Like many small Chinese factories, plastic baby products maker Ningbo Prince Toys Co. Ltd. has been hit hard by the worldwide economic downturn, with overseas business drying up and sales dropping 50 percent since October.
So, the 100-employee company adopted what may be an unusual strategy for a relatively small factory — it licensed the rights to use the popular Japanese manga cartoon Doraemon, about a robotic cat from the future, on its baby walkers and other infant toys in China.
The move carries risk. General Manager Tony Shen admits there's little he can do if, for example, others in China start to illegally copy the designs his 15-press injection molding company paid to use.
But, Shen believes the Doraemon-licensed products will sell for 10 percent more than similar baby products, and he'll focus on quality as a way to beat potential counterfeiters, he said in a Jan. 5 interview at the Hong Kong Toys & Games Fair.
Toy industry officials say that kind of product licensing could help companies as they struggle with finding ways to make money amid slowing economies and cautious consumer spending. The Hong Kong Trade Development Council, which organized the toy fair, held a Jan. 6 seminar on licensing popular movies to boost sales.
Hong Kong government authorities see licensing as potentially a good business strategy for their beleaguered toy industry, and next year plan to collocate the city's annual trade show on product licensing with their early January toy fair — the world's second-biggest toy exhibition after the Nuremberg International Toy Fair in Germany.
Film industry speakers at the Hong Kong licensing seminar encouraged companies to seek licenses but cautioned them that it requires doing their homework. A toy licensed from a popular movie can offer better profits, build awareness of a manufacturer's other branded products and open new lines of distribution, said Marilu Magsaysay Corpus, chief executive officer of Click! Licensing Asia Inc. Corpus' Pasig, Philippines-based firm is the Asian agent for Marvel Entertainment Inc. of New York.
But licensing also has pitfalls for manufacturers, she noted.
Corpus advised reading contracts carefully and making sure that the film company's requests for royalties and minimum guaranteed payments for the license are reasonable. Companies also should be wary of so-called ``slice and dice'' movie studios and entertainment firms that may give out too many licenses in such narrow product categories that licensees wind up making similar products and competing against each other, Corpus said.
But licensing can work as a strategy, she said. She gave the example of an Indonesian maker of plastic plates that boosted sales by licensing a popular American movie for use on the plates in Indonesia.
Licenses are not necessarily expensive, Corpus added. While costs vary widely, a small license for a year could start at about US$10,000, she said.
Corpus noted that prospective licensees must pay attention to product quality and safety. Any license dealing with plastic toys today, for example, has specific language on the use of phthalates and other chemicals, she said.
Such licenses are not only for big companies, said a speaker from the consumer products arm of DreamWorks LLC movie studio in Universal City, Calif. Sheila Clarke, head of international licensing for DreamWorks Consumer Products said small firms sometimes are more innovative than large ones. She said that when she was selling licenses for the first Shrek film, before it was a hit, some larger, traditional licensees turned her down, but some smaller, more creative firms saw the potential.
A few Chinese toy makers have moved beyond licensing, and are creating their own cartoons and other products as a way to drive sales and own the content behind it. Guangdong Alpha Animation and Culture Co. Inc., a Shantou maker of metal and plastic toy vehicles under China's Auldey brand, opened an animation studio in 2005 to make cartoons connected with its racing cars.
The episodic cartoons depict two brothers involved in car races around the world, and is a core part of Alpha's strategy to build a brand and sales, said Kingson Cai, regional manager for Europe, America, Australia and Africa. Toys connected to the cartoons enjoy 8-15 percent better profit margins than related products, he said.
Although 90 percent of Alpha's annual sales of 500 million yuan (US$73.2 million) are in mainland China, the firm is looking at overseas expansion. This year it plans to introduce the cartoons to Southeast Asia, Cai said in an interview at the toy fair. Alpha also is eyeing Turkey and France as future markets, he said.
Ningbo Prince's Shen hopes for similar results with his Doraemon license. Getting the license was not hard, he said, but the economy is weak, orders at the Hong Kong Fair were very slow and he wondered how many of his employees will return to Ningbo after their extended Chinese New Year holiday later this month.
He added that he expects his Doraemon products will be copied in China, since Chinese laws are too weak to prevent it.
Anita Leung, a Hong Kong lawyer with Jones Day law firm, said license contracts should specify who has responsibility for pursuing infringers — the licensee or the license owner, said.
But in spite of possible infringement, Shen said he chose to pursue licenses because it's the kind of higher-end, more lucrative business he wants to seek. ``I don't like to do business like that, without getting that license,'' he said. ``I want to do this by the law.''