In July this year, Prime Minister Narendra Modi, in his monthly Mann Ki Baat address, pointed out that toy imports had fallen by 70%. On the other hand, the Ministry of Trade and Industry pointed out that the country’s toy exports jumped 61% in the same period from FY19 – FY22. While toy imports increased from $371 million to $110 million, exports increased from $202 million to $326 million during this period.
If you are wondering what has changed and why India is suddenly emerging as a player in the global toy industry landscape, understand what is happening in a remote part of northwestern Karnataka. In the country’s premier toy cluster at Koppal, there is a sense of optimism and dynamism rarely associated with India’s manufacturing prowess. However, before going there, it is important to note the contours of the global toy industry.
The global toy industry is estimated at around $120 billion and is growing at around 8% annually. China – as in several low- to mid-range manufacturing industries – has a quasi-vice grip on this sector which accounts for nearly 70% of it. However, as the world looked to China more as a strategy to diversify and reduce over-reliance on this country, a market opportunity emerged.
As part of its efforts to ensure greater manufacturing successes in India, the Center has given impetus to local toy manufacturing, through various programs such as the Production Linked Incentive (PLI). According to a KPMG-FICCI report, India’s toy industry, worth around $1 billion (including domestic market and exports), could easily double or more by 2025, including a large share exports.
Koppal in Kansas
Meet Aequs – a $180 million company – led by its dynamic Chairman and CEO, Arvind Melligeri.
This holiday season, when a buyer in the United States picks up a nerf gun that fires polyurethane foam ammo, or Power Rangers toys or even a Peppa Pig doll, all from the house of Hasbro – one of the biggest toy companies in the world – chances are these were made under contract in Koppal, Karnataka by a group called Aequs.
Until recently, Koppal was only known for two things: the scarcity of rainfall and endemic poverty. A joint report by the state government and Niti Aayog acknowledged it to be the most backward district in the state. However, the efforts of a group and the vision of an individual attempt to change that to a large extent. Learn about Aequs, a $180 million annual revenue company led by its dynamic Chairman and CEO, Arvind Melligeri.
Aequs (formerly QuEST Global) is best known for manufacturing precision engineered aircraft components and supplying them to Boeing, Airbus Industries, Safran and Magellan, as well as other aviation companies. While a niche player in a high value-added, low-volume industry, Aequs is a vertically integrated player in precision machining for aerosystems, aerostructures, landing gear and engine components.
Aequs Manufacturing Unit
If you’re wondering about the connection between an aerospace supplier and a toy manufacturing cluster, Melligeri has a ready answer. “It’s about creating efficiency ecosystems and developing mastery of discrete production. Much like an Indian IT services company would work for an FMCG player, mining giant or chemical producer, Aequs is the equivalent of manufacturing services. We are a diversified contract manufacturing company providing vertically integrated product solutions for the aerospace, toy and consumer durables industries.
Unlike a simple manufacturer, Aequs runs a SEZ (Special Economic Zone) cluster that seeks to attract a number of players to set up their toy manufacturing factories at the facility’s facility. Today, the Koppal Toy cluster manufactures not only for Hasbro but also for several other global players like Chicco, Spin Master, Stomp Rocket, Play Shifu and others. From outdoor toys, vehicles, playsets, figures, STEM and infants, there is no segment of toys that is not covered.
Complexity of toy making
The toys receive the final touches in the hands of Aequs employees.
Melligeri recalls that in 2014-2015, through his network of aviation industry partners, he met senior Hasbro executives looking to diversify their manufacturing base. “At first we were hesitant. What do the production of precision-engineered aircraft components have in common with the mass production of toys, we wondered? We realized that our skills in design, development, pattern making, tooling, molding, painting, jig and fixture engineering, assembly and packaging were exactly what we needed. toy industry also needed.
Toys, like airplane components, involved safety; there should be no lead in the paints, they had to be toxic free, quality and precision measures had to be high as a large user base were children. India, says Melligeri, operates at one-third the labor cost of China and half of Vietnam. The cost of electricity in the country was lower than in China, and a huge reservoir of engineering resources was created every year. While productivity was a bit lower, it can be offset by other cost drivers and become globally competitive.
Land prices in Koppal were significantly lower than most other places in the country and there was a pool of labor that could be trained to do the basics like painting, assembly, use of molding and packaging machinery, explains Aequs. Unlike China, where European and American buyers were wary of HR practices, India’s strict laws and democratic openness gave the country’s suppliers an advantage. Koppal also has good sea, rail, air and road connectivity, which enabled it to land the deal.
The brilliant employees of the toy empire at work on an assembly line
With the active support of the state government, Aequs has set up a national level skills development center in Bhanapur, Koppal in collaboration with Karnataka Skill Development Corporation and Vishweshwariah Technical University. Over a period of seven years, it will train more than 25,000 young people in design, development, model making, tooling, molding, painting, electrical and electronic assembly, testing, quality assurance outside of warehousing and logistics.
The Union Government also provides capital investment subsidy up to 30% of fixed assets, wage subsidy of ₹1,500 per month per employee for five years, interest subsidy of 5%, transportation subsidy of up to 75% for exports, power supply guarantee at ₹2 per unit for five years, 50% reimbursement of rent and training aid of ₹12,500 per applicant, in addition to other incentives for all units located in the SEZ toy cluster.
Aequs has set up a national level Skill Development Center in Bhanapur, Koppal in collaboration with Karnataka Skill Development Corporation and Vishweshwariah Technical University
Amid the pandemic, even as large swathes of the global shutdown, the Koppal toy cluster emerged, housing manufacturing facilities for a host of players. Developed under the umbrella of Aequs Infra, a group company, Melligeri says, the toy cluster will provide world-class facilities backed by state-of-the-art technologies. “Our plug and play, designed to fit installations, caters to all toy manufacturing verticals. We are a 400 acre exclusive processing area with many government provided incentives, well connected for all modes of travel with and a large pool of employable young people. Our intention is for India to become a global powerhouse in toy manufacturing.
One of the strikes against the history of Indian economic growth is that it has been “jobless” growth. story. With millions of young people adding to the workforce every year, it is crucial for the country to provide large-scale jobs, which only the manufacturing sector can provide. For this to happen, other success stories like the Koppal toy cluster need to be replicated across the country. Melligeri, however, is passionate about the outlook: “We are at the dawn of India’s growth story. What India has done in global IT services, we can do in manufacturing, including toys. Aequs is ready to play his part,” he adds.
August 28, 2022