Hasbro 2013 Annual Report Download - page 20

Manufacturing and Importing
During 2013 substantially all of our products were manufactured in third party facilities in the Far East,
primarily China, as well as in our two owned facilities located in East Longmeadow, Massachusetts and
Waterford, Ireland.
Most of our products are manufactured from basic raw materials such as plastic, paper and cardboard,
although certain products also make use of electronic components. All of these materials are readily available but
may be subject to significant fluctuations in price. There are certain chemicals (including phthalates and BPA)
that national, state and local governments have restricted or are seeking to restrict or limit the use of; however,
we do not believe these restrictions have or will materially impact our business. We generally enter into
agreements with suppliers at the beginning of a fiscal year that establish prices for that year. However, significant
volatility in the prices of any of these materials may require renegotiation with our suppliers during the year. Our
manufacturing processes and those of our vendors include injection molding, blow molding, spray painting,
printing, box making and assembly. The countries of the Far East, and particularly China, constitute the largest
manufacturing center of toys in the world and the substantial majority of our toy products are manufactured in
China. The 1996 implementation of the General Agreement on Tariffs and Trade reduced or eliminated customs
duties on many of the products imported by us. We purchase most of our raw materials and component parts used
in our owned manufacturing facilities from suppliers in the United States and certain other countries.
We believe that the manufacturing capacity of our third party manufacturers, together with our own
facilities, as well as the supply of components, accessories and completed products which we purchase from
unaffiliated manufacturers, are adequate to meet the anticipated demand in 2014 for our products. Our reliance
on designated external sources of manufacturing could be shifted, over a period of time, to alternative sources of
supply for our products, should such changes be necessary or desirable. However, if we were to be prevented
from obtaining products from a substantial number of our current Far East suppliers due to political, labor or
other factors beyond our control, our operations and our ability to obtain products would be severely disrupted
while alternative sources of product were secured and production shifted to those new sources. The imposition of
trade sanctions by the United States or the European Union against a class of products imported by us from, or
the loss of “normal trade relations” status with, China, or other factors which increase the cost of manufacturing
in China, such as higher Chinese labor costs or an appreciation in the Chinese Yuan, could significantly disrupt
our operations and/or significantly increase the cost of the products which are manufactured in China and
imported into other markets.
Competition
We are a worldwide leader in the design, manufacture and marketing of toys and games and other
entertainment offerings, but our business is highly competitive. We compete with several large toy and game
companies in our product categories, as well as many smaller United States and international toy and game
designers, manufacturers and marketers. We also compete with companies that offer branded entertainment
focused on children and their families. Competition is based primarily on meeting consumer entertainment
preferences and on the quality and play value of our products. To a lesser extent, competition is also based on
product pricing. In entertainment, Hasbro Studios and Hub Network compete with other children’s television
networks and entertainment producers, such as Nickelodeon, Cartoon Network and Disney Channel, for viewers,
advertising revenue and distribution.
In addition to contending with competition from other toy and game and branded-play entertainment
companies, we contend with the phenomenon that children are increasingly sophisticated and have been moving
away from traditional toys and games at a younger age. Thereby, the variety of product and entertainment
offerings available for children has expanded and product lifecycles have shrunk as children move on to more
sophisticated offerings at younger ages. We refer to this as “children getting older younger.” As a result, our
products not only compete with those offerings produced by other toy and game manufacturers, we also compete,
particularly in meeting the demands of older children, with entertainment offerings of many technology
companies, such as makers of tablets, mobile devices, video games and other consumer electronic products.
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