By: Steve Toloken
March 6, 2013
HONG KONG — Imagine if Walt Disney Co. owned injection molding factories and you get some idea of the business model of one of China's largest toy makers, Guangdong Alpha Animation & Culture Co. Ltd.
The Guangzhou-based company makes popular kids' animation and TV shows in China, and then combines that with its own sizable factories, where it has more than 170 injection molding machines.
"We say we have an animation-driven toys business," Vincent Hsieh, general manager of the company's content and brands business division, in an interview at the recent Hong Kong Toys and Games Fair.
For many global toy companies, outsourcing manufacturing, often to China, is a key part of their business strategy. But for Alpha, keeping substantial production in-house is seen as a way to maintain quality.
The company continues to make sizable investments in manufacturing, even as its content business and its TV shows like Blazing Teens become more and more important to its finances.
Last year, for example, it opened a 180 million Chinese yuan (US$28.8 million) factory in Chenghai, Guangdong province, to expand production to keep pace with rising demand.
"Manufacturing is still a very, very important segment for our value chain," Hsieh said. "To make sure we can deliver a very qualified product, a very popular product to the target customer, it depends on a very good factory."
The company, which said it is China's first publicly listed animation company, is also beginning to strike content-related deals with other global toy makers.
In October, it announced a partnership with U.S. toy maker Hasbro Inc. to jointly develop one brand from each company both globally and in China, where Alpha products are sold in 20,000 stores.
"This long-term, strategic partnership will marry Hasbro's global capabilities in both merchandise and television programming with Alpha's expertise and reach in entertainment, including television programming and toy distribution within China," said David Hargreaves, chief operating officer for Pawtucket, R.I.-based Hasbro, in a statement from the two companies.
Alpha will contribute its Blazing Teens brand to the partnership, the company said.
The company's manufacturing focus reflects its history.
It started in 1993 as a toy maker in Chenghai, but from the beginning focused on its own branded toys rather than working as a contract manufacturer for global companies, said Echo Jiang, senior licensing manager in the company's overseas business department, in a separate interview at the show, the world's second-largest toy fair, held Jan. 7-10.
In 2003, Alpha started making its own cartoons as a way to sell more toys, Jiang said, and has since expanded its content business into TV shows, comic books, mobile phone games and other marketing channels. In 2009, it listed on the Shenzhen Stock Exchange.
Today, Jiang said, Alpha has a 30 percent share of China's domestic market in its various product categories, among children 4-12 years old. It also sells its toys in Southeast Asia, Europe and North America.
Alpha's focus on its own content and branding has given it higher profit margins than other Chinese toy makers and provided some protection from rapidly rising costs hitting toy factories, she said: "We truly have a different position."
The company reported that sales rose 19 percent in 2011 to 9.72 billion yuan (US$1.55 billion) in 2011.
Still, she said the firm is looking at actions to mitigate rising manufacturing costs, such as possibly building a plant in Jiangsu province as a hedge against factory wages that have doubled in the last five years in Guangdong province.
Jiang said Guangdong Alpha does outsource some production as it needs to, but will bring more manufacturing back in-house with the new factory and will create more specialized manufacturing units.
Alpha does not try to be the lowest-cost toy maker, and has no plans to enter the extremely cost-conscious business of making products for other global toy brands, she said.
"To be frank, our factory cannot do OEM," she said. "Our products in overseas markets have higher prices than other Chinese factories."