So here it is, foreign Christmas

Few toys round the tree this year will be British made. But David Bowen says the game isn't up

Christmas is a tough time for the lonely, for turkeys and for the British balance of payments. Thirty years ago, most presents came from the UK. Children received Meccano from Liverpool and Matchbox toys from Enfield. Their parents might have got a saw from Sheffield and a Singer sewing machine from Scotland.

It is still possible to have an all-British Christmas, but it is not easy. David Hawtin, of the British Toy and Hobby Association, says at least two-thirds of toys are imported. Few household gadgets are British- made, while tools tend to come from the Continent. Sewing machines seem to arrive en masse from Taiwan.

Before we get too gloomy, though, it is worth looking for the glimmers of light. One is that K'Nex, the US construction toy company, has set up a packing plant in Kent and intends to start manufacturing there. The other, more dazzling, is that the British have a near armlock on one of the fastest growing segments of the gift market: computer games.

The story of the Christmas present is the story of British industry. Some of the products in our picture should be made in Britain, but are not because managers let the market slip out of their hands. If Sweden and Switzerland can make tools competitively, there is no earthly reason why Britain cannot. However, aggressive foreign companies moved in the Sixties and Seventies and swept markets away from the laggardly Brits; they have never been recovered.

But Christmas is about children, which is why, according to the research group NPD, more than 50 per cent of all toys are bought at the end of the year. Here, the disappearance of British labels is more a function of economics than incompetence.

Most toy making is labour-intensive. Sticking the ears on a teddy, assembling small plastic parts and stuffing hair in a doll are all activities that can be done better by nimble fingers than expensive machines. Third World countries, with their low wages, have a huge advantage here, which is why the toy sector is often one of the first to grow up. The industry has migrated as wages have risen - from Japan to Hong Kong to Korea, and now to China, where the great bulk of simple toys are made.

However, the best managers will look carefully before they indulge in a flight to the Far East, for there are good reasons why it can make sense to keep manufacturing close to home.

The first is that some toys are just too big to be transported half way round the world. That is why TP Activity Toys makes climbing frames in Stourport-on-Severn rather than Asia.

Second, not all toy making is labour-intensive. High-precision plastic moulding is best done on expensive machines operated by a few, highly skilled people. Lego manufactures in Denmark and Switzerland because it employs relatively few people and because it needs to ensure that a brick made now will fit perfectly with one made 30 years ago. K'Nex, a cross between Lego and Meccano, is now made in the US, but the company has set up a packing centre in Ashford, Kent. "We hope to start moulding here some time in 1998," says John Collins, the production director. "We wouldn't buy in from the Orient because these are very high-precision components."

The biggest British toy manufacturer is Hornby, which makes more than 80 per cent of its trains and Scalextric cars in Margate. It can do this, the marketing director Simon Kohler says, partly because it has an efficient factory, but mainly because it needs the flexibility that local manufacturing brings.

"We manufacture here because we have better control of the product," he says. "We can turn out a run of 1,000 locomotives, which would be nothing to a Far Eastern company."

Hornby has experimented with Far Eastern manufacturing, but has decided that for the moment the negatives outweigh the positives. "Two years ago we had a new loco built from scratch in China," says Mr Kohler. "The finished product came up beautifully but it highlighted the problems of making things there." The principal ones were that mistakes were unlikely to be spotted as quickly, and that when they were it was too late to do much about them.

The third species of toy best made at home is the specialist product, where price is less important than quality and a "made in Britain" tag. Lledo, which makes diecast models near the old Matchbox factory in Enfield, exports much of its production. "We hold our position because we manufacture here," says John Rome, international sales manager. "The British tag has a little bit of a magic ring."

As Britain moves from a hardware to a software economy, it is appropriate that the good news should come from computer games. No country has so many bright young men able to create sophisticated games, and this is reflected in Christmas sales. Among the best-sellers are Tomb Raider, produced by Core in Derby, Formula One and Wipeout 2097, from Psygnosis in Liverpool, and Actua Soccer and Golf, by Gremlin in Sheffield. An apparently all-American basketball-based game, Total NBA, is rather surprisingly produced by Sony's own team in London. So-called "edutainment" CD-Roms are mostly developed in the US, but the need to regionalise them has meant that UK firms have been winning increasing work. The CD-Rom encyclopaedia, Microsoft Encarta '97 World English Edition, has, for example, been totally overhauled by a team in London.

As these games and CD-Roms sell for upwards of pounds 30, their significance to the economy should not be underestimated. They may not make up the losses to the trade balance as toy making has fled abroad - but they add a little sweetness to an otherwise sour tale of Christmas trade.