Hong Kong's TK Group sees technology, global sales as key for growth

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HONG KONG — Many companies in Hong Kong’s export-dependent plastics industry have struggled since the global economy went into low gear in 2008, but injection molder and mold maker TK Group has seen sales more than double to US$140 million.

For that, it credits a focus on technology and a revamped global sales effort.

The company unveiled plans Dec. 11 for an initial public offering in the Hong Kong stock market to raise money for further expansions and acquisitions, as it tries to continue a path that’s seen revenues grow from about $50 million in 2009 to $141.3 million last year.

That IPO filing and interviews with company executives offer an unusually detailed glimpse at how one Chinese company is adopting new tools to try to adapt itself to a tougher business climate.

One major reason for its sales growth, TK believes, has been a deliberate decision to upgrade to do more small-part precision molding like components for smart phones or electronic games.

TK adopted advanced manufacturing processes like scientific molding, added more robots and committed to top-end equipment, said chief marketing director Samuel Lok.

“The chairman and the managing directors have the thinking, if we do go to the high end, all the machinery and all the equipment right here should be good class machines,” Lok said. “All the machines in TK, including the injection machines, are imported.”

While the transition was not always easy — sales were essentially flat from 2006 to 2009 — the new business model has allowed TK to avoid the kind of severe disruptions from rising wages that have pushed others, including Apple iPhone manufacturer Foxconn, away from Shenzhen and toward lower-cost spots elsewhere in China or Asia.

“If we keep fewer people in the company and earn money by technology, by more know-how, good equipment, getting the best customers in the world, we can still get a chance to go up,” Lok said in an interview at TK’s headquarters.

Lok said TK is now working directly for one of the world’s two largest mobile phone makers and is supplying video game console components for one of the three big electronic game manufacturers.

The company’s molding unit has undergone some changes. It formed an in-mold labeling unit in 2006, added a molding factory in Suzhou to expand geographically in 2010 and started a unit for clean room manufacturing of LEDs in 2011.

TK employs 3,200 at four factories in China, and it’s nearing completion of what it says will be one of southern China’s largest integrated molding and mold making sites, a sprawling campus in Shenzhen with 190 imported injection presses, mostly from Japan, and 900 mold making staff.

For its tool making division, the strategy has also been to focus on technology upgrades. Precision mold making has been an area of growth, said Thomas Bergstrom, general manager of TK Mold.

“TK is on a fairly high level in tool making,” he said. “We are competing with the more sophisticated toolmakers in Europe and the U.S., but there are still some tools we don’t do here in China.”

The company has put more efforts into the medical and packaging markets, and as mold centers like Portugal may now in some cases be cost-competitive with China, it needs to focus on competing on service and technology, said Bergstrom, who was managing director of Perlos Precision Molds in Shenzhen China before joining TK in 2007.

“We have quite aggressive plans to do investments,” he said. “We are continually buying new machines and we have to look at robots.”

The company is also using part of the IPO proceeds to expands its business making large molds for automotive bumpers and other big components.

Chinese mold making shops are still not as efficient as those in Europe, Bergstrom said. A Chinese mold making factory like TK may have 500,000 Chinese yuan (US$82,000) in annual sales per worker, but a European company needs at least twice that to survive, he said.

Beyond technology, TK also pursued softer upgrades Lok said are not often considered by Chinese factories.

The company replaced its old headquarters office, which looked “more like an old-style Hong Kong company,” with an open, modern-looking facility. Beyond is impact on employees, it wanted the factory to be more attractive to customers who may spend weeks at a time working at TK overseeing projects.

“If we focus on the overseas markets, the company image is something we need to focus on,” he said.

As well, Lok said the company set up more sales agents in overseas markets and adopted better compensation systems.

In its IPO filing, the company said 35 percent of its revenues last year came via its expanded network of third-party agents, a larger percentage than in 2011. In such a situation, you need a good compensation system, Lok said: “This is very important to be successful.”