Hong Kong Manufacturing SMEs: Preparing for the Future

92In 2006 the company launched “PicooZ,” a microsizedremote control toy helicopter for indooroperation. The first shipment of 2.5 million unitssold out as soon as they hit stores. The PicooZhas been hailed as “changing the world of playby creating a new segment of high-tech toy thatappealed to customers from office girls in Japanto grandparents in Europe.” 175 Silverlit teamed upwith Canada’s Spin Master Limited, which sellsthe PicooZ under Spin Master’s Air Hogs brand inNorth America, while Silverlit sells it in the rest ofthe world. Silverlit deepened the relationship withSpin Master by agreeing to produce 60 per cent ofAir Hogs toys thereby becoming Spin Master’s mainOEM partner.Seeing the potential for crossover between thetoy and entertainment industries, Silverlit enteredinto a partnership in 2007 with a Mainland Chinamedia company to produce a cartoon series entitled“Golden Hero.” Golden Hero is broadcast by manylocal television stations in China and the firm hasfound that sales of the toys that are featured inthe series increase by between 10 and 20 per centin markets in which the series is shown each timethat the series is aired. In 2009, Silverlit bought theFrench pre-school brand Ouaps, whose emphasison innovative technology and quality fitted wellwith Silverlit.Issues and ChallengesSilverlit has faced a number of significant challengesduring the past 30 years. The global economicdownturn particularly affected some of Silverlit’smajor markets, such as the US, the UK, and Spainand recovery has been slower than Silverlit wouldlike. There has been a noticeable decrease in ordersand buyers are placing smaller and more frequentorders which makes production planning moredifficult for Silverlit.175 ESA Project Interview with Sarah Monks, 2010-05-18, quotingSilverlit managing director Kevin Choi Kei-fung.Keeping production costs down in the face ofincreases in minimum wages (for both Silverlit andsuppliers), appreciation of the RMB, and increasesin other input costs is an ongoing challenge.Finding sufficient numbers of workers is a problemas it is for all manufacturers in Dongguan. This isparticularly true for managerial talent because thecity lacks higher education institutions. Althoughwages in toy factories around the PRD are similar,other factors such as the working and livingconditions are becoming more important as workerscan easily get information on conditions via mobilephones or the internet.Another challenge has been an inability to raiseprices to offset cost increases. Silverlit doesn’t seethis situation changing in the near term as parentsbuy cheaper toys for their children, and the bigretailers squeeze manufacturer margins to preservetheir own. Still another challenge has been to stayahead of Chinese toy companies as they beginto invest more in innovation. Silverlit expects thatMainland firms will soon compete for orders fromlarge retailers in big markets through design andvalue added features.Silverlit has found intellectual property infringementto be a big issue. Several years ago the firmstarted losing orders for the PicooZ in Europe andelsewhere to counterfeit products. Although thefirm has noticed a genuine commitment on thepart of China’s Central Government to improveintellectual property protection, it finds enforcementat the local level lacking.Selling in the China market requires 3C qualitycertification. This certification is difficult, timeconsuming, and costly for firms like Silverlit toobtain. However, in many cities in China, many lowquality products have obtained 3C certification,suggesting that their quality is on par with Silverlit’s,and making it difficult to differentiate in theselocations. While certification standards are strict inShanghai and Beijing, and reasonably strict in citieslike Nanjing and Hangzhou, the process is clearlyless stringent in most other cities in China.