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Analysis of the Canadian Toy Industry

Analysis of the Canadian Toy Industry

Part A: Business Concept

The proposed business concept entails a brick and mortar toy store located in the center of Richmond in British Columbia, Canada. The toy store will sell Do-It-Yourself toys, allowing children to be actively engaged in the creation of toys that suit their preferences. Some ideas of the DIY toys that could be sold in the store include ragdolls, toy cars, and jigsaw puzzles. Thus, children form the main target markets for the products sold at the store. However, there exist big market players in the industry, such as Toys R Us and Lego, who might significantly influence the success of new entrants in the market (Bedford, 2019). In this case, the competitive strategy would require an integration of the advantages of both competitors and leveraging new market trends to establish a competitive edge. One such market trend is the integration of three-dimensional printing in the production and customization of toys.

Part B: Industry Description

The proposed business falls under the hobby and toy stores industry. The industry’s business model is driven by the need for entertainment for young children. To this target group, toys provide an opportunity for children to enhance their learning capacity, physical, social, and emotional development (Chen & Lin, 2018). Globally, the total revenue generated by the toy market industry in 2018 was approximately $90.4 billion (“Hobby & Toy Stores,” 2020). In Canada, the total revenue from the industry reached about $ 3 billion in 2019 (“Hobby & Toy Stores,” 2020). A research conducted by Ibis World for the year 2019 indicates that the number of businesses in this industry within Canada approached 2370 (“Hobby & Toy Stores,” 2020). Therefore, the industry has numerous players, which can imply the level of competition. Similarly, the industry employs about 15896 Canadians (“Hobby, Toy,” 2018). Therefore, the industry plays a significant role in the country’s economy.

Primarily, the industry players are mostly small businesses, comprising fewer than ten employees. However, there exist big manufacturers and retailers that hold the largest market share. The hobby and toy stores industry has experienced sustainable revenue growth in the past five years (“Toy, Doll,” 2019). The factors attributed to this growth include rising disposable income levels, falling unemployment and an improved retail environment (“Toy, Doll,” 2019). Another trend influencing the market dynamics in the industry is the increased presence of discount stores and e-commerce retailers, thus increasing competition. However, brick and mortar outlets still hold a considerable market share due to their ability to offer a wide variety of toys at a cheaper price. Lastly, the Canadian hobby and toy industry is projected to grow at an annual rate of 2.8% in the next five years (“Toy, Doll,” 2019). Some of the main categories of toys sold in the industry include electronic toys and games, traditional toys, hobby and craft supplies, and art and craft supplies. Overall, the industry looks promising charging from the positive past and forecasted growth in revenue.

Part C: Integrated Model

The success of any business depends on several factors linked to management functions. While these factors are separately categorized into various roles and operations of individuals and the business, each factor influences and are influenced by other factors. Therefore, an integrated model becomes necessary for the harmonization of the various aspects of a business. Specifically, the integrated model allows for the implementation of a business proposal that is inclusive of all major factors affecting its success (Khajeheian, 2018). For instance, the model combines, the management functions, strategic planning, and business and industry analysis. By combining these aspects, all the critical success factors are accounted for, thus resulting in a successful implementation.

The success of the DIY Toy store depends on the implementation of the following ten elements. The first step involves creating a plan for the toy store by establishing the startup cost, target market, breakeven point, and the name of the business (“How to Open,” n.d.). The second step pertains to the formation of a legal entity (“How to Open,” n.d.). In this case, the legal business entity provides some shielding against legal liability to the founders or shareholders. Next, the business must comply with all industry regulations. One of the most crucial compliance aspects is the payment of taxes. Therefore, the business has to register for taxes. Subsequently, the other automatic step is the creation of a business bank account and credit card, which are useful for transactional purposes and revenue calculation, utilized in the calculation of taxes (“How to Open,” n.d.). The fifth step requires the set-up of a business accounting procedure. Specifically, the above refers to the documentation of the business income and expenses. The five steps form just part of the initial operations requirements.

It follows that the business owners also need to comply with some local regulations before setting up the business. First, DIY Toys needs to check with the local authorities about the necessity of a business license, application, and issuing. Second, once the location and store have been identified, the next step is to acquire a certificate of occupancy (“How to Open,” n.d.). This certification ensures that everything aspect of the rented or used facility is up-standard. Next DIY Toy store should apply for a business insurance cover. The business insurance safeguards the welfare of both the employee and equipment (“How to Open,” n.d.). Once the business has been established, the next step is to create a brand and market it. The internet also provides an avenue to market the business. In this case, DIY Toys should establish their web presence. Lastly, for its marketing operations, DIY Toys should consider opening a social media platform for customer engagement (“How to Open,” n.d.). Therefore, since each element of the business plays a unique role, it follows that a combination of these factors is necessary for its success.

Part D: PESTI Analysis

The success of every business does not only rely on the management operations that go on within the company. Occasionally, the external macro-environment also impacts the success of every organization within an industry. The analysis of the macro external environment is based on the PESTI analysis which focuses on five external factors affecting industry performance. They include political, economic, socio-cultural, technological, and international factors (Khajeheian, 2018). DIY Toys store falls under the hobby and toy industry in the Canadian market. Therefore, the PESTI analysis considers all the factors within Canada and globally that affect the Hobby and Toy industry.

Political

The political factors are related to the concept of legislative laws. Essentially, political leaders are elected to formulate legislation affecting various aspects of human life, including trade, health, governance, and human rights. Therefore, the political landscape impacts the formulation of regulations and laws that might favor the success of a particular business or industry. On the other hand, compliance with these regulations has legal consequences on the business (Kuhni, Cavalcanti, & Andrade, 2017). For instance, a lack of compliance might attract a fine or closure of a business. The last characteristic of the political factors concerns the flexibility of the political landscape (Khajeheian, 2018). Specifically, an individual is highly unlikely to have any impact on a specific regulation. Therefore, changes in regulation require a high level of organization and lobbying to achieve the desired change.

The hobby and toy industry is influenced by several regulations and policies. The industry is dominated by imports from China. It is estimated that 75% of toys globally are manufactured in China (Kuhni et al., 2017). Therefore, any changes in the international trading policy between Canada, the United States, and China affects the availability of toys from china. For instance, the recent trade wars between China and the United States have several implications for the hobby and toy industry (Khajeheian, 2018). China might decrease its trade volumes with the Countries in North America. Similarly, the decreasing trading activities between China and the US might increase the trading activities between China and Canada. As a result, more toys from China that would have gone to the US market find their way into Canada, thus causing flooding of the toy market. The other political factor that affects the hobby and toy industry pertains to the health and safety impacts of material used to manufacture the toys (Kuhni et al., 2017). Specifically, the government stipulates that the material should not use any materials or paints that have been linked to adverse health impacts. For instance, the use of lead-based paint to make toys is prohibited due to the tendency of children to chew on their toys. In light of these two major political factors, the success of the hobby and toy industry depends on the compliance and influence of government policy on domestic and international trade.

Economic

A range of economic factors affects the success of business in the hobby and toy industry. First, the unemployment or employment rate determines the availability of disposable income in society. For instance, when the unemployment rates are low, more people in the economy have disposable income, which can be spent on luxury goods (Khajeheian, 2018). Second, factors, such as inflation and interest rates, also affect the trading activities within and across the countries borders. Specifically, when inflation and interest rates are high, consumers are unlikely to spend their money on particular types of goods in the market. However, the business can try to employ countermeasures to negative economic factors, but if buyers are unwilling to buy then no business is safe.

As for the hobby and toy industry, several factors have positively impacted the industry. First, the levels of disposable income in Canada has been steadily rising. This aspect implies that more people can afford to spend money on goods that do not qualify as basic needs, such as toys. Secondly, the employment rate in Canada has been gradually falling (“Hobby & Toy Stores,” 2020). The implication from this trend is that more people have become financially stable due to the financial security that comes with a permanent job. Hence, a higher percentage of the population can afford to save and spend the money on buying toys for their children’s entertainment. The last economic factor that has influenced the hobby and toy industry within the last five years concerns development in the retail industry (“Hobby & Toy Stores,” 2020). Specifically, the retail industry has experienced some improvements stemming from the introduction of e-commerce retail outlets. Generally, the economic factors have favored the growth of the hobby and toy industry.

Socio-cultural

Consumer behavior highly depends on the socio-cultural factors affecting a particular type of product. For instance, a culture that does not support the consumption of a particular product, such as pork undermines the food and agricultural industries linked with pork production and processing. Additionally, similarly to the political factors, the socio-cultural factors are not easily influenced by a single person perspective (Khajeheian, 2018). As a result, offering and producing a particular product or service to the consumer does not guarantee purchase. The way to address this aspect of the business environment is by surveying and understanding the cultural needs of society.

The hobby and toy industry is currently affected by numerous socio-cultural factors. First, modern women prefer to have fewer children at a later age. Consequently, the units of sales for toys have also dropped since the population of target consumers is low. However, having children at a late age means that the financial capacity of families is high. Therefore, more families can spend more money on toys (IBISWorld, 2019). Second, the consumerism culture characterized by a short product life cycle affects the hobby and toy industry. Shorter product life cycles encourage repeated purchases steered by continued improvement on the product. For instance, new toy models are being designed frequently, which means that the obsolescence rate is quite high. Besides, children seem to mature faster (“Hobby & Toy Stores,” 2020). The above leads to increased demand for new toys throughout a child’s development, but it also means the childhood duration is shortened. Overall, the socio-cultural factors favor the success of the hobby and toy industry as informed by the consumerist culture and high disposable income among Canadian families.

Technological

Technological advancement can serve to promote or undermine the success of a particular industry. Technology influences numerous aspects of an industry ranging from manufacturing processes, retail, and consumer behavior. For instance, technological advancements in the Information and communication sector affects the retail business model concerning online commerce and marketing (Khajeheian, 2018). Similarly, technology also affects business operations on manufacturing techniques and the establishment of a competitive edge. Therefore, if an organization fails to stay updated on technological advancements, it risks obsolescence of its business model and overall profitability.

In the hobby and toy industry, technology plays a significant role in the predominant consumer behavior, marketing channels, business communication, and production process. Concerning consumer behavior, the development of digital technology has revolutionized the entertainment industry. Specifically, children had developed a high preference for online and video gaming. Besides, the development of three-dimensional virtual reality has eroded the need for physical toys (Kuhni et al., 2017). Additionally, technology has also influenced the use of traditional marketing media, such as television and newspapers. Recently, most business organizations have adopted social media marketing, which is cheaper and effective. Therefore, technology has significantly reduced marketing costs. Technology has also impacted the manufacturing process and customization of merchandise (Khajeheian, 2018). Particularly, three-dimensional printers allow businesses to create customized products according to consumer specifications. The availability of cheap three-dimensional printers also leads to a low entry barrier into the hobby and toy industry leading to increased completion. Lastly, globalization has led to increased sharing of information. As a result, the availability of imitations has increased in the toy market due to ineffective copyright regulations and enforcement. Therefore, technology has had both positive and negative impacts on the hobby and toy industry.

International

The last macro-environmental factor that affects the success of an organization concerns international relations. International forces, such as trade relations, determine the import-export trade of goods and services. Concerning the toy industry, China holds the number one position as the largest exporter of toys (Kuhni et al., 2017). The availability of cheap labor in China contributes to its market dominance, unlike in Canada and other western countries characterized by stringent labor laws. Therefore, local manufacturers face the challenge of competing with cheap importation from outside countries.

Another international factor affecting the hobby and toy industry concerns the licensing of toys. Over one-third of the toys produced globally are licensed by big companies and manufacturers have to pay tributes to the licensing company (Kuhni et al., 2017). The licensing trend emerged in the early 2000s, where popular television shows, movies, app gaming apps licensed manufacturers to produce and sell toys based on the characters. As a result, Asia Pacific has emerged as the leading licensing region in the toy global market.

The last international force affecting the industry is the international oil prices. Specifically, any changes in the oil prices affect the economy of most countries and the resulting currency exchange rates. Therefore, changes in the exchange rates of major currency pairs determine where the import-export trade is favorable for a particular pair of countries (Khajeheian, 2018). Also, international relations, such as trade wars, alliances, and restriction determine the possibility and attractiveness of trading with various countries. In most cases, international factors affect most industries almost equally.

From the PESTI analysis, DIY Toys will likely be profitable and sustainable. However, DIY Toys needs to make considerable changes in its business model. The business needs to consider an online market place for purchases and marketing purposes. The above stems from the success of online retailers in the industry. On the positive side, the product differentiation concerning the sale of unique toys gives the store a competitive advantage over big industry players. Specifically, big industry players, such as Toys R Us capitalize on mass production and economies of scale to offer cheap products. However, the consumerist culture in Canada favors flexibility in toy manufacturing. Therefore, the utilization of 3D printing to make unique and customizable toys will be strategic to establish DIY Toys market presence. Overall, the analysis indicates a moderate entry barrier into the hobby and toy industry.

Part E: Information Communication Technology

For any organization, communication plays an important role in creating awareness and enhancing product satisfaction among its target consumers, thus leading to increased sales. Nevertheless, internal communication is also paramount to the operations and performance of the company (Chairoel & Riski, 2018). For instance, the management needs to cultivate employee commitment to the business’ goals to improve employee satisfaction and productivity. Similarly, communication ensures that the organization’s stakeholders understand its business model and up-to-date with the financial performance of the company (Chen & Kamal, 2016). Therefore, DIY could leverage the use of technology to promote internal and external communication. Some of the information communication technology that the company could use include personal computers, laptops, smartphones, and tablets while the platforms include, email, social media, and SMS. In this case, communication technology offers the advantage of being cheap, reliable and convenient. However, enough consideration should be placed on the protection of user data.

The purpose of internal communication is to streamline an organization’s operation and development of and effective strategic plan. DIY Toys could consider utilizing data analytics technology to collect, store, and analyze production and consumer data. The technology enables the management to effectively understand the bottlenecks in production and consumer behave (Chen & Kamal, 2016). Once these aspects have been established, the management can present the information to the board of directors for strategic planning. Additionally, the use of computer technology in making presentations to the board simplifies complex data into tables, charts, and graphs that can be easily understood by every stakeholder (Chairoel & Riski, 2018). For day-to-day communication purposes, emails serve as the best communication platform to keep every employee informed about important activities. With the above communication technologies, the operations of DIY Toys can be significantly improved, monitored, and evaluated, thus enhancing high productivity.

DIY Toys also needs to communicate with its partners and customers to increase revenue generation through sales. In this case, the most critical aspect of external communication regards customer engagement. To this end, DIY Toys could use social media technology to reach its customer base by replying to social media users’ comments and posts concerning its products (Chen & Kamal, 2016). Communication with its business partners could utilize personal computers and the email platform to send and receive formal communication. Therefore, since most of the communication technology utilizes the internet, DIY should also have a fast and reliable internet connection. Effective communication would prevent the occurrence of misunderstanding and conflict among different parties and as a result, enhance its performance.

The success of every business depends on making enough sales to break even. However, without an effective marketing strategy, the realization of the first sale can prove to be both problematic and frustrating. Hence, DIY Toys needs to implement a marketing strategy that will enable it to reach potential customers and lead to a purchase (Kuhni et al., 2017). As a startup company, the most cost-effective marketing strategy is social media marketing. DIY Toys, therefore needs to create social media accounts and create awareness of its products. For instance, the management could create Facebook, Twitter, Instagram, YouTube, and Pinterest accounts and create attractive content that would draw its target customers’ attention. The type of content would range from captivating video clips, pictures, social media posts, and comments that would showcase its products. However, the store needs to recognize that a single marketing channel might not capture its entire target market.

As the financial position of the business improves, DIY Toys could consider mainstream media and event promotion marketing strategies for its products. While mainstream media marketing might be expensive, it has an extensive reach and also contributes to building an authentic brand image (Khajeheian, 2018). Additionally, product promotion at events provides an opportunity for businesses to engage with their customers on a personal level. Hence, DIY Toys should consider sponsoring several kids’ events, where its products would be on display (Kuhni et al., 2017). Besides, the company can also consider giving attendees some sample toys. The intended impact would be a word of mouth marketing by the event’s attendees to their close relatives and friends. The above marketing strategies are quite resourced intensive, and DIY Toys needs to generate enough revenue to break even before it implements them.

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