Prime Minister NarendraModi, in his monthly July address, was inaugurated. ‘Mann Ki Baat’Address highlighted that imports of toys have fallen by 70%. However, the Ministry of Commerce & Industry stated that toys exports from the country have increased by 61% during the same period of FY19 – FY22. While import of toys fell from $371 million to $110 million, exports rose from $202 million and $326 million between the same period.
It is important to understand what is going on in North-Western Karnataka if you want to know what happened and why India is suddenly a major player in global toy manufacturing. In the country’s first toy cluster in Koppal, there is a sense of optimism and dynamism rarely associated with India’s manufacturing prowess. But, before we get there, it is important to understand the global toy market.
The global toy industry is valued at around $120 million and growing at an average of 8 percent per year. China — like in several low to mid-end manufacturing industries — has a vice-like grip on this sector accounting for nearly 70 per cent of it. However, with the world looking at China plus strategy to diversify and reduce over-reliance on that country, a market opportunity emerged.
As part of its efforts towards ensuring greater manufacturing success stories in India, the Centre has given a push to local toy production through various schemes, such as production linked incentive (PLI). KPMG/FICCI reports that the Indian toys industry, which stands at approximately $1 billion (including imports and domestic), could easily double in size by 2025. This includes a significant portion of exports.
Koppal to Kansas
Meet Aequs – a $180 million enterprise – run by its dynamic Chairman and CEO, Arvind Melligeri.
This holiday season, when a shopper in the US is picking up a nerf gun which shoots ammunition made from polyurethane foam, or power ranger toys or even a Peppa pig doll, all from the house of Hasbro – one of the world’s largest toy companies – there are high chances that these have been contract manufactured in Koppal, Karnataka by a group called Aequs.
Till recently, Koppal has been known for only two things – scanty rainfall and endemic poverty. It was the most backward in the state, according to a joint report by Niti Aayog and the State government. However, the vision of one individual and the efforts of a single group can change this to a great extent. Meet Aequs – a $180 million in annual revenue enterprise – run by its dynamic Chairman and CEO, Arvind Melligeri.
Aequs, formerly QuEST Global, is best known for precision engineering aircraft components. They also supply them to other aviation companies like Magellan, Safran, Airbus Industries, Safran, and Magellan. Aequs is a niche player in a low-volume, high-value sector. However, it is a vertically integrated player for precision machining of aerosytems and aerostructures, landing gear, and engine components.
Aequs’ manufacturing unit
Melligeri can provide a simple answer to your questions about the relationship between an aircraft component manufacturer, and a cluster of toy manufacturing companies. “It is all about creating ecosystems of efficiency, and developing mastery in discrete production. Just like an Indian IT services company would work for an FMCG player, a mining behemoth or a chemical producer, Aequs is the manufacturing services equivalent. We are a diversified contract manufacturing company which has vertically integrated product solutions for the aerospace, toys and consumer durables industries.”
Aequs is more than a manufacturer. Aequs has a cluster SEZ, which aims to attract players to set-up their toy manufacturing factories at the facilities. Today, the Koppal Toy cluster produces not only for Hasbro, but also for several global players like Chicco and Stomp Rocket, Play Shifu, and Spin Master. Toys for all ages, including infant toys, vehicles, playsets and figurines, as well as toys for children, are covered.
Complexity of toy manufacturing
Aequs employees are giving the toys their final touches.
Melligeri recalls that sometime in 2014-15, through his network of aviation industry partners, he came across senior executives from Hasbro looking to diversify their manufacturing base. “Initially we were hesitant. What is common to producing precision engineering aircraft components to mass producing toys, we wondered? We realised that our design, development, model making, tooling, molding, painting, jigs and fixtures engineering, assembly and packaging skills were exactly what was needed for the toy industry too.”
Toys, like aircraft components, involved safety; there should be no lead in paints, it had to be toxic free, quality and precision metrics had to be high as a large user base were kids. Melligeri says India operates at a third of the labour cost of Vietnam and China. The cost of electricity was lower than China, and there were a lot of engineering resources being created every year. Although productivity was lower than in China, it can still be increased through other cost levers to make the country more competitive globally.
Land prices in Koppal were significantly lower than most other places in the country and there was a pool of labour who could be trained to do basics like painting, assembly, operating molding machines and packaging, says Aequs. Unlike China, where European and American buyers were wary of human resources practices, India’s stringent laws and its democratic openness, provided an edge to suppliers from the country. Koppal has excellent rail, air, and sea connectivity, which helped seal the deal.
The toy empire’s bright employees at work in an assembly line
Aequs established a national skill development center in Bhanapur, Koppal with active support from the state government. This was done in collaboration avec Vishweshwariah Techno University and Karnataka Skill Development Corporation. It will train more then 25,000 youth in design and development, modeling, tooling, mold making, painting, electric and electronics assembly, testing as well as quality assurance.
The Union government is also providing capital investment subsidy upto 30 per cent of fixed assets, a wage subsidy of ₹1500 per month per employee for five years, an interest subsidy of five per cent, a freight subsidy upto 75 per cent for exports, guaranteed power supply at ₹2 per unit for five years, a 50 per cent reimbursement of rent and a training assistance of ₹12,500 per candidate, apart from other incentives for all units located in the toy cluster SEZ.
Aequs and Vishweshwariah Tech University have collaborated to establish a national skill development center at Bhanapur in Koppal.
The Koppal Toy Cluster was created in the midst of the pandemic. It houses manufacturing facilities from many players. Melligeri claims that the toy cluster was developed under the auspices of Aequs Infra a group company. It will offer world-class facilities and support by state-of the-art technologies. “Our plug and play, built to suit facilities, is aimed at all verticals of toy manufacturing. We are a 400-acre exclusive processing zone with numerous incentives provided by the government, well connected for all modes of travel with and a large pool of employable youth. Our intention is to ensure India emerges as a global powerhouse in toy manufacturing.”
One of the major problems with the Indian economic growth story has been that it has been a ‘jobless’ growth. story. It is vital that the country provides large-scale employment, which can only be achieved by the manufacturing sector, with millions of young people joining the workforce each year. More success stories like that of the Koppal cluster must be replicated across the country for this to happen. Melligeri is optimistic about the future, however. “We are at the cusp of the Indian growth story. What India did in the global IT services, we can do for manufacturing including toys. Aequs is ready to play its part,”He adds.
August 28, 2022