree that they need to move away from their role as low-cost manufacturers for big-name Western and Japanese toy companies and develop their own brands that rival the likes of Hasbro and Mattel in the US, and Bandai and Tomy in Japan.

Cloth cats were popular playthings in China before the advent of mass production

"Margins have become slimmer and slimmer," says Mr Yeung.

But with a few exceptions such as electronic learning toy specialist VTech, they have been slow to develop their own designs and brand identity on a global level, says Remi Leclerc, who teaches toy design at Hong Kong Polytechnic University.

He blames the internal culture at many manufacturers, where production managers are focused on quick turnaround times and dislike the uncertainty of the design process.

"Design is about taking risks," he says, surrounded by toys in his office. "And that's a problem for a lot of manufacturers."

Local designers are also at a disadvantage in Hong Kong's export-focused industry as they are often designing for cultures different to their own, he adds.

Hong Kong's toy makers have also been slow to capitalise on China's potential as a new market, despite a shared culture that should give it an edge over foreign rivals.

China's market is now worth a fifth of the US toy market and that is expected to increase to 50% (about $12bn) in the next five years as Chinese parents discover the educational value of toys.

Many of the rags-to-riches entrepreneurs that founded Hong Kong's toy industry fled to the city during periods of great turmoil in China, and that has coloured their view of the country as a viable market, says Mr Leclerc.

Sunset industry?

Mr Yeung's passion for toys is clear as he guides me around the toy exhibition, pointing out a rare model of a 1947 King George coronation carriage made by Matchbox, the UK die-cast toy maker that was taken over by a Hong Kong entrepreneur in the 1980s.

Hong Kong companies have been behind some of the hottest toy crazes

Another highlight is a fragile sheet of cut-out paper kimonos for paper dolls that was only manufactured during Japan's three-year occupation of Hong Kong.

From Cabbage Patch Kids to Teenage Mutant Ninja Turtles and Transformers and Barbie dolls, Hong Kong companies have been behind most of the world's hottest toy crazes.

But with kids turning to non-traditional playthings such as video games, computers, music and cosmetics at younger ages, some say toy manufacturing may be a sunset industry.

That is something that Mr Yeung can't bring himself to agree with.

"As long as there are kids, they will need toys to play with."