Stuffed plush toy exports from China are expected to grow by approximately 2 percent in 2004 to US$1.54 billion, from US$1.51 billion in 2003. Although this is lower than the 5 percent growth rate in 2003, it is still significant considering the fact that the industry is highly mature, is continuously losing market share to radio-controlled and electronic toys, and is reeling under the pressures of increasing raw-material costs and a labor shortage.

Insufficient labor continues to be one of the major challenges faced by stuffed plush toy makers in China, although the situation is not as severe as it was in 2003. Makers located in more industrialized areas, such as Guangdong, Zhejiang and southern Jiangsu provinces, are especially affected by the labor shortage, as workers have been moving from the labor-intensive low-paying stuffed toy industry to other high-tech higher-paying industries.

Worst hit by the shortage is Guangdong, where the concentration of a range of industries offers workers ample job opportunities. In addition, many migrant workers are moving back to their home provinces where the manufacturing sector is prospering.

Suppliers in these more industrialized provinces have been taking a number of steps to ensure the labor shortage does not affect delivery schedules. As in 2003, many suppliers continue to deal with the situation by subcontracting to factories, or by setting up their own supplementary facilities in less industrialized provinces such as Jiangxi, Anhui or northern Jiangsu where cheap labor is readily available.

These provinces also offer the added benefit of lower manufacturing costs. Labor is 30 to 50 percent cheaper in Anhui, northern Jiangsu and Jiangxi provinces, as compared with Guangdong and Zhejiang. Land and other overheads are less expensive as well, reducing overall production costs by up to 20 percent

However, the shortage of skilled workers in these areas has limited the production shift to low-end and midrange stuffed plush toys. For high-end toys, suppliers continue to rely on their factories in more developed provinces, where there are easy-to train and experienced workers, as well as English-speaking managers and designers.

Suppliers with factories in the more industrialized areas have had to increase salaries of their workers, and provide them with better living quarters and dormitories to prevent them from moving to other industries.

Apart from the labor shortage, China suppliers have also had to deal with soaring costs of raw materials, especially the main stuffing material polypropylene, the price of which increased by 70 percent in 2004. As a result, some makers plan to increase their export prices in 2005. However, the majority of suppliers will not pass on the increased costs to their buyers, and will instead cut overhead expenses and make do with lower profit margins.

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All information contained in China Sourcing Reports is the result of exclusive, ground-level and definitive research conducted by Global Sources' analysts. Companies featured in these reports may or may not be clients of Global Sources.