Half of the world's toys are still made in China's Guangdong province, but toymakers there have been complaining about razor-thin profit margins for a while. Some of them are exploring new product categories. Dongguan Jian Sheng Industrial Co. Ltd., for instance, is now making LED light fixtures.

The injection molder has downsized its toy division from more than 5,000 employees at peak time to a few hundred workers right, according to a recent feature story by First Financial Daily.

Chairman Li Weijian said he made the reduction in spite of growing market demand. Costs are creeping up, and he just couldn't find an effective way to ensure profitability.

Li said he started the toy business in 1989 and claims big-name customers including Mattel, Wal Mart, Disney and KFC.

For a while, the company thrived with the scale of production. However, thanks to fluctuating raw material prices, continuous wage hikes, and the strengthening Chinese currency, the risk associated with large-scale, low-margin manufacturing outweighs the reward.

Other challenges include trade barrier and stricter product safety measures by North America and Europe, he said.

A personal experience -- his old friend and toy factory head, Zhang Shuhong, committed suicide during Mattel's massive toy recall in 2007 - also made Li rethink about the toy business.

During the past year, his factory has built 800,000 square meters of manufacturing space for light fixture production and annual production capacity of 1 billion yuan worth of products, Li said.

He sees a great future for exporting energy-saving lamps and a good opportunity to finally build his own brand after decades of custom molding. He believes it's easier to build a brand in a new and fast-growing product category, which the toy business is anything but.