Hasbro 2008 Annual Report Download - page 16

Manufacturing and Importing
During 2008 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 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. We purchase most of the components and accessories used
in our toys and certain of the components used in our games, as well as some finished items, from
manufacturers in the United States and in other countries. However, the countries of the Far East, and
particularly the People’s Republic of 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 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 2009 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 disrupted
while alternative sources of product were secured. 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 by, the People’s Republic of China, or other factors which increase the cost of manufacturing in China,
such as higher Chinese labor costs or an appreciation in the 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.
We purchase dies and molds from independent United States and international sources.
Competition
We are a worldwide leader in the design, manufacture and marketing of games and toys, 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.
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 addition to contending with competition from other toy and game companies, in our business we must
deal with the phenomena that many children have been moving away from traditional toys and games at a
younger age. We refer to this as “children getting older younger.” As a result, our products not only compete
with the offerings of other toy and game manufacturers, but we must compete, particularly in meeting the
demands of older children, with the entertainment offerings of many other companies, such as makers of video
games and consumer electronic products.
The volatility in consumer preferences with respect to family entertainment and low barriers to entry
continually create new opportunities for existing competitors and start-ups to develop products which compete
with our toy and game offerings.
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