Yesterday was the last day of the 2008 Hong Kong Toys and Games fair held at the Hong Kong convention center. This year, just like past years, there were several new companies that had exhibits. A large number of international groups from Spain, Thailand, Germany and other countries exhibited at the fair as well.

I had a chance to talk to several attendees and also to several factory owners during my visit this year. When asked what their main concern was for 2008, they all, without exception, mentioned the continued rise of costs and US dollar depreciation against the RMB. Costs had continued to rise on raw materials and when it comes to labor as China continues to impose new regulations that benefit factory workers.

A second concern shared by many attendees were increased regulations in safety. While they felt this is a positive thing, the concern lies in the fact that safety testing costs will continue to increase as awareness has reached an all time high after Mattel and Fisher Price had to recall millions of toys in 2007. While quality control in factories has increased, the government has began to regulate safety control as well. All of these result in an overal increase in prices.

Trading companies were very popular in Hong Kong as they would go to battle with factories in China and would ease the mind of importers as they only had to deal with one company and not carry the risk of being left behind with a deposit on the table. This has also changed in the past years as more and more companies now go directly to the source. However, now is probably not a good time to begin to evaluate new relationships, especially with brand new factories, as the risk of them disappearing is now more than ever.

Today, the relationships that were built with suppliers through the years are extremely important, as that will ensure that the business that is ran, is ran smoothly. Yes, there will be increase in costs...there is nothing that can be done about that. What will differentiate the successful companies from the ones that fall behind the mark, are the ones that are smart about how they increase their pricing to their customers. It will be imperative to not only increase pricing, but it is more important to show and offer the consumer something more for their money. It will be extremely important to give something additional in order to compensate for the increase. Either offer better logistic alternatives, consolidation, an additional service...something else will be necessary to ride this one out in 2008.

As they say here...have a "hen hao 2008"...