Toy Dollars Go to Dictators, Study Shows
By New Economy Information Service, December 16, 1999December 16, 1999
WASHINGTON, DC—While Americans fill their children's stockings with toys, the dollars spent on them increasingly flow into the coffers of dictatorships, according to figures released today by the New Economy Information Service (NEIS), a Washington-based research organization. Meanwhile, developing democracies around the world are getting the trade equivalent of a lump of coal – a declining share of the lucrative market generated by Americans rushing to buy the "in" toys.
"It is ironic that the spirit of giving surrounding a religious holiday ends up benefiting a country like China which denies religious freedom to its citizens and freedom of association to its workers," said David Jessup, author of the report. China now dominates toy sales to the U.S. with $10.6 billion in exports in 1998. This represents over 80 percent of the toys exported to the U.S. from all developing countries.
But the trend is not limited to China. Over the past ten years, several other authoritarian developing countries have increased their share of toy exports to the U.S., including Indonesia, Malaysia, Pakistan, Sri Lanka, Bangladesh, and Mexico. In contrast, most free countries lost market share, including Chile, Honduras, Jamaica, El Salvador, the Philippines, Taiwan, Korea, Thailand, and Mauritius.
The analysis found that the proportion of U.S. toy imports from developing countries ranked as "Free" has fallen from 29.5 to 7.5 percent, while those from countries ranked as "Not Free" went up from 22.4 to 59.2 percent. The "Partly Free" countries also gained, moving from 5.2 to 7.2 percent. Toy exports to the U.S. from developed countries like Japan—nearly all of which are ranked as "Free"—also fell considerably, from 35.8 to 24.4 percent. (The country rankings are from an annual survey conducted by Freedom House, a prominent human rights organization.)
"Consumers don't have much choice when it comes to the country of origin for the toys they buy," Jessup said. "The purchasing decisions are increasingly made by the large importers."
According to the NEIS analysis, the top toy importers include the large retail chains as well as toy manufacturers. Wal-Mart, Toys R Us, Kmart, Target, and KB Toys are the top five toy retailers. Wal-Mart leads the group with 17.4 percent market share of toy sales, followed by Toys R Us at 16.8 percent, Kmart at 8 percent, Target at 6.9 percent, and KB Toys with 4.9 percent, according to the NPD research group. Top U.S. toy manufacturers include: Mattel (with Fisher-Price), Hasbro (Tiger and Galoob), Lego Systems, Little Tikes (division of Rubbermaid), Hallmark, Hedstrom, Toy Biz, Vtech, Bandai America, and Rose Art.
"It's not clear why these companies prefer to purchase toys from authoritarian countries," Jessup said. "Low wages are probably a factor, but there are plenty of low-wage democracies out there which could supply the market."
NEIS found that, not including video games, the U.S. Toy Industry had revenues of $21 billion dollars last year, making it a lucrative manufacturing industry—one that is increasingly dominated by imports. The Toy Manufacturers of America lists their import numbers for 1998 at $14.3 billion, up from $8 billion in 1994. TMA estimates that two-thirds of all imports come from China. NEIS data, based on the Census Bureau information and which includes video games, show that imports of toys (HTS Code 95) have grown from $7.73 billion to 17.8 billion in the last ten years. China now accounts for 59 percent of the total.
Most companies do not disclose the proportion of their imports coming form particular countries. According to 1998 10-K forms filed with the Securities Exchange Commission, Mattel's manufacturing facilities are located in the states of Indiana, Kentucky, Georgia, and Oregon, and in the countries of Mexico, China, Indonesia, Malaysia, Thailand, and Italy. Mattel also utilizes independent contractors to manufacture products in the United States, Mexico, the Far East, and Australia.
Hasbro manufactures products in the United States, Mexico, Ireland, and Spain, and sources products largely through a Hong Kong subsidiary working primarily through unrelated manufacturers in various Far East countries, according to its SEC filings. In addition, Hasbro reported it has small investments in joint ventures in India and the People's Republic of China which manufacture and sell products both to Hasbro and unaffiliated customers. Hasbro claims that if any event were to disrupt trade with China, it would "substantially increase" the cost of imports into the United States.
"Even if consumers could choose toys other than those with 'Made in China' labels in stores, it wouldn't do them much good if they shop in mail-order catalogues or on the Internet, as many time-stressed parents are doing," Jessup pointed out. "This information is simply not available."
NEIS searched for country-of-origin information at a several toy sites, such as ToySmart.com, eToys.com and SmarterKids.com None list origin of products in their Web site toy descriptions.
Toy companies, like footwear firms, are increasingly adopting "codes of conduct" for foreign production operations. Some of these mention freedom of association as a criterion. The International Council of Toy Industries (ICTI) states that "there should be a lawful, fair, safe and healthy work environment for those employed in the manufacture of toys," but does not keep track of which toy retailers and manufacturers adhere to their code. Mattel has a set of "Global Manufacturing Principles" that prohibit child labor, forced labor, discrimination, promote freedom of association (where legal) and maintain minimum factory health standards. While Mattel provides access for onsite inspections, these inspections are only conducted by the company itself.
"If these codes of conduct are to have real meaning," David Jessup, NEIS Executive Director, said, "it should be reflected in foreign purchasing decisions. Consumers need more choices when it comes to country of origin, and product labeling should be extended to mail catalogues and Internet sales."
The findings on toys are part of an on-going trade and investment research project launched by NEIS in November with the publication of "Dollars and Democracy, the Post-Cold War Decline in Developing Democracies' Share of Trade and Investment Markets."