Bloomberg

(Bloomberg) -- Billionaire Francis Choi built a toy-making empire from stuffing Snoopy dolls in a small Hong Kong warehouse four decades ago. Now, his son Karson Choi is seeking to rejuvenate the family business -- one of the world’s largest toy manufacturers -- by going high-tech.

By remote-controlling toys through smartphone apps, you may fly a drone or make your soldiers battle each other at your fingertips, said the 30-year-old vice chairman of Early Light International Holdings Ltd., which supplies more than 30 toy brands for companies including Mattel Inc., Hasbro Inc. and Walt Disney Co. The high-tech toys are part of Choi’s plans to diversify the family’s toy and luxury watch businesses into high-margin areas such as electronics and medical products.

“We’re no longer only a manufacturer of dolls or toy sets,” Choi said last month at a Hong Kong shop of the company’s luxury timepiece retailer Halewinner Watches Group. “We’re very strong in terms of electronic toys.”

Growing Market

China shipped 97 billion yuan ($15 billion) of toys abroad last year, an 11 percent increase from 2014 despite the country’s economic slowdown and falling total exports, data from the General Administration of Customs show. Shifting production to pricier playthings will help Early Light boost its profit margins and stay ahead of its competitors, Choi said.

China cranked out 70 percent of all toys globally, according to researcher IBISWorld. Chinese manufacturers such as Goldlok Toys Holdings Guangdong Co. and Alpha Group are increasingly moving into making interactive toy robots, as well as animation and video games, amid rising competition from countries with lower labor costs such as those in Southeast Asia.

“The toy-making industry has entered a stage of industrial upgrade and reshuffle,” said Fan Zhangxiang, a Shanghai-based analyst who covers the manufacturing industry at SWS Research Co. Ltd. “Traditional companies that squeeze profits from labor intensive mass production are being eliminated, while stronger companies have to upgrade by developing higher value-added hi-tech products.”

Chinese parents can afford to spend more on their children due to rising household income and with many young families having only a single child, said Fan. There are also an increasing number of young adults who are attracted by high-tech toys, he said.

In response, Early Light has come up with products such as robot dinosaurs that react to hand gestures, and a voice-activated Yoda figurine from the Star Wars movies, according to Choi, who said his three-month old twins and 1 1/2-year-old daughter are still too young to play with the company’s toys.

Frozen Dolls

The company employs about 4,000 workers and operates 20 million square feet of manufacturing space. By comparison, Alpha Group, China’s largest publicly traded toy company, has a production area of 909,100 square feet, according to its 2015 annual report.

Electronic toys account for 40 percent of Early Light’s 1,000 models, which mostly target children five years old and above, according to Choi. He said the company’s sales rose by a single-digit percentage last year, helped by a recovery in demand from the U.S. and Europe, and the shutdown of smaller Chinese toy factories. He declined to give specific figures.

Hasbro, one of the toy maker’s main clients, last month reported profit and sales that topped analysts’ estimates, boosted by demand for Star Wars toys and Disney’s Princess and ‘Frozen’ dolls, some of which are manufactured by Early Light.

“We’re very lucky that many of our products became big hits last year,” said Choi. “Kids can’t live without toys.”

--With assistance from Daniela Wei To contact the reporter on this story: Jill Mao in Hong Kong at mmao18@bloomberg.net. To contact the editors responsible for this story: K. Oanh Ha at oha3@bloomberg.net, Robert LaFranco at rlafranco@bloomberg.net, Daryl Loo

©2016 Bloomberg L.P.

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