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The Indian toys market, with its immense potential, is finally stepping into the global spotlight. Despite India’s supply market penetration being less than 1% of the global toy market, largely due to a historical lack of large-scale manufacturing facilities, the tide is beginning to turn. This shift is fueled by a combination of government initiatives, rising consumer awareness, and a newfound appreciation for quality products.
From 2016 to 2020, China dominated India’s toy imports, accounting for 86% of the total toys brought into the country for domestic consumption. This dependency on Chinese imports mirrored a global trend, with China producing over 50% of the world’s toys. However, the winds of change are blowing, creating new opportunities for Indian manufacturers and designers.
India boasts a rich history of traditional toys and board games that date back centuries. Iconic games like Ludo and Chess, which originated in India, have deep cultural roots and continue to be beloved by players worldwide. The stage is set for an exciting journey ahead, filled with opportunities to redefine play and learning for children everywhere
The Opportunity
The Indian toys market is on the cusp of significant expansion, poised to capitalize on both domestic and international opportunities. The market size reached an impressive US$ 1.7 billion in 2023. Looking forward, the IMARC Group expects the market to soar to US$ 4.4 billion by 2032, exhibiting a robust compound annual growth rate (CAGR) of 10.6% during 2024-2032.
The past fiscal year 2022-23 has been particularly remarkable for the Indian toy industry. Specifically, exports of toys from India increased by 239% over the last eight years, rising to $326 million in 2022-23 from $96 million in 2014-15. During the same period, imports declined by 52% to $159 million from $332 million. This shift is attributed to a combination of measures done by the government, as highlighted in a case study on the ‘success story of made-in-India toys’ conducted by IIM Lucknow.
Tailwinds Driving the Indian Toys Market
Government Initiatives and Localization Push
In recent years, the Indian government has taken decisive steps to bolster domestic toy manufacturing and reduce reliance on imports, particularly from China. The government’s proactive efforts have been pivotal in creating a more conducive manufacturing ecosystem for the Indian toy industry. From 2014 to 2020, these initiatives have led to the doubling of manufacturing units, a reduction in dependence on imported inputs from 33% to 12%, a CAGR increase in gross sales value by 10%, and an overall rise in labor productivity.
China +1 Strategy
Amid rising geopolitical tensions and the need to mitigate supply chain risks, global toy manufacturers are increasingly adopting the China +1 strategy. This strategy involves diversifying manufacturing bases to reduce dependence on China and exploring alternative production hubs like India and Vietnam, with Vietnam having global exports worth $1.7 billion in 2022, representing nearly 5x of India’s (as per a report by economic think tank GTRI). By pivoting to countries like India, manufacturers can safeguard their supply chains against potential disruptions and geopolitical risks.
According to industry players, while global brands like Hasbro, Mattel, Spin Master, and Early Learning Centre have historically relied heavily on China for sourcing, major manufacturers like Dream Plast, Microplast, and Incas are gradually shifting their focus to India.
I don’t think any Chinese capacity is approved by BIS. Imports have been replaced by domestic Indian products. Ten years ago, hardly any sourcing was happening from India. Now, many companies have set up a base in India
R Jeswant in an interview to Business Standard.
CEO of the Chennai-based Funskool, owned by tyre maker MRF and associates
Domestic Consumer Growth
The Indian toy market presents significant value-creation opportunities driven by rising incomes, a growing middle class, and an increasing appetite for educational and STEM toys. With a projected per capita spend on toys at just $1.19 compared to $12.74 in China and $117.36 in the US in 2024, as per Statista, there is immense growth potential.
There is also an emerging class of parents who have the financial means but limited time to engage with their children, which has created a demand for high-quality toys that offer educational or developmental benefits. Toys that can bridge this gap by providing engaging and enriching experiences are in high demand.
The rising disposable income of Indian families is another key driver. As 140 million households move into the middle class and another 20 million into the high-income bracket, consumption across all categories, including toys, is expected to grow. This trend is likely to continue as the country’s middle class expands. India’s demographic profile further augments this market opportunity. With a population estimated to have reached 1.44 billion from 1.21 billion in 2011, approximately 24% of whom are in the 0-14 age bracket, the demand for toys is inherently substantial.
Market Landscape and Investment Trends
The Indian toy market is relatively small and highly fragmented compared to the global market. It has never been a top priority for global majors, but this is slowly changing due to the evolving landscape and increasing investments.
The supply chain for toys in India includes component suppliers, manufacturers, distributors, retailers, and consumers, with numerous subcategories catering to different age groups, interests, and price points. Both domestic and international players operate with varying degrees of success. Domestic giants like Funskool (which also collaborates with international brands), and international brands like Hasbro, Mattel, and Lego have an annual domestic revenue of INR 100-300 crore. Domestic contract manufacturers, such as Aequs and Micro Plastics, also have a significant presence, with their focus being on collaborations with prominent international brands.
The advent of technology has spurred demand for electronic toys, including robots, interactive games, and remote-controlled toys. More recently, there has been a notable increase in the popularity of educational toys in India. Products like science kits and coding games are designed to help children develop problem-solving, creativity, and critical thinking skills, aligning with global trends toward STEM education.
What is the Right to Win Here?
Building strong brand loyalty is crucial in the toy industry, as it not only drives repeat purchases but also opens up a myriad of cross-monetization opportunities. Brands that successfully create a compelling narrative and connect emotionally with their audience often transcend their original product category, becoming a part of the cultural zeitgeist.
Peppa Pig and Paw Patrol are prime examples of how strong brand loyalty can transform a toy franchise into a global phenomenon. Peppa Pig, acquired by Hasbro for 3.27 billion pounds in 2019, started as a simple animated TV show. Its success led to a vast array of merchandise, including toys, books, and clothing, cementing its place in households worldwide. Similarly, Paw Patrol, a Canadian franchise, has seen exponential growth, with its parent company generating over $2 billion in 2021. This success is driven by the franchise’s ability to engage preschool children through TV shows, toys, and live events, creating a robust brand ecosystem.
A strong brand loyalty enables multiple revenue streams beyond the initial product offering. Global examples such as Barbie, Transformers, Hot Wheels, and Beyblade showcase how toy brands can expand into movies, TV shows, video games, and more.
For Mattel, Barbie represents the culmination of its business transformation strategy. First devised in 2018, Mattel’s CEO Ynon Kreiz sought to reverse the company’s declining retail sales by leveraging its intellectual property through partnerships with Hollywood studios. The live-action Barbie movie, grossing $1.4 billion globally, became the highest-ever global haul for a live-action movie from a female director. This success translated into improved sales for Barbie dolls, which saw a 16% increase to $605 million.
In the Indian context, Chhota Bheem serves as an excellent example of building brand loyalty and leveraging cross-monetization opportunities. Originally an animated TV show, Chhota Bheem has grown into a beloved franchise among Indian children. Recently, Funskool India acquired the license to manufacture and distribute Chhota Bheem and seven other action figures from Green Gold Licensing and Merchandising India.
To win in the competitive toy market, brands need to focus on:
- Storytelling: Creating compelling narratives that resonate with children and their parents. Characters with relatable stories and positive values can build emotional connections.
- Multi-Platform Presence: Expanding beyond toys into movies, TV shows, video games, and digital content. This diversification helps maintain engagement and generates additional revenue streams.
- Merchandising: Developing a wide range of merchandise that allows children to interact with their favorite characters in different ways. This includes apparel, accessories, and home décor items.
- Innovation: Continuously innovating to stay relevant and exciting. This includes leveraging new technologies, such as augmented reality (AR) and virtual reality (VR), to create immersive experiences.
- Community Building: Engaging with fans through social media, events, and interactive platforms. Building a loyal community can enhance brand advocacy and drive long-term success.
Risks
Despite the promising growth trajectory and opportunities in the Indian toy market, several risks need to be considered to ensure sustainable success. These challenges revolve around the distinct dynamics between consumers and customers, as well as the manufacturing hurdles faced by both global and domestic players.
Consumer vs. Customer Dynamics
One of the primary challenges in the toy industry is navigating the difference between the consumer (children) and the customer (parents). While parents make the purchasing decisions, the toys must appeal to children to drive repeat purchases. This dual appeal is particularly crucial for educational toys, where the core loop needs to engage children effectively.
Toys must capture the interest of children to ensure repeat usage. If the toys fail to engage, the likelihood of repeat purchases diminishes, affecting long-term sales. For example, educational toys need to be both fun and informative to keep children interested and parents satisfied with the developmental benefits.
Parents prioritize safety, educational value, and developmental benefits. Brands must balance these factors with the fun and entertainment value that children seek. This balance is essential to gain parental approval while ensuring children enjoy the toys.
Manufacturing and Distribution Challenges
The Indian toy manufacturing sector relies heavily on imported raw materials, making it vulnerable to fluctuations in global supply chains and exchange rates. This dependence can lead to increased costs and supply chain disruptions.
The Toy Association of India (TAI) has also highlighted the need for more supportive regulations to aid the growth of micro, small, and medium enterprises (MSMEs). Currently, out of the 6,000-odd toy manufacturing units in the country, only 1,500 have obtained a BIS license, underscoring the regulatory challenges faced by smaller players.
Global players like Hasbro have also expressed concerns about working with new vendors in countries like India and Vietnam. In its 2021 Annual Report, Hasbro pointed to the risks associated with limited exposure to developing products according to their standards. Indian toy manufacturing infrastructure, while improving, is still considered premature compared to China. There is a pressing need for assurance that Indian suppliers will strictly adhere to quality and safety standards and meet required time constraints.
We have already written on the state of the manufacturing industry in India and how it is a major focus area for the country.
The unorganized retail sector holds a significant market share, posing challenges in terms of quality control, distribution efficiency, and brand visibility. Ensuring product quality and consistency across numerous small retailers can be difficult, impacting the overall consumer experience.
The Indian toy industry is making strides, but overcoming these manufacturing challenges is crucial for sustaining growth and competing on a global scale. By addressing these issues, Indian manufacturers can enhance their competitiveness and capitalize on the burgeoning opportunities in the market.
This article has been contributed by Gautam Marwah. He has more than 5 years of experience across Fintech startups. He was last working as a product manager at Pine Labs. Gautam is also the host of The Indianaut Podcast. He is a student at Masters’ Union.