21 Feb 2019
The Business Strategies of a Toy Licensee in Mainland China
Roy Lin, Managing Director of Shuoya Trading (Guangzhou) Co Ltd, sees one-stop brand marketing solutions as the key for business growth.
The licensing market in China has witnessed rapid growth in recent years, with licensed merchandise retail sales reaching RMB74.7 billion in 2017 . A study has forecast that sales of licensed traditional toys will grow at an average annual rate of 7% in 2019-2022, much faster than that of other mature markets in Asia (1.6%) .
China’s licensing market has entered a period of rapid development. Toy licensees need to pay more attention to supply chain integration. Industry players strong in both R&D and marketing will be able to find opportunities for opening up new areas of business, as well as strengthening co-operation with existing clients.
Shuoya Trading (Guangzhou) Co Ltd first ventured into the licensing business in 1999. It achieved ISO 9001:2000 quality management certification in 2004 and is a member of the Licensing Industry Merchandisers’ Association (LIMA). One of its major businesses is to draw up and execute promotional gift marketing plans for leading mainland firms. It was one of the first companies to use licensed brands on promotional gift B2B marketing and branched out into B2C business in recent years, now selling licensed brands of toys both online and in-store.
Shuoya Managing Director, Roy Lin, spoke to HKTDC Research recently about the operational mode of toy licensees and licensing industry development trends in China. His views should be of help to businesses interested in this market.
Understanding the Brands
In Lin’s opinion, picking which brands to work with is an important investment decision for a toy licensee, and should be done by considering four factors. First, does the brand have sustainable appeal in the market? Second, will the brand be delivered across media such as animation, movie and game, in mainland China? Third, is the brand in line with the image and positioning of the company’s existing clients? Fourth, can the company further collaborate with the brand and develop more product varieties together? For example, Shuoya teamed up with Playskool Baby because there were few licensed brands of baby goods suitable for babies and children aged 0-3 on the mainland.
On the part of the licensor, whether a licensee understands and can protect the image and values of the brand is most important. On the other hand, a toy licensee needs to have a clear idea of the original concept and story behind the brand and its connotations, and have the ability to develop different products. This is the only way to maintain a long-term relationship.
Lin stressed the need for the toy licensee and licensor to work together to tap the potential of the brand. Their relationship is one of mutual trust, reciprocity and mutual benefit. As to ways of finding suitable brands, Lin viewed trade fairs and seminars as the main channels, saying: “There are two licensing shows in Shanghai and one in Hong Kong each year. Usually I would go and have a look.”
Outdoing Corporate Clients in Understanding Consumers
In its promotional gift B2B business, Shuoya strives to understand the consumers better than its corporate clients do. When designing promotional gifts for a renowned global brand of baby formulas, Shuoya took into consideration the fact that new-generation mothers have greater anxieties than their predecessors. A booklet was published to teach them how to ease their anxieties. By way of illustration, Lin said: “We can apply all kinds of knowledge in our work. For example, psychology is very useful for understanding the mentality of consumers.” Thus, a toy licensee may try to match its brands with market needs, and provide suitable products for consumers, other than toys.
A company may also make good use of the brands in hand to continuously offer innovative suggestions to clients and introduce new products to consumers. Lin said: “Every brand has its own stories and values and a toy licensee needs to choose suitable products in the light of its characteristics to produce the best results. For example, the Palace Museum in Beijing is a very popular brand in recent years and is particularly suitable for ethnic and cultural products. It is very important to have sufficient brand resources in hand in order to offer clients product varieties.” A company will be able to maintain a long-term relationship with clients if it can continuously offer novel business ideas to clients.
R&D Capability Further Helps Cost Control
Competition is increasingly keen in the licensing industry and the Minimum Guarantee (MG) and Royalty Fee are on the rise . Toy licensees without R&D capability will find diminishing space for survival. Lin said: “A licensee pays the MG after signing the licensing agreement. It takes at least three to six months to design products after obtaining the relevant brand information and submitting the designs to the licensor for approval. A toy licensee that lacks experience in product development may find their MG going down the drain if there are some hiccups in this process.”
Shuoya has its own product R&D team and can design its own toys, cultural and creative products, daily necessities, and clothing and accessories. Shuoya attaches great importance to the fashion sense of its staff. Lin said: “We have weekly movie shows for our staff so they can keep abreast of the latest pop culture. When we hire staff, we would assess their understanding of pop culture in addition to their designing capability and experience to find out whether they are pop culture ‘players’.” As the bridge between the licensor and consumers, a toy licensee will have a better grasp of time and operating cost if it knows the cultural connotations of the brand and the preferences of consumers at the same time.
One-Stop Product R&D and Sales
Shuoya’s product R&D and sales capabilities and understanding of the market have won the recognition of its licensors. It has not only been licensed by Tomica, a Japanese toy brand, to design, produce and sell jigsaw puzzles and stickers in China, but also to operate its online sales outlets, such as Tmall.com and JD.com. Lin attributed Shuoya’s successful venture into the B2C business to the drastic changes in China’s toy market in recent years, saying: “Traditional toy traders are accustomed to multi-level, bricks-and-mortar distribution. The China market is vast and has many channels. Online channels which have emerged in recent years have clinched a big share of this market and the traditional mode of multi-level distribution is no longer suited to market changes. “Online marketing is distinctly different from traditional multi-level, bricks-and-mortar distribution. Some online stores require goods to be cheaper than similar items on Tmall to be put on their shelves. Experienced agents would coordinate the distribution of goods through more platforms and channels while avoiding a price war. This is quite a test on an agent’s understanding of the market and consumers.”
The White Paper on the Development of the Brand Licensing Industry in China 2018 pointed out that licensors value three criteria most when choosing licensees, namely, reputation (78%), product selling capability (78%) and R&D capability (70%). Providing one-stop brand marketing solutions, from design to sales, is increasingly the mode of operation of toy licensees in China.
Spending Power of Anime Fans Not to be Under-estimated
Besides handling the B2C online sales business of its licensors, Shuoya also operates its own B2C anime sales business. More and more people have become big fans of games, animation, movies and other forms of entertainment and pop culture in recent years. Their demographics range from adolescent to middle-aged and their spending power is not to be under-estimated.
Shuoya established its own B2C brand Fanthful in 2016. In addition to spin-offs of imported brands, it also produces and sells spin-offs licensed by their creators, such as PVC figures and clothing and accessories of Assassin’s Creed, Monster Hunter, PlayStation and other brands. Shuoya has developed a mobile phone app and opened an online store and a number of physical stores for Fanthful. The first Fanthful physical store was opened in Shanghai in 2018. The store has two levels. The ground floor is for product sales and the upper floor is for activities. Besides selling spin-offs of games, movies, animation and other themes, Fanthful also offers free trials of games and hosts sharing sessions and even competitions for anime fans.
In Lin’s view, the entertainment and pop culture market has very considerable potential. Clothing, caps and bags are items that anime fans love to buy and wear at fan gatherings, while PVC figures are their favourite collectible items. Physical stores have the potential of becoming favourite hangouts of anime fans and can expect to further boost the sales of other Shuoya products.
Practical Tips for Hong Kong Companies
Hong Kong has a head start on the mainland in its toy licensing industry and product design. It also has more extensive contacts with other parts of the world. The Pearl River Delta in Guangdong has long been the global manufacturing base for toys and is strong in injection moulding, optoelectronics and other production processes. In Lin’s opinion, Hong Kong firms should be able to bring innovative ideas and quality products to the mainland market if they can make good use of the strengths of the mainland manufacturing industry. Hong Kong has a leading edge in anime PVC figures and a Hong Kong firm has successfully captured the hearts of mainland anime fans with well-crafted figures with excellent details, he added.
A successful brand needs to continuously promote and update its core properties through related animation, films, games, etc. Designers also need to bear in mind the cultural differences between markets and make sure that the cultural elements and messages conveyed resonate well with the target consumers in order to increase the brand’s appeal. More and more licensors have shifted their Asia-Pacific headquarters to mainland cities in recent years. Mainland licensees have their strengths in supply chain and client management. Brand designers wishing to enter the mainland market may consider teaming up with local firms. Lin said: “It has become increasingly difficult for a brand to achieve overnight success. After all, there are many rivalling brands in the market and the only way to achieve market recognition is to continue to put out good content.”
 Source: White Paper on the Development of the Brand Licensing Industry in China 2018.
 Source: Euromonitor International. Here “traditional toys” refers to non-electronic toys, like dolls, building blocks, jigsaw puzzles and battery-operated toy cars.
 Minimum Guarantee (MG) is the fee the licensee agrees to pay the licensor upfront after the contract is signed, while Royalty Fee is collected by the licensor as a percentage of sales.