Tech 4 Kids Inc. was only a month old when the 2008 financial crisis touched off in the United States, drastically changing the market for the young, Toronto-based toy company. Many small and mid-sized retailers in North America disappeared, leaving a consolidated market dominated by large players.
“What used to be a diversified landscape suddenly changed to only a few retailers, who mostly didn’t want to buy from small companies because of the perceived risks involved,” recalls Brad Pedersen, co-founder and president and CEO of Tech 4 Kids, which designs and manufactures toys under its own brands as well as licensed brands such as Hello Kitty, Disney’s Frozen and Marvel’s Avengers.
It was a significant setback for Tech 4 Kids, whose original plan was to sell to mass retailers in the U.S., which accounts for $26 billion – or more than 30 per cent – of global toy and game sales. Mr. Pedersen and his partners quickly came up with Plan B: sell to markets way beyond North America.
“We discovered by happenstance that, while things weren’t so great close to home, opportunities in other countries were incredible,” says Mr. Pedersen.
Working closely with certified factories in China, Tech 4 Kids began creating and exporting toys for markets in Brazil, Russia, Uruguay, Argentina and Australia. While other toy makers were fighting for shelf space at North American retailers such as Walmart and Toys “R” Us, Mr. Pedersen and his team were finding success selling to relatively smaller stores whose banners are largely unknown outside their markets.
Today, Tech 4 Kids is a $50-million company with 50 employees in Toronto, Hong Kong and China. While about half of its output is earmarked for U.S. customers, the company continues to see robust sales in its emerging markets portfolio, which has recently expanded to include India, China and Kazakhstan.
“We have become a big fish in a small pond,” says Mr. Pedersen. “And now a lot of people are catching on to what we’ve been doing and thinking ‘wait a minute, maybe it’s easier to work those markets than we thought.’”
Easy isn’t exactly the word Mr. Pedersen would use to describe doing business in overseas markets, especially those in emerging economies. Volatile political environments, low currency valuations, and labyrinthine regulations all add up to greater risks for importers.
But Mr. Pedersen has learned how to reduce, if not completely remove, these risks. In Russia, for example, Tech 4 Kids sells through a distributor instead of going direct to retail. In Argentina, where importers face strict quotas, the company works with a partner with the connections and ability to trade export credits and create import quota room for Tech 4 Kids products.
The company also relies on a local distribution partner in Venezuela, says Mr. Pedersen.
“One of the biggest problems we face in Venezuela is getting U.S. dollars, which is the currency we trade in globally,” he says. “Fortunately we have a distribution partner with an elaborate system of getting dollars out of the country.”
Before venturing into any market outside Canada, Tech 4 Kids checks in first with Export Development Canada (EDC).
“First thing we ask is, can we get EDC accounts receivable insurance?” says Mr. Pedersen. “EDC has the intel and expertise in these overseas markets, so if they tell us it’s too high risk we typically will walk away from the opportunity. But more often than not, we’re surprised that we’re able to get some kind of insurance.”
Minimizing risks is just one factor in Tech 4 Kids’ success overseas, says Mr. Pedersen. From the start, Tech 4 Kids has gone the extra mile to strengthen relationships and serve the needs of its overseas customers. In addition to taking part in trade shows, Mr. Pedersen and key members of the Tech 4 Kids team travel about three times a year to meet with international customers and partners.
Tech 4 Kids also customizes marketing and advertising to address specific markets, an additional expense that Mr. Pedersen considers necessary for any company that wants to do business abroad.
After six years of building a diversified, global portfolio, Tech 4 Kids is now looking to grow its business in India and China, where a burgeoning middle class is driving demand for imported goods. Tech 4 Kids is also increasing its focus on the U.S., where sales have grown the most over the last three years.
“We see massive opportunities ahead of us,” says Mr. Pedersen. “And we are absolutely ready for them.”
Tech 4 Kids president and CEO Brad Pedersen offers these tips when venturing abroad:
- Invest in overseas markets and relationships with foreign partners by participating in trade missions and meeting face-to-face several times a year.
- Customize your marketing and advertising campaigns to specific markets.
- Assess and reduce risk by analyzing and preparing for political and regulatory environments as well as potential currency fluctuations, including tapping EDC market intelligence and insurance options.