By Gayathree Ganesan and Siddharth Cavale
(Reuters) - Mattel Inc (MAT.O) is doubling down to corner a bigger share of China's fragmented yet lucrative toy market, but the success of its efforts hinges on its ability to navigate strict regulation and adapt to local preferences.
The maker of Barbie dolls struck deals with Chinese e-commerce giant Alibaba Group Holding Ltd (BABA.N) and online content developer BabyTree last month to sell interactive learning products based on its Fisher-Price toys.
The deals mark a shift for Mattel, which has built its business selling Barbie and Ken dolls in brick-and-mortar stores, and highlight the pressures U.S. firms face as they try to expand in new markets with sales stagnating back home.
Alibaba's reach and China's preoccupation with education could give Mattel the thrust it needs to win over the country's so-called "tiger mothers", who aggressively push their children to be the best in school.
"Chinese parents tend to buy more educational toys, science kits and learning toys than all their counterparts in America and Europe," said Shaun Rein, managing director of China Market Research Group.
While Mattel has garnered a nearly 2 percent share of the estimated $31.5 billion toys and games market in China, it has been unable to replicate the success it has enjoyed in the United States.
The company's inability to gain a firmer foothold in the Chinese market is in contrast to the brisk pace of growth in the country's toy market since 2010.
China's toys and games sector expanded about 10 percent between 2010 and 2015, compared with a meager 1.7 percent increase in the United States, according to market research firm Euromonitor.
Market leader Guangdong Alpha Animation & Culture Co Ltd held 4.4 percent of the market in 2015, while Danish toymaker Lego commands a 2.8 percent share.
Mattel opened shop in China in 2002, selling Barbie dolls in regional stores, and later introduced Ling, a Barbie with black hair and traditional Chinese attire.
An aggressive push to expand in 2009 by launching a 36,000 square feet "House of Barbie" store in Shanghai, the world's largest at the time, backfired due to high costs and low sales. The company shuttered the store after just two years in operation.
The setback proved that Chinese customers preferred tailor-made products and their buying decisions were not always price driven.
"Some of the partnership push is also done to make sure that they understand right and better cater to that market," said UBS Securities analyst Arpiné Kocharyan.
Mattel's new strategy reflects an acknowledgement of the fact that one size does not fit all, especially in China where one in every five customers prefers to shop for toys online rather than in hypermarkets and toy stores.
Regulation is another stumbling block - getting approvals for educational content is difficult in China, where government censorship is high.
Mattel isn't the only U.S. company that has struggled to navigate the Chinese market.
Wal-Mart Stores Inc (WMT.N) sold its online grocery store Yihaodian in China last year in return for a stake in e-commerce firm JD.com Inc (JD.O), saying the country's e-commerce market was hyper competitive.
Several others including Home Depot Inc (HD.N), Hershey Co (HSY.N) and Costco Wholesale Corp (COST.O) have also struggled in China.
For now, nearly everything is riding on Mattel's partnership with Alibaba.
"It is just one of a hundred initiatives for (Alibaba)," said Rein. "But for Mattel, it is really do or die."
(Reporting by Gayathree Ganesan and Siddharth Cavale; additional reporting by Sruthi Ramakrishnan; Editing by Sayantani Ghosh and Saumyadeb Chakrabarty)