Chennai: Toy importer R. Jaishankar finally has room to stretch his legs in his untidy basement office at Arumbakkam in north-west Chennai. But Jaishankar is not happy with the extra wriggle room that has been created because there are fewer toys in his 2,500 sq. ft warehouse. Until a few months ago, the warehouse used to be crammed with Chinese toys.
Supply crunch: An Odyssey India toy shop in Chennai. The books and toys retail chain has seen a mere 5% jump in summer sales over the previous year, much lower than the 15-20% increase it had expected. Ganesh K / Mint
Confusion over new regulations governing import of toys from China and introduced by the Directorate General of Foreign Trade, or DGFT, in March is responsible for this; it has held up containers of several importers such as Jaishankar.
Cargo of the world’s largest toy company Mattel Inc.’s Indian unit too spent longer than usual at the Mumbai port ahead of the peak vacation sales season, according to one Mattel employee who spoke on condition of anonymity.
The company did not respond to an email query sent last week.
“The customs authorities are not clear about the documents required to clear the containers and that leads to a delay in clearing the goods,” said Jaishankar, managing partner at toy trading agency Emerald Sales Corp.
The new DGFT regulation requires Chinese toy imports to conform to any one of three specified quality standards and requires a certificate from the manufacturer to the effect that the product has been tested at an independent laboratory accredited by the International Laboratory Accreditation Cooperation, an international body of labs and inspectors that facilitates trade.
Importers claim that certificates adhering to more stringent European standards—not part of DGFT’s three prescribed quality standards—are turned down. And that on some occasions Indian buyers who produced copies and not originals of the required paperwork were also refused clearance.
“Our job is to frame policy; providing the required certificates is the headache of importers,” said a DGFT official, who did not want to be named.
Careful and cautious
Jaishankar, who recently started sourcing toys from Thailand, plans to order just 25 containers—each containing toys worth Rs15-20 lakh—from China this year. This will be half the 50 containers he imported last year but Jaishankar wants to be careful about sourcing quality toys that meet the new laws. He is also cautious about demand picking up.
The March ruling by DGFT was aimed at improving the quality of Chinese toys available here and making them more safe for children. The ruling came after a January blanket ban on Chinese toys that were imported unfettered into the country for over a decade.
Nearly 80% of toy samples from Indian stores contained lead and cadmium, according to a 2006 study done by Toxics Link—a New Delhi-based environment advocacy group. These chemicals that could cause reproductive and hormonal problems as well as cancer, leach into the bodies of children who habitually put toys into their mouths during play.
Most toys available in India are made in China which explains why the ruling is focused on toy imports from that country. According to consulting firm Technopak Advisors Pvt. Ltd, the Indian toy market was worth Rs2,700 crore in 2007-08 and growing at 13-14% a year. Almost 75% of the business came from low-quality Chinese imports, according to the firm.
Still, the focus on China created a loophole in the law, said an executive in the toy trade.
“One major flaw with this regulation is that it doesn’t require any such quality certifications for products coming from say Thailand or even those being manufactured in India,” said David Selvaraj, associate vice-president at book and toy retail chain Odyssey India Ltd. Even as importers such as Jaishankar have tried to source toys from alternative locations, toys from China continue to be held up at ports across the country.
Hurting the peak season
The timing couldn’t have been worse for toy firms and importers. April and May account for a major selling season for toy retailers with children on vacation contributing to higher sales. This summer, however, Indian toy stores didn’t receive enough new products and several launches were delayed because containers were stuck at ports.
The normal cycle of containers spending four-five days at ports sometimes got extended to as much as a month as importers scurried to gather required documents after being denied clearance citing inadequate paperwork.
“Sales are not going to be created at the customs check point,” said Purnendu Kumar, associate vice-president at Technopak, a retail consultancy.
Odyssey has seen a mere 5% jump in summer sales over the previous year, much lower than the expected 15-20% rise.
Funskool, a joint venture between Indian tyre maker MRF Ltd and US toy company Hasbro Inc., was forced to increase production in its two Indian manufacturing facilities by 20-25% in the face of delayed imports.
“We lost on some critical time ahead of the April-May buying season as we couldn’t finalize orders,” said R. Jeswant, vice-president of sales and marketing at Funskool. “Sales have grown (in summer) but it could have been marginally better.”
Many retailers Mint spoke to confirmed a shortage of branded toys from companies such as Mattel—owner of the Barbie and Fisher Price brands—and Turner Broadcasting’s Cartoon Network that sells Powerpuff Girls and Ben10 merchandise.
Last month, Mattel India had 15 containers waiting at the Mumbai port with Rs10-15 crore worth of goods, according to a Mattel executive. Only one was cleared after around a 30-day wait, added this person who did not want to be identified. The remaining containers are expected to clear customs by 10 June when a slew of launches are slotted.
Industry experts are divided as to whether the new rules are the result of India’s often troubled relations with China or a response to Mattel’s 2007 recall of millions of toxic or defective China-made toys—the toy maker’s biggest ever global withdrawal.
Still, the new norms have irked Indian importers who say that the same rules should also apply to the largely small-scale Indian manufacturers, many of whom produce toys with toxic content—and at double the cost at which Chinese firms do.
“Such a regulation acts as a non-tariff barrier and does not serve the ultimate purpose of safeguarding children from exposure to harmful chemicals,” said Satish Sinha, associate director, Toxics Link.
The sudden supply crunch, however, has helped Emerald Sales’ Jaishankar get rid of otherwise slow-moving products that have been snapped up by retailers looking for new products this summer.
It has also driven several smaller toy importers out of business. Mumbai-based importer Sunil Masand of Sunny Industries has stopped importing toys from China and has seen his sales plummet at least 50% this summer.
“The biggest losers are the people in Delhi,” said Sunny Industries’ Masand, referring to the likely loss of tax revenue from Chinese toy imports to the Union government.