New Star's growth signals that firms are adapting to rising costs in China

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SHENZHEN, CHINA (July 5, 12:30 p.m. ET) — Chinese mold maker New Star Molds Inc. is investing 129.3 million Chinese yuan ($20 million) in a much larger facility in South China, saying that even with the country’s rising costs, its export business remains strong.

The company, based in Shenzhen, Guangdong province, plans to open the new facility late this year in the nearby city of Zhongshan, more than doubling its mold making capacity and adding 20 injection molding machines to broaden its business.

Sales have increased in the aftermath of the 2008 recession in the United States, particularly from the auto components market as American companies look to hold down costs, said owner and President Michael Zhao, in a June 28 interview at the company’s factory in Shenzhen.

“The U.S. market is down but they need to save costs,” he said. “They need to find resources in other countries.”

New Star, which employs 120 in China, set up a U.S. sales office in 2007, in Bantam, Conn., and also has one in Denbighshire in the United Kingdom. It has agents in France and Brazil, and is looking for representatives in other countries, including Germany, Zhao said.

The investment in the new factory, sizable for a company of its size, suggests that for all the very real talk of rising costs in China, some companies are adapting.

For New Star, that has meant investing in its first German CNC machine, with triple the speed of the Taiwanese models it also uses, and finding ways for workers to be more efficient.

Wages are rising sharply, up 20 percent since 2008, with the company’s average mold maker salary at about 5,000 Chinese yuan ($773.50) a month, Zhao said.

But even with those costs, he estimated that the company’s final cost for molds is still 50 percent cheaper than typical North American molds.

As well, he said the strengthening Chinese yuan, which cost it some contracts a few years ago in its house wares and medical business, has proven to be manageable.

“The rising costs are not a serious problem,” Zhao said. “We are trying to improve our staff quality and efficiency and shorten the lead times.”

The company recently hired 30 students from local mold making colleges and is training them, and has tried, without success so far, to find mold makers from the U.S. or the U.K. to come to China to conduct training.

“The biggest challenge is training workers,” said Zhao, who founded New Star in 2001, after getting a college degree in mold making and working in the local industry for 10 years.

A job working as an export manager for one Chinese mold making shop convinced him that China’s 2001 entry into the World Trade Organization would bring a lot more foreign companies looking to source molds.

Right now, 100 percent of New Star’s business is exported, with more than 90 percent of that to the U.S. and the U.K.

The company is trying to grow its business in China’s domestic market, including in the auto and medical sectors, either focusing on state-owned firms or foreign companies operating there, he said. He said there is some auto component manufacturing in Zhongshan.

As well, the company is broadening its business model. Last year it opened a subsidiary, Shenzhen Zhaojia Precision Mould Components Co., making mold parts like ejector pins and sleeves. That company employs 60 people.

The new Zhongshan factory, which will more than triple floor space to about 23,000 square meters, will also have 20 additional injection molding machines, to go with the nine it currently has.

The company wants to do more injection molding work and finished product assembly work, Zhao said.

While showing a visitor around his factory, located in an industrial area of Shenzhen that he said has about 100 other mold making factories, he pointed out an assembly project of a telecom device New Star was doing for the Internet phone provider Vonage.

The firm had 51.7 million Chinese yuan ($8 million) in sales last year, and is projecting over 64.6 million Chinese yuan ($10 million) this year, he said.