Corporate Q&A

Figuring it out

Chinese factories are still pivotal, says top US collectibles maker

Iron-man-w

Sideshow’s Iron Man statue

Sideshow Collectibles is a specialty manufacturer of collectible figures and statues, making goods based on characters from Marvel, Star Wars, DC Comics, Disney and others. Mike Tolentino oversees production, working with Chinese factories to assess whether their capabilities meet Sideshow’s standards. Here he discusses with Natalie Lin how his firm has been dealing with the unprecedented challenges of the Sino-US trade war and Covid-19, with the coronavirus disrupting travel between Sideshow’s headquarters and the factories Tolentino oversees, and the trade row adding pressure to relocate its supply chain outside China.

What does Sideshow create?

We make high-end collectibles. These can be anywhere from a 12-inch figure with heavy details to life-size statues of characters from all the different pop cultures. Products we sell range from $200 to several thousand dollars.

What is your role?

I’m a project manager so my job is to shepherd projects from initial conception all the way down to customer delivery.

There are two stages of a project’s life. One begins at the design: figuring out the pose, costume design and colouring. If it’s taken from a movie, we need to make sure that the references are correct and it’s accurate. Then we sculpt it, paint it, mould and cast it, and dress it – because a lot of our stuff has a lot of clothing with it.

Production is the second half. Once we have the finished prototype I’ll step in with suggestions and work overseas with the factories. Everything we do in our offices and studios in the US we have to replicate. We take our finished prototypes and masters, we send them over to China factories, and I’ll work with the factory teams to make sure they get as close as they can to our original.

In the development stage it takes about a year to create one prototype, whereas in the factory they have to pump out 1,000 of them in 30 days. We have to make it easier where we can, simplifying things so the design can be manufactured.

When did you first go to China?

My first trip was about six years ago. We’ve got factories in Shenzhen, Huizhou, Guangzhou, Dongguan and Zhongshan.

How have travel bans affected business?

It’s been hard, especially when it hit in March as we’d already had Chinese New Year. That annual holiday basically makes January and February a wash. Your projects are usually set back a month or two as everyone starts leaving around January and February, and it takes a couple of weeks for them to come back. And so when the pandemic hit it ended up adding three months before Chinese factories were getting back to normal and it hit us really hard. We were already behind in terms of manufacturing.

Luckily we had stock in our warehouses and we’ve been selling more as people are at home and buying online. So that’s great – but in the manufacturing end it has meant everything has just taken longer.

I typically go to China for up to 10 days at a time and because I am there it helps us to stay ahead of schedule. I can point to something and say this needs to be a little bit more blue, for instance. They can do it right there and fix it and show me. If I am here in the US they can send me a picture, but you can never really tell on picture, no matter how good the photo.

We’re working from home right now so I have to arrange when I’m going into the office to review things, which can be a couple of days wait. Then I have to review it and send it back, which is another two to three days. Every day that passes is really two and a half days because of the time difference and things just start to stack up. It’s a slower process. Unfortunately, I don’t speak a lick of Mandarin and sometimes a simple translation issue resolved really easily in person can take days on email. Some of the oversight is just not there. It’s a very hands-on industry.

Has the trade war hurt too?

We have been pretty fortunate and we didn’t get hit as hard. I have some friends who work in home decor and patio furniture who have been taking the brunt of it and they have needed to find other manufacturers outside of China.

We’re always looking for other factories too. We are encouraged by some of our partners to look at other countries, which is great, but for us to experiment on projects can be super-dicey, because we operate very limited production at a very high quality level.

You can’t role the dice on a factory that’s not been established. Although right now other countries are cheaper, the quality is still in China. The artistry for our industry is critical. They know what they’re doing.

Has the manufacturing landscape changed in China?

As I said, my first visit to China was six years ago. It wasn’t that bad! I’ve heard stories of people going to China over decades and recounting how they’d have to travel down dirt roads to get to a factory and that the hotels were basic. Now they tell guys like me we have it super easy in comparison. There are all these nice hotels, there’s hardly a dirt road anymore, and the factories – although not like American buildings – are still fairly nice.

But when we start going into other countries that infrastructure hasn’t been laid down yet. So if we were going to Thailand or Vietnam it’d be the same thing – some of the factories would be off the beaten path. A lot of these other countries still get their materials from China. The unit cost might have gone down but getting things out to the port might be more costly.

The rising costs of making products in China is a concern. For instance, rising housing costs affect our unit cost directly. The factories have to pay the workers more and they have to charge us more, which is completely understandable. Unfortunately, just like anything, if something gets too expensive we have to look at other options.

Another problem that we’re seeing in China right now is with changes to the workforce. The younger generations don’t want to work in resin factories anymore. It’s a dirty job – there’s dust flying everywhere. Younger people don’t want to do it. It goes with the fact that living costs are increasing – it’s about wanting more than what their parents had. You see your parents working in the factory and you think I don’t want to do that. It’s a hard job and the younger generations want it a little bit easier.

Are factories using more robots in production?

We would love to be able to automate as much as we can. But our products involve a lot of handwork right now. Part of their appeal is that they’re hand painted and hand finished. So you’re going to get an artist’s touch to it, as opposed to a robotic spray paint.

So would you move out of China?

We’re always going have to adapt in the industry and follow where the manufacturing goes. If it becomes too burdensome to operate out of China, we always have to keep our options open.

We rely on our Chinese partners right now. In some cases we’re letting them build up Vietnam into another location that we’ll be able to go to. If it came down to it, we would jump on a plane, boots on the ground and go there to check out the work that the factory is doing. Not only that, we also have to work though all the restrictions from our licensors. With our Disney products the factories need to be certified, so all that needs to be investigated. There’s a huge industry of rip-off products as well, so you want to make sure there’s no product leaving the backdoor of the factory. That’s when we really rely on our factory relationships.

How will manufacturing change in China?

I’m interested to see how things will be post-pandemic. I haven’t been there since they’ve started opening up and I don’t know what the new social distancing precautions are. Every time we’ve had a product being made on the production line people were packing or working on the project, and not six feet apart – so I’m interested to see how this has changed it.

There’s always advances in this industry, like different ways to paint things or different ways to cast or dress things. It’s hard to say what’s going to change. As long as the movie industry can keep putting out material that people like and that generates interest, I think we’ll be fine.

What else generates demand for your products?

Demand has gone up because the theory is that people are stuck at home and their lifeline to the outside world right now is the internet. So it’s good we are an online store. We’re also at a good point in our particular industry because comic movies are popular. Anything that’s semi-new that comes out gets jumped on right away. We were worried in the beginning [about the Covid-19 spread] that we’d see a dip in sales but I think we’re on par with where we were [before the virus]. We haven’t taken a step back. I don’t think we’ve surged forward as much but we’ve seen a lot of new customers, which is great.

Where do you sell your products?

We sell direct to consumers on our website and also through comic book stores, Disneyland and other amusement parks. We have a big market in the US, Asia, Europe – everywhere really. It’s mostly through online sales.

Do you have a view on how the trade war is going to end?

When I tell people what I do, and how we manufacture in China, you sometimes get the response: “Why don’t you manufacture in America? You should be doing this in the USA.”

Yeah we should, but no one’s going to want to work in a resin factory, just like the younger generations in China don’t want to either.

And you couldn’t produce the stuff that we make at our current costs levels if we were doing things in the US. As much as everyone wants to have jobs – and say they’re making things in America – it’s just not economically sound. The math doesn’t add up. And I feel like people don’t understand that.

When I first went to China I was blown away. We were touring different factories and visited one that was making little suction cup toys that you throw against windows and they fall down the glass. I was watching a guy make it and he was doing the moulds, pulling them from the ejection, cutting all the pieces off and handing it to another guy. He was snapping the little plastic pieces together and it was all hand-done. That was someone’s full day of work to make those.

There’s no way we could find people to make them here in the US for the same money that those guys overseas are earning. Maybe it’s a cultural difference or a living expense difference. I’m not exactly quite sure what it is. But I know Americans are expecting to make more of an income from whatever they do.

How has Amazon affected your business?

We’ve changed our business model to adapt to new customer behaviour. The previous model was that we would show our product prototype and everyone would preorder it. It was a two-year process: a year on our end to make the prototype, then you’d order it and wait a year for it to show up.

With Amazon being what it is now, everyone is used to that immediate gratification, so we’ve had to change our approach. We still preorder but we’re doing smaller orders and more ordering. If we have a Batman figure that’s coming out, we’ll buy enough to get it to the market and when it gets into people’s hands and they start reviewing it, you start to see orders spike. By the time it sells out we’ll have more in stock so customers can get it right away.

Amazon has definitely changed the game. We’ve had to adapt and we need factories that are willing to do the same. One of the things we used to rely on to get better pricing was saying “we’re going to order 3,000 of these, they are going to be a huge seller”. Now we are ordering 1,000 with a “maybe” on more down the line. But factories can’t bank a “maybe” so you’re left with harder negotiations to get the pricing right. And it’s hard for the factories because you’ve got new projects coming in but also reorders coming through.

Are video games making collectible toys obsolete?

No. Actually, video and digital are a good entry-level drug for our business. You start to get into video games and you think to yourself this video game is cool, I wish I had a $400 statue of the character. Then boom, they find us and they get one!

I know the big claim is that children don’t play with toys anymore but we’re not geared towards kids. Our demographic is 18 and up. There are people who are well into their 70s who are collectors and they range from college students to doctors and movie producers.


© ChinTell Ltd. All rights reserved.

Sponsored by HSBC.

The Week in China website and the weekly magazine publications are owned and maintained by ChinTell Limited, Hong Kong. Neither HSBC nor any member of the HSBC group of companies ("HSBC") endorses the contents and/or is involved in selecting, creating or editing the contents of the Week in China website or the Week in China magazine. The views expressed in these publications are solely the views of ChinTell Limited and do not necessarily reflect the views or investment ideas of HSBC. No responsibility will therefore be assumed by HSBC for the contents of these publications or for the errors or omissions therein.