1 Hong Kong Toys & Games Fair 2006 Prepared for Hong Kong Trade Development Council January 2006 Hong Kong Toys & Games Fair 2006

2 METHODOLOGY Timing of Fieldwork:January , 2006 Target group: 410 exhibitors; 705 buyers Fieldwork:Face-to-face interview at the Exhibition Venue

3 Hong Kong Toys & Games Fair 2006 EXHIBITORS’ AND BUYERS’ BACKGROUND INFORMATION

4 Hong Kong Toys & Games Fair 2006 Respondents:410 Exhibitors Hong Kong 60% Overseas 40% Exporter/ Re-exporter 36% Others 3% Manufacturer 54% Americas US Other America Europe Germany UK France Spain Italy Other Europe Asia Pacific Japan Chinese Mainland Hong Kong Australia Other Asia Middle East Africa % EXHIBITORS’ PROFILE EQ A1-A3 Company Base Major Export Market Nature of Business EQ A1-3 Wholesaler 4% Importers 3% *

5 Hong Kong Toys & Games Fair 2006 Respondents:705 Buyers Hong Kong 34% Chinese Mainland 15% Others 5% Europe 15% Asia (excl. PRC, Japan, HK) 20% Exporter/ Re-exporter 30% Importer 21% Others 10% Wholesaler 11% Manufacturer 19% N. America 9% Japan 2% Asia Pacific Chinese Mainland Hong Kong Japan Australia Singapore Taiwan South Korea India Other Asia Americas US Canada Latin America Europe UK Germany France Italy Spain Russia Other Europe Middle East Africa BUYERS’ PROFILE BQ A1-A3 Company Base Major Selling Market Nature of Business BQ A1-3 % Independent Retailer 5% Department Store 4%

6 Hong Kong Toys & Games Fair 2006 TOYS & GAMES MARKET OVERVIEW AND FORECAST

7 Hong Kong Toys & Games Fair 2006 Better than 2004 Slightly better than 2004 Same as 2004 Slightly worse than 2004 Worse than 2004 Uncertain % YEAR 2005 CHRISTMAS SALES EQ/BQ B2 EQ/BQ B1 Exhibitors Buyers 79% Respondents:410 Exhibitors 705 Buyers

8 Hong Kong Toys & Games Fair 2006 Better than 2005 Slightly better than 2005 Same as 2005 Slightly worse than 2005 Worse than 2005 Uncertain % OVERALL OUTLOOK OF TOYS MARKET FOR 2006 EQ/BQ B2 Exhibitors Buyers 89% 91% Respondents:410 Exhibitors 705 Buyers

9 Hong Kong Toys & Games Fair 2006 Increased by 1-5% Increased by 6-10% Increased by 11-15% Increased by 16-20% Increased by 21-30% Increased by more than 30% % EXPECTED GROWTH IN TOYS MARKET IN 2006 AS COMPARED TO 2005 EQ/BQ B2 EQ/BQ B3a Respondents:249 Exhibitors and 422 Buyers who perceived better market outlook in 2006 when compared to 2005 % Exhibitors Buyers Mean12%11%

10 Hong Kong Toys & Games Fair 2006 BQ E1 MAIN REASON FOR ANTICIPATING A POSITIVE GROWTH IN TOYS MARKET EQ/BQ B3b Rising/ improving economy Emergence of “must-have” toys or hot items Strong consumer confidence Good performance of licensing business % ExhibitorsBuyers Respondents:249 Exhibitors and 422 Buyers who perceived better market outlook in 2006 when compared to 2005 Others (each 2% or less)

11 Hong Kong Toys & Games Fair 2006 BUYERS’ SOURCING PRACTICES

12 Hong Kong Toys & Games Fair 2006 SOURCING PRICE (FOB) WHEN COMPARED TO A TOP BRAND PRODUCT EQ E1 Price for a top brand product = $20 BQ C1 Buyers % $8 or below $16.1-$20 $8.1-$12 $12.1-$16 Respondents:705 Buyers

13 Hong Kong Toys & Games Fair 2006 MAJOR CHANNELS USED TO CONTACT NEW SUPPLIERS EQ D1-D4 Respondents:705 Buyers BQ C2 Hong Kong trade fairs Website China trade fairs Overseas trade fairs Introduced by trade partners Unsolicited calls or visits to suppliers Trade publication Unsolicited calls or visits by suppliers %

14 Hong Kong Toys & Games Fair 2006 PRODUCT AND MARKET TRENDS

15 Hong Kong Toys & Games Fair 2006 Respondents:Exhibitors targeting respective markets (N. America: 173; EU: 163; Japan: 24##; Asia Pacific: 22##) [^ Sample base for Chinese Mainland is too small to show.] Buyers targeting respective markets (N. America: 197; EU: 202; Japan: 47#; Chinese Mainland: 71; Asia Pacific: 110) Computer Toys & Games Battery Operated & Electronic Toys & Games Educational Toys & Games Baby Toys & Products Dolls & Soft Toys Party items Outdoor & Sporting Items Candy Toys Hobby Goods & Collectible Toys Die Cast Toys & Action Figures THE FASTEST GROWING TOY CATEGORIES IN 2006 EQ/BQ C1 Asia Pacific Chinese(excl. PRC, N. AmericaEuropeJapanMainland^ Japan, HK) %% % # small base; ## very small base Exhibitors Buyers EQ C1/BQ D

16 Hong Kong Toys & Games Fair % or less 6 – 10% 11 – 15% 16 – 30% More than 30% EQ C4/BQ C8 Respondents:Exhibitors expecting respective categories with highest growth # Buyers expecting respective categories with highest growth AVERAGE (Exhibitors)12%18%16%17% AVERAGE (Buyers)18%17%14%17% Battery Operated & Electronic Toys & Games % % EXPECTED PERCENTAGE GROWTH OF MAJOR TOY CATEGORIES IN NEXT 12 MONTHS EQ C2/BQ D2 Exhibitors Buyers Educational Toys & Games Computer Toys & Games Baby Toys & Products % - # small base

17 Hong Kong Toys & Games Fair 2006 CARE PROCESS

18 Hong Kong Toys & Games Fair 2006 AWARENESS & IMPLEMENTATION OF CARE PROCESS BQ E1 Exhibitors Respondents: 50 Exhibitors likely to implement CARE process EQ C8a-c No 81% Yes 19% Will start preparing for obtaining the seal of compliance Will obtain the seal of compliance Ways of implementing the CARE Process % Awareness of CARE Process No 36% Yes 64% Likelihood to implement CARE Process Respondents: 410 Exhibitors78 Exhibitors aware of CARE process When to implement the CARE Process This year 37% Already implemented 28% Next year 22% Undecided 11%

19 Hong Kong Toys & Games Fair 2006 AWARENESS & IMPLEMENTATION OF CARE PROCESS BQ E1 Buyers Respondents: 123 Buyers likely to implement CARE process BQ D8a-c No 71% Yes 29% Will require suppliers to be CARE certified Will favour suppliers who are CARE certified Ways of implementing the CARE Process % Awareness of CARE Process No 40% Yes 60% Likelihood to implement CARE Process Respondents: 705 Buyers206 Buyers aware of CARE process When to implement the CARE Process This year 30% Already implemented 35% Next year 18% Undecided 11% 2 years later or more 6%

20 Hong Kong Toys & Games Fair 2006 EXECUTIVE SUMMARY

21 Hong Kong Toys & Games Fair 2006 SUMMARY - I MARKET OUTLOOK Sales during the Christmas period in 2005 was satisfactory. Around half of the respondent found it better than the previous year. Both exhibitors and buyers continue to be confident with the market prospect. Around 90% of them believe the overall toy market will stay positive or become even better in Among those who anticipate a positive market growth in 2006, majority expects an increase of at least 6%. Both exhibitors and buyers envisage the improving economy will be the main contributor to the growth. Exhibitors also expect “must-have” toys or hot toy items will turn up as a stimulator of the market. Buyers believe the stronger consumer confidence is another reason for their anticipation.

22 Hong Kong Toys & Games Fair 2006 SUMMARY - II PRODUCT & MARKET TRENDS Both exhibitors and buyers foresee “Computer Toy & Games” to be the fastest-growing toy category in 2006, followed by “Battery Operated & Electronic Toys & Games” and “Educational Toys & Games”. Participants believe the average growth rate of the top-3 toy categories will be ranging from 12 – 18%. BUYERS’ SOURCING PRACTICES A renowned brand name is certainly a powerful driver of the profit margin. When buyers are sourcing a toy with comparable features and quality to those produced by top brands, more than one-third of them expect it to be 20 – 40% cheaper. However, nearly 40% expect it to be further cheaper.

23 Hong Kong Toys & Games Fair 2006 SUMMARY - III CARE Process CARE Process is more widely known among buyers than exhibitors. 29% of the buyers is aware of this international toy industry's ethical manufacturing programme, compared to 19% for the exhibitors. Among those who are aware of the programme, over 60% have already implemented or will implement it in the near future. Participants are planning to achieve the programme by obtaining the seal of compliance or require/ favour suppliers who are CARE certified.

24 Hong Kong Toys & Games Fair 2006