U.S Toymaker Moving against the Tide to Double Down in China

Global manufacturers have started reducing their reliance on China led by increasing tariffs, pandemic and subsequent lockdown caused disruption and rising costs. Thus, many have started moving their assembly lines to other lower-cost countries such as Vietnam, Malaysia, and even Japan. 

For most U.S.-based companies operating from China, transporting to another Asian Market was not a need until 2018, when tensions increased between Washington and Beijing and soon changed into a trade was marked by penal tit-for-tat tariffs. The trade war also paved the way for other Southeast Asian nations to invite American companies by inciting through lower labor costs and calmer international political scenarios. Even Japan offered to pay its national companies for relocating away from China. 

Kids2, an Atlanta-based maker of toys and infant products, has been running the tide and recently opened the first phase of a new factory on the banks of Yangtze River in central China, costing $20 Million. Ryan Gunnigle, Chief Executive of the company, stated that the country’s adequate supply networks, still essentially competitive labor costs, and the growing domestic market are significant for manufacturing companies. 

The five-decade-old brand has seen its competitors change location to other countries only to move back to China as the costs in other countries were too high or had a constant problem of labor shortages and difficulty finding suppliers. Although there is a lot of risk in operating in China, the toy company still feels that since their products involve sewing, steel, plastic, electronics, China is the best place to bring it all together. 

Kids2 is one of the many that has been hurt due to volatile tariffs imposed on different manufacturing goods resulting from the U.S. – China trade war. As per reports, it has paid almost $6 Million on Chinese imports since April 2018. Most tariffs imposed remain in place even as challenges to manufacture in China surmount more so with the onset of the Coronavirus pandemic. 

China’s most significant advantage in contrast to other Southeast Asian countries is their labor costs are lower. Further, finding workers in the country is more accessible and cheaper than on the coasts, where foreign investment has been concentrated. Building a factory in the country also makes it convenient to sell in its domestic market, comprising more than 400 million middle-class consumers.  On a positive front, China also managed to keep its factories mainly operating all of the last year, even when other locations battled through lockdowns intending to curb the virus. Exports in the country faced a slight drop in early 2020; however, they have steadily climbed up on a year-over-year basis for 12 months straight, with even recording a sky-high increase of 155% in February as per China Customs data.