GLOBAL TOY INDUSTRY

Toys and games have been unearthed from the sites of ancient civilizations. They have been written about in some of our oldest literature. Toys excavated from the Indus valley civilization (3000-1500 BCE) include small carts, whistles shaped like birds, and toy monkeys which could slide down a string (AOL Inc., 2013) . Modern Toys provide not only provides entertainment while fulfilling an educational role. Toys enhance cognitive behavior and stimulate creativity (Howe & Smith, 1995). They aid in the development of physical and mental skills which are necessary in later life (Wikimedia Inc, 2013). One of the simplest toys, a set of simple wooden blocks is also one of the best toys for developing minds. Andrew Witkin, Director of Marketing for Mega Brands told Investor's Business Daily that, "They help develop hand-eye coordination, math and science skills and also let kids be creative." (Tsuruoka, 2007). The Toy Industry has seen rapid growth since 1970s. In 1996, the Global Sales of Traditional Toy (excluding video games) was around 52 Billion USD. In 2011, the Global Sales was 83 Billion USD (ICTI, 2012).

World Toy Sales (in Billion USD)

90 80 70 60 50 40 30 20 10 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 World

The industry has seen an average of 3.24% growth in last 15 years. However, the industry is very dynamic in nature and is ever changing. Even in the late 90s, the market was heavily dependent on US and Western European sales. However, the change in the distribution of Sales by region is as following: Region Avg. % Sales Growth (1996- 2011) Avg. % Market Share Change(1996- 2011) Africa 16.3 12.6 North America 1.47 -1.71 Latin & South America 8.03 4.66 Asia & Europe Oceania 3.27 3.3 0.03 -0.06

0.5 0.45 0.4 0.35 0.3 0.25 0.2 0.15 0.1 0.05 0 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 North America Latin & South America Asia Ocenia Total Europe Africa

China has taken the lead in Global Toy Manufacturing with 85% of the Production Market share. From the graphs and the figure above we can conclude that: The Growth of Aggregate Global Toy Industry is Stable and from the past trends it could be assumed that the growth will continue for at least 5 years. Africa is moving very fast as a consumer, however will take time to reach a more effective market position The Growth of Latin America and Asia is vital and these two will continue to increase their impact on global scenario Though the size of US market is growing, but the global market share is declining due to higher growth in other regions In the qualitative aspect, the sophistication in the US and European Market is more complex in nature and it is getting difficult to manage (TAA, 2011). The demand in Latin America and Africa is more basic in demand The market share for educative games/toys are at a sharp rise People are preferring online and other e-shopping models in buying toys (NPD Group, 2012)

So the challenges of the Toy Industry for the coming years will be: To maintain growth in spite of Production Cost Increase through more efficient distribution Bringing new products to the market considering the choice of people across counties and cultures Penetrating and competing for market position in Latin America, Far East, Australia and South Asia.

More Ethical, Safety and Protection issues

INDUSTRY LEADERS
The Toy industry is dominated by US, Japanese and European Companies. For the Top Four Companies are: Mattel (USA) Hasbro (USA) Bandai (Japan) Lego (UK)

Their performance ratios throughout the year 2011 were: Profit: Gross Profit 21.66788197 18.55648521 8.101463468 31.4865274 19.95308951 Profit: Manufacturing Expense 25.78172212 21.50293997 4.219334037 75.37597391 31.71999251 Profit: SAG Expense 46.48430087 33.5733905 11.08113678 79.13258512 42.56785332

Mettel Hasbro Namco Lego INDUSTRY STAR

JOT
The performance of Jot in the year 2011 was: Ratio (%) 7.8 3.7 9.5 Industry Star (%) 19.9 31.7 79.1 Difference -12.1 -28.0 -69.6

Profit: Gross Profit Profit: Manufacturing Expense Profit: SAG Expense

From this, we can conclude that there is problem with Jots is its High Sales & Distribution and partially its Sourcing. In its next 5 years plan, Jot has also tried to address this issue: Revenue Unit Sales Production Cost Gross Profit (%) Gross Profit 9866 706.3 6718.7 31.90% 3147.3 11568 868.5 7831.5 32.30% 3736.5 13124 977.5 8845.6 32.60% 4278.4 14791 1102 9924.8 32.90% 4866.2 16840 1240 11249.1 33.20% 5590.9 19260 1405 12788.6 33.60% 6471.4

Administrative & General Expenses Operating Profit Profit/Unit Gross Profit/Unit SAG Expense/Unit Production Cost Per Unit Sale Price/ Unit

2596.3 551 0.78 4.46 3.68 9.51 13.97

3042.5 694 0.80 4.30 3.50 9.02 13.32

3458.4 820 0.84 4.38 3.54 9.05 13.43

3905.2 961 0.87 4.42 3.54 9.01 13.42

4453.9 1137 0.92 4.51 3.59 9.07 13.58

5123.4 1348 0.96 4.61 3.65 9.10 13.71

Jot's Next 5 Yeras Plan

2016 2015 2014 2013 2012 2011 0.00 1.00 2.00 3.00 4.00 5.00 6.00 7.00 8.00 9.00 Profit/Unit 10.00

Production Cost Per Unit

SAG Expense/Unit

Gross Profit/Unit

Sale Price/Unit
14.20 14.00 13.80 13.60 13.40 13.20 13.00 12.80 2011 2012 2013 2014 2015 2016

Production Cost/Unit
9.60 9.40 9.20 9.00 8.80 8.60 2011 2012 2013 2014 2015 2016 3.70 3.60 3.50 3.40

SAG Expense/Unit

2011

2012

2013

2014

2015

2016

Profit/Unit
6.00 5.00 4.00 3.00 2.00 1.00 0.00 Gross Profit/Unit Profit/Unit 2011 4.46 0.78 2012 4.30 0.80 2013 4.38 0.84 2014 4.42 0.87 2015 4.51 0.92 2016 4.61 0.96

From these Graphs and Charts, the following can be inferred: As the Industry Leaders are performing and concentrating on SAG Cost saving and the company is losing margin, there will be high emphasis on Distribution and other Logistics service. The current satisfactory deal with the logistics company will help to control the distribution cost. Production Cost should be a controlled as it will eventually increase due to change in the standard of living and wage rate of the producing country. As per the expansion plan, there should be provision of price penetration in low segment markets

ISSUES:
The current issues at hand are: Near Shoring Proposal at Voladonia Flying Spaceship Crisis New Product for 9-11 Group Range Late Delivery of Christmas Product

PROJECT 1: NEAR SHORING PROPOSAL AT VOLDANIA

According to the Plan, Jot will partially near shore its production in Voldania. The Financials for the project will be: Year 1 868500 808500 60000 6.91 Year 2 97750 0 87750 0 10000 0 10.23 Year 3 1102000 962000 140000 12.71 Year 4 124000 0 106000 0 180000 14.52 Year 5 1405000 1185000 220000 15.66

Total China Voldania % of production China Labor Cost/Unit China Machining Cost Labor Usage/Unit (China) China Cost/Unit Distribution Cost Total Cost/Unit Voldania Labor Cost/Unit Voldania Machining Cost Labor Cost

1.75 1.4 0.6 2.45 3 5.45

1.96 1.4 0.6 2.58 3.18 5.756

2.20 1.4 0.6 2.7171 3.3708 6.08792

2.46 1.4 0.6 2.88 3.5730 6.44822

2.75 1.4 0.6 3.05 3.787431 6.8396262

5 1.96 0.45

5.1 1.96 0.45

5.202 1.96 0.45

5.30604 1.96 0.45

5.4121608 1.96 0.45

Voldania Voldania Cost/Unit Distribution Cost Total Cost/Unit Personal Donation PCF Voldania Profit(loss)/Unit

4.21 1.8 6.01 25000 -58600

4.255 1.908 6.163

4.3009 2.02248 6.32338

4.347718 2.143829 6.491547

4.39547236 2.27245853 6.66793089

-40700

-32964.4

-7798.392

37772.9704

-0.976666667

-0.407

-0.23546

-0.0433244

0.17169532

Unit Total Cost

8 7 Total Unit Cost 6 5 4 3 2 1 0 China Voldania Year 1 5.45 6.01 Year 2 5.756 6.163 Year 3 6.08792 6.32338 Year 4 6.4482224 6.4915468 Year 5 6.839626208 6.667930888

Profit(loss)/Unit
0.4 0.2 Profit(loss)/Unit 0 -0.2 -0.4 -0.6 -0.8 -1 -1.2 Year y = 0.266x - 1.0963 R = 0.929 0 1 2 3 4 5 6

Benefits of the Project: In 2011, 68% of Jots products were sold in Europe. Though as per the strategy and industry trend, the amount is expected to decrease, even in conservative estimation, at least 45% of Jots product will be sold in Europe. This near shoring will enable Jot to: o Increase Responsiveness to cater demands in the European market and to achieve supply chain strategic fit for the company Distribution cost saving, which is a major concern of the strategic goal More flexibility and control over suppliers Lower negotiation power of the suppliers Ethic, CSR and Product Safety has recently become integral in business and production in an European country is safer from Ethical and Product Safety Challenge Risks

o o o o

Reduced Warehousing cost as direct delivery to retails though the Logistics Partner is easier

Future Scope of direct shipment of customized orders to clients, which will be dominant in the coming years

Risks of the Project Loss in Production Cost for 4 years

The NPV for the Project is (103,000) Euro, which is 0.1% of the Total Expected Sales Revenue for next 5 years. As the project will be generating positive cash flow from 5th year, so it is predicted to perform and adjust is losses in near future. And as the Supply Chain Surplus gained from the Supply Chain will increase, the Value of the company will increase along with increased control, corporate benefit and lower risk.

PROJECT 2: SPACESHIP DESIGN PROBLEM

As the flying spaceship has a major problem, the Product needs to be removed (or at least repaired). Jot has the following options: Option Calling off the Product Repair Benefits Customer will consider Jot as customer friendly and will value this decision Less Financial Pressure Drawbacks Financial Pressure

Complete Re launch in a new market Selling in Scrap Market

Less Financial Pressure, Exploring new market, test capabilities in new market, new relationship Less Financial Loss

Further Investment, Customer Dissatisfaction, Retailer and Distributors will not be interested to remarket, Brand Value Decrease PR Risk, Further new investment

Valuation: Initial Order Production & Distribution Cost/Unit Project Investment Revenue/Unit Already Sold Retail Price/Unit Retail Value Customer Inventory Customer Inventory Value Jot Inventory Jot Inventory Value Reverse Logistics Cost: Already Sold Reverse Logistics Cost: Customer Inventory Redistribution Cost Repair Cost Re launch Value Re launch Sale Price Discount Market Sale *estimated 6000 24 144000 40 1200 84 100800 1600 38400 3200 76800 6 3 3 10 5 50 25

Costs Calling the Product off Repair Complete Re launch (in a new market) Sale in Discount Market

Already Sold 55200 55200 55200 55200

Customer Inventory 51600 51600 51600 51600

Jot Inventory 76800 76800 76800 76800

Repair Cost 0 60000 90000

Redistribution ReCost marketing 0 0 18000 18000 18000

Total Cost 183600 261600 301600 201600

Resale Value 0 240000 300000 150000

Profit (Loss) -183600 -21600 -1600 -51600

10000

Calling of the Product will give the customers and retailers assurance of Jots continued support and care for the stakeholders Repairing and going back to the old market will minimize loss. However, the retails and customers will not be very interested about the product and hence clearing the entire stock will be very difficult Going to a new market will be risky, but that will be bold. The strategy of the organization is to double its presence in terms of operating markets. However, completely rebranding (eg. body change, recolor, repackage etc along with the original repair) might change the product and can make it localized for a new market. The risk involved here is mainly the possibility of Press/Social Media scandal regarding Remarketing of Called off Product Selling the products in discount market without repairing as scrap product would just minimize the financial loss without any additional benefit

PROJECT 3: SPACESHIP DESIGN PROBLEM