Taiwan cosmetic molder finds advantages in Mexico

HONG KONG (Nov. 13, 1:40 p.m. ET) -- Cosmetic molder HCP Packaging is building a factory in Mexico and putting a Chinese expansion on hold -- at least temporarily -- as it waits out the slowing economy and sees some North American customers push for more local manufacturing.

The Taiwanese-owned company, which also has a strong manufacturing, marketing and design presence in the U.S. to serve global cosmetics brands, said it has seen signs recently that some North American customers prefer to have more of their manufacturing closer to home.

“I would say over the past 24 months we’ve observed a growing preference on the part of our customer base [in North America] to reduce supply-chain lead time and a preference to purchase more of their components as close to their filling plant as possible,” said Steven Levine, president of HCP Packaging USA Inc., in Shelton, Conn.

“That is one reason we decided to put a factory in Mexico,” he said at CosmoProf Asia 2009, held Nov. 11-13 in Hong Kong.

Customers are concerned about rising shipping costs from China and want faster delivery times, Levine said. He also suggested that rising costs in China and the declining peso are making Mexico a more attractive spot for manufacturing.

HCP, which is headquartered in Shanghai and employs about 3,000 at cosmetics packaging factories in China and the U.S., had opened a new Chinese factory in Huai’an, last year.

At the time, the company said that would be the first of several phases at the site, and the factory would ultimately be an investment of US$45 million, with 300,000 square feet of manufacturing space and 120 injection presses.

But Levine said the company is now taking a slower approach, and has decided to put on hold further expansion at Huai’an, one of three factories it has in China.

“We’re sort of waiting to see how the overall economy stabilizes, and then we’ll make a decision, probably sometime mid-2010, as to how we proceed with finalizing that plan,” he said. Right now, Huai’an has 40 injection presses.

The Mexico plant, in Reynosa near the U.S. border, is slated to be finished in March, and will have 10 injection presses and five injection blow molding machines in a 70,000-square-foot facility that eventually could be doubled in size, he said.

He said the company was nearing capacity limits at its factory in Hinsdale, N.H., where it has about 20 injection presses, and decided to expand with the Mexican plant.

“China is still the most competitive place to manufacture in the world, but Mexico is a very close second because the Mexican peso has continued to devalue a bit against the dollar,” he said. “Mexican labor rates, while higher than China, are certainly very competitive globally.”

Still, HCP retains a very sizable presence in China, with factories in Shanghai and Suzhou totaling about 900,000 square feet of manufacturing space.

The company remains keenly interested in that market, Levine said.

The firm this year is trying to target more domestic Chinese cosmetics companies, rather than just the global brands it previously worked for, and is seeing those Chinese brands express much more interest in its packaging as Chinese consumers spend more, he said.

And the firm is still growing, although at a much-reduced pace than in previous years, he said.

For the past decade, HCP averaged 20 percent annual growth and now has global sales of about US$155 million. But that growth has slowed to less than 10 percent this year, he said.

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