HONG KONG-BASED toy manufacturers are considering relocation to the Philippines, the Board of Investments (BoI) said on Wednesday.

At the same time, a survey by Standard Chartered found companies based in the United States and Europe are looking at the Philippines as part of its expansion plans in Asia.

The BoI in February met online with representatives of the Toy Manufacturers’ Association of Hong Kong, whose 250 members have operations in Hong Kong and mainland China.

“(The) toy makers’ association acknowledged the rising production costs that their members have been experiencing and, thus, are seriously considering the Philippines for possible relocation and expansion of their operations,” BoI said in a press release on Wednesday.

Despite the pandemic, the toy industry in some countries grew, with sales in the United States rising 16% to $25.1 billion compared with a year earlier. This was due in part to a spike in demand for skateboards and fashion dolls, the NPD group said in a report released in January.

“One major theme in 2020 was the growth of online shopping. Some retail closures and consumer hesitancy towards shopping in stores led to a surge in online toy sales,” the report said.

Trade Undersecretary and BoI Managing Head Ceferino S. Rodolfo said that lockdowns declared to contain the coronavirus pandemic has led to a shift to home entertainment and online education, which in turn fueled demand for video games and digital education tools.

“While some traditional toy categories have seen a spike in 2020, the long-term trend is reflected in the strong repositioning of toy industry players as entertainment providers on multiple platforms,” he said.

To attract investors, Mr. Rodolfo touted the country’s reduction of corporate income tax under the recently ratified Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act. The Philippines, he added, also has free trade agreements and preferential trade rates with countries like Japan, India, Australia, New Zealand, and some European countries that can widen Hong Kong export market access.

“Aside from market access, the Philippines can also provide for a broader production network for the manufacture of toys given the existing manufacturers in the Philippines as well as the sources of raw materials that the FTAs (free trade agreements) can provide,” he said.

Several toy manufacturers along with plastics, rubber, cotton, and textile suppliers operate in the Philippines.

The BoI said that 125 toy manufacturing firms registered with the agency since 1989, all of which amount to P450 million in investments. The biggest contribution was Mattel Philippines, Inc.’s P39 million.

Philippine toy exports in 2019 amounted to $171.6 million against $487.3 million in imports, the bulk of which came from China and Hong Kong, BoI said. These exports include traditional toys and video game consoles, but not video game applications and in-game transactions.

Meanwhile, the Philippines is among the top five Southeast Asian markets that European and US companies are considering for expansion over the next six to 12 months, according to a study by Standard Chartered.

“With regulations noted as the number one concern among respondents looking to expand overseas, it could suggest an opportunity for the Philippines to increase foreign investment through greater awareness of the ease of doing business locally,” Standard Chartered said in a statement.

Over 85% of the respondents in the study are already operating, implementing, or considering business activities in Asia.

Across Asian markets, US and EU firms identified Japan (42%) China (36%), Australia (34%), and India (24%) as priority countries for expansion plans.

For European Chamber of the Philippines President Nabil Francis, the Philippines’ main strength is its relatively young, dynamic, and highly literate workforce.

“The Philippines has made some strides in improving ease of doing business as well as opening the market for more foreign investments,” Mr. Nabil said in a Viber message.

However, economists said the Philippines has to make improvements to attract more investments.

“The Philippines as an investment destination has long been in the pipeline of US and EU firms because of its diverse market and the relatively lower labor cost, not to mention the continuous infrastructure development the government is undertaking,” Colegio de San Juan De Letran Graduate School Dean Emmanuel J. Lopez said in an e-mail.

“Despite the pandemic, the Philippines is also a good destination for these companies particularly offshore services because of our unique advantage in trade in services. The Philippines just needs to enhance its infrastructure to harness this opportunity,” Asian Institute of Management economist John Paolo R. Rivera said in a text message. — Jenina P. Ibañez and Luz Wendy T. Noble