By Doug Barry
Jay Foreman started his Florida-based toy business Basic Fun! for the simple reason that toys made him happy as a kid and made him a good living as an adult. As a result, he too has been happy for more than 40 years.
His first job in the industry was as a salesperson for a toy factory in Brooklyn. That was back in the days when a lot of toys were still made in the United States. A Jewish family that emigrated from Europe at the turn of the 20th century founded the business called Fable Toys. Fifty years later they sold the factory to Korean immigrants. A true example of two generations of the American dream. “The owners were legal immigrants, but many of the workers in the 80s and 90s tended to be undocumented,” he said.
As labor and real estate costs started to increase in the 1980s and 90s, toy makers with factories in the United States began to move production overseas to Asia. Foreman, then 25, made his first trip to South Korea in 1987 when that country was the center of the stuffed toy industry. In the late 1980s, China started to become a major player in toy manufacturing, having made toys for its domestic market since the 1970s.
“Typically, in normal years, we would ship for Christmas in late May to August. Now we start right after Chinese New Year in February in case there are delays."
He discovered that many toy factories in southern China were owned by people from Hong Kong, which is still the case. To distinguish themselves from the Hong Kong makers, mainland owners referred to their factories as “China-China.”
When Foreman first visited China in 1989, there was little private enterprise in China outside of Guangdong province, and everything, including toy factories, was government owned. A state-owned trading company served as intermediary, handling payments and logistics. “I sat at a table with a representative of the Chinese government and a representative of a Chinese government-owned factory. We even had to use a special currency for foreigners,” he said.
Toys taken private
Eventually, the government sold their factories to private mainland businesspeople and Foreman started working with them as the actual owners of the businesses. “From the mid-1990s, China’s growth exploded. From that point, I’ve spent my career doing business in China creating businesses, growing them, selling products globally from the United States, and even selling or taking businesses public.”
Ninety percent of his toys are made in China, just 10 percent in the United States. He doesn’t manufacture in any other counties. Does he regret not creating more manufacturing jobs in the United States? “These were never high-value jobs, and it was hard to get people to do them. That is not the type of product that makes sense to make here. China isn’t taking our workforce away; they are providing a valuable resource of lower-skilled labor, which is in very short supply in America.”
He argues that the hard times that befell the American heartland resulted from many factors. “It was partly bad business decisions by management, partly free trade with Mexico, partly Japan in the 80s and China in the 90s. However, now many of these regions in America are pumping out cars and other higher-value products. We are at maximum employment today in America.”
He said that every generation hopes to have better jobs than their parents. “How does it serve this country to have our people glue eyeballs on dolls? If we can afford to not make that stuff here, then we can let people in developing countries make that stuff. In the end it will help them rise out of poverty. It certainly worked in South Korea, China, and Vietnam, and it works for America.”
“Ask how many employees a big box or online retailer would have if they didn’t do business with China. It’s important to understand how the revenue from most made-in-China products, including our toys, comes to United States and stays here."
COVID-19 took some of the fun out of Basic Fun. Foreman experienced logistics snafus, struggles keeping factories open and workers safe, clogged ports on both sides of the Pacific Ocean. “Factories are doing a pretty good job dealing with the closures in China. They have found ways to get the labor to the factory. A lot of the labor is migrant labor, so they live at the factory. That is not the case for higher tech industries where employees are local. A lot of the toy factories employ migrant labor, so it is easier to quarantine them where they work.”
Another way to ensure timely delivery is to ship earlier and earlier. “Typically, in normal years, we would ship for Christmas in late May to August. Now we start right after Chinese New Year in February in case there are delays. Getting paid when you have an accelerated timeline poses other challenges, but the accelerated timeline helps with the supply chain challenges.”
Typically, he points out, toys tend to be semi-recession proof. Indeed, COVID’s lockdowns required more kids’ time to fill, sending parents to physical and online toy stores. Even though retail toy prices are up 10 to 30 percent overall, the industry caught a break when toys were not subject to tariffs in the trade war with China in 2019. Foreman said the toy industry started messaging the Trump administration early on “not to be the grinch who raised prices on Christmas toys.” It seemed to have worked, as toys were one of the few categories to escape tariffs as high as 25 percent on the cost of goods.
A toy cost breakdown
Who benefits most from the total cost to produce a toy? Foreman says everybody in the supply chain does, but mostly Americans. His company employs about 85 people in the United States with an average salary of around $90,000, which is almost double the average American salary. A toy selling in the United States for $20 probably costs $5-7 to make in China. The balance of up to $15 goes to non-China recipients like American workers at his company, retailers, truck drivers, and warehouse labor as well as to profits, which are subject to taxation by cities, states, and the federal government.
Previously ocean transport was around five percent. It was recently as high as 20 percent because of higher ocean shipping rates, higher fuel costs, a container shortage, and other factors in the supply chain. These costs are starting to moderate and even go down, and that will be good because American companies don’t own international shipping lines, so there is no direct benefit to American companies and workers in the ocean shipping industry.
"You just need a couple of good stories with a simple message: Trade with China is good for America.”
The Chinese manufacturer must buy the raw materials, finance a factory, and pay their workforce before they see what is typically a five to 10 percent net profit margin off their share of the sale. That means their profit is at most 70 cents per finished item that sells for $20 at a US retailer. “Manufacturing abroad has a bigger benefit to Americans than most people realize,” he said.
“Ask how many employees a big box or online retailer would have if they didn’t do business with China. It’s important to understand how the revenue from most made-in-China products, including our toys, comes to United States and stays here. No imported consumer goods from China means big box stores would be half the size, with half the employees, with half the taxes paid to federal, state, and local governments.”
Stop fighting the Cold War
Most people don’t know about how trade works, says Foreman, including Florida’s congressional delegation to whom he’s reached out to explain the importance of trade with China. “I’ve tried to contact Senator Marco Rubio (Republican, FL), but his would be a deaf ear. He is still living in the Cold War and fighting Fidel Castro.”
What China offers is opportunity in a world, at least for Foreman’s industry, that has few if any other options. “The issue is where do I want to manufacture my products? No other countries have more well-organized manufacturing than China and the United States, and maybe Germany or Japan. But Germany and Japan don’t make many toys anymore.”
“For other products, if I go to Mexico or Brazil, I don’t want to work in a country where I need to drive around in an armored car and have to be worried about getting kidnapped! India has as many questionable human rights issues, has a corruption problem, and doesn’t have the infrastructure. Vietnam is great but it is less than one-tenth the size of China. If I set up in Vietnam, and five to 10 years later they don’t want to make toys anymore and then I must move again, what happens? That is what happened to me in Korea in the early 90s.”
Are his Chinese business associates pained by what is happening between the two governments? “Some are more and some are less engaged. They aren’t in the position to be overly political, because of the system. They are very pragmatic, just have their head down, working. ‘It will work out, it always has, we’ll figure it out.’”
“My take is simple on our adversaries. I look at a country like Russia. Russia is an enemy to the United States and the free world. They bear no good will to the United States. And we get zero benefit from Russia. A micro trading partner when compared to China. The United States and China benefit so much from their working relationship with each other. If you look at China as an enemy, it’s naive. The reality tells us that both countries have benefited so much from the relationship over the past 40 years. It’s foolish to be enemies with 1.4 billion people if you can avoid it!”
He said the policies of the Trump administration were “ridiculous.” He believes there are a lot of smart people in the Biden administration, “but they aren’t handling the China relationship gracefully, nor is Speaker Pelosi. They need to figure out how to speak to the Chinese without being overly antagonistic. Start with what brings us together rather than what tears us apart. Chinese people used to really love Americans until the past five years. Trump was in love with Xi and hated the Chinese people. At the least, let’s not lose the hearts and minds of the people.”
USCBC also got some friendly advice from this small business owner and USCBC member who shared it on a video call. His backdrop was appropriately filled with stuffed toys, all of them with adorable smiles. “Your membership is so top heavy with Fortune 500 companies that you cannot message properly to influence the court of public opinion. Big businesses are in a box, too worried about the blowback. There is no voice out there defending doing business with China. If all you are doing is fighting the lobbyists on the other side and arguing with the big mouth politicians, then you will lose. You just need a couple of good stories with a simple message: Trade with China is good for America.”
Thanks. You just gave us one.