By Steve Reece

India has been viewed as a potential alternative to China for Toy manufacturing for quite some time now. And there are obvious reasons for that – massive available workforce, low labour costs (for production line workers) and a latent industrial base including substantial plastics domain knowledge. 

However, India’s domestic Toy market is now starting to capture more attention. There are a number of reasons for a renewed interest in India’s domestic market.

Low birth rates caps toy industry growth potential

According to the World Bank Group the global birth rate in 1965, just 60 years ago, was 5.1 births per woman, but by 2022 that rate had dropped to 2.3, which is only just above the ‘replacement rate’ of 2.1 - at which level population levels are sustained. That’s a massive fall in the number of children being born per woman. The issue becomes even more challenging though when we look at major Toy markets. The biggest Toy market by far in the world is the USA, which in 2023 had a record low birth rate of 1.62. China, the world’s second biggest Toy market, had a rate of 1.705 in 2023. Japan recorded a historic low of 1.2! Europe does not escape this trend for dropping birth rates – Germany recorded a rate of 1.35 in 2023. We need to get used to the reality that there are fewer kids and therefore fewer consumers for Toys being born in most developed nations. This means that in order to grow the industry we need to sell more Toys for each child (a definite possibility, this is demonstrably the long-term trend), we need to sell more Toys for adults ‘Kidults’ or we need to access new under-exploited markets. The challenge with the last one of those growth options though is where is a market that can offer any significant upside over the medium term?

India’s demographics & economic growth

Logically, the only market offering major uplift for children’s Toys over the next decade or so is India. For sure, Africa has a much higher birth rate in general than many countries – with a rate of 3 to 7 births per woman depending on country. The challenge though is lack of economic development and disposable income. Therefore, although Africa is under- exploited as a Toy opportunity, it does not appear to offer massive growth potential for economic reasons primarily, at least not in the medium term over a decade or so. India, on the other hand, is a really interesting case study. India’s official population in 2023 was 1.438 billion people, that’s a huge number of people. India had 23.2 million children born in 2023, which is a gigantic number – to put that in context, the USA had 3.6m children born in the same year, and China 9.02m. Demographically speaking therefore, the potential of India for Toy sales is clearly massive. What has held India back until now is poverty – if people are abundant but very poor, then Toy consumption will still tend to be very low. Estimates of the total size of India’s domestic Toy market are c. $1.5bn to $2bn. For a country the size of India, that’s not that big a market. It’s very hard to get accurate data, because as much as 60-70% of that market is in the ‘informal market’ i.e. a local retail outlet with no EPOS or other such data capture. But also, we need to be clear that the ‘formal’ retail market with chain stores is much smaller than that total, somewhere in the region of $400m-500m. Here's where we start to see big opportunity though – India’s GDP in the year 2000 was $468 billion, by 2023, GDP was at $3.57 trillion, and by 2030 it is forecast to exceed $7 trillion. Just to put that in context, UK GDP in 2023 was $3.38 trillion, Germany was $4.5 trillion, and the USA is at gigantic $27.7 trillion. India has already edged its way into the Top 5 global economies measured by GDP. And PWC project that India will be the world's second biggest economy by 2050.

Current realities of India’s domestic market

Before any Toy company owners out there start setting aggressive sales targets for India and pushing their sales teams for immediate opportunities, this is a medium-term opportunity to seek competitive advantage and growth. China is now the world’s second biggest Toy market, but it was not number two until the last 15 years or so. When China opened up to the world in 1979, extreme poverty was rife, so understandably Toy consumption was low. As China’s economy grew, so did Toy consumption. Those companies which invested when the market was weaker have often had a strong market position once the economy and market mature. India today is starting to feel like China in the late 1990s – it’s the future growth opportunity, but at the same time is beset with challenges and is very much a nascent opportunity for international companies today. Quick reward is less likely, but for those willing to invest time, energy and opportunity cost now, the future opportunity could be big. Among the practical challenges you will find in India is the heavy import tariffs on Toys (70% tariffs apply to Chinese Toys), so you can expect to need local manufacturing to access the opportunity. But, to begin with India sales volumes alone probably won’t justify new tooling, so you’d have to plan to export as well as sell inside India. This is one of the myriads of challenges ahead in a market which is as of now underdeveloped, but over the next decade as India’s economic growth continues, we will reach a tipping point where India’s domestic Toy consumption hits critical mass and those players who are already in the market will benefit from their early mover advantage.

About the author

Steve Reece has been in the toy industry for 25 years. He started out at Hasbro where he was responsible for the brand management of key brands such as Monopoly, Play-Doh and Trivial Pursuit. He now runs a consultancy called Kids Brand Insight, which helps toy suppliers to build robust and diversified supply chains and find the right staff.