SHENZHEN, CHINA — Twenty years ago, Shenzhen was a poor Chinese fishing village of about 20,000 people, encased by barbed wire so its citizens could not swim to freedom in nearby Hong Kong. Today, the barbed wire is gone, and so is Shenzhen's underdeveloped status.
Neon-lit skyscrapers and factory chimneys make the horizon look like Philadelphia. Hundreds of trucks idle their engines daily, waiting to enter the city and deliver goods to a litany of plants owned by Fortune 500 companies.
Today, the Pearl River delta area of southern China — forming a flattened Guangdong Province triangle with Shenzhen and Guangzhou, its top cities — has about 3,000 mold shops and about 25 million inhabitants, according to some estimates.
Much of the growth has come at the expense of Hong Kong, which has seen its tooling firms dwindle from several thousand just five years ago to fewer than 200 today, said Edward Lai, president of the Hong Kong Mold & Die Council.
"In earlier years, China bought its place in the market as a low-cost manufacturing center," said Lai, also managing director of CIM Precision Molds Ltd. in Hong Kong's Kowloon Bay. "It caused us [in Hong Kong] to develop a new economic way of thought. We're in this now as a middleman to help companies do business in China."
The United States also has contributed to China's toolmaking growth. While U.S. lawmakers and activists rattle sabers over World Trade Organization issues and favored-nation status, China already has won the hearts and dollars of major U.S. companies.
Consider that IBM Corp. — one of about 200 Fortune 500 companies with operations in Shenzhen — has four plants, one software-development company, a procurement center and about 5,000 workers in Shenzhen. Another 7,000 employees are on the payroll of IBM's China-based vendors.
Most of its growth has come during the past four years, said Kevin Painter, vice chairman of IBM Technology Products Co. Ltd. in Shenzhen.
IBM Technology could not ignore China's lure — not when the company pays a skilled engineer about $15,000 a year in Shenzhen, Painter said. And turnover is low, at most 2-3 percent a month, he said.
In the United States, IBM would pay a similarly skilled engineer ten times that annual salary, Painter said. "You can't argue with the economics of such an arrangement very long," he said.
Unskilled Chinese laborers, including toolmakers, only make about $90-$100 a month, plus on-site dormitory accommodations furnished by companies.
The new economic rush of China has rippled to U.S. toolmakers. Many mold shops, like their counterparts in Hong Kong, have lost business to lower-priced Chinese competitors.
That triggered a U.S. Plastics Mold Builders Trade Mission, from Jan. 24 to Feb. 1, that traveled to Shenzhen, Hong Kong and Singapore. The mission, sponsored by the Washington-based Society of the Plastics Industry Inc. and the U.S. Commerce Department, let 15 toolmakers and molders compare and contrast Shenzhen tool shops to their own companies back home.
While few mold makers came away believing their days were numbered, some said they had work to do to remain competitive.
"I think the strategies and objectives we're pursuing were reinforced by the trip," said Jerry Edquist, chairman and chief executive officer of Cedarburg, Wis.-based Carlson Tool & Manufacturing Corp. "What did change was the sense of urgency to implement those objectives. We're going to speed up some things."
That sense of urgency has to do with the volume of work going to the Far East and the improving quality of work from Chinese shops.
MSI Mold Builders, based in Cedar Rapids, Iowa, has lost some business in computer housings to lower-bidding Chinese mold makers, said MSI President Roger Klouda.
The U.S. industry must fight the trend now by shortening delivery times and implementing better management controls, he said. And while wages will never match those from Asia, the tooling industry can find ways to trim costs, he said.
"We have to do things necessary as an industry to come up with solutions," said Klouda, who also was on the trip. "All I know is that once our jobs go to China, it's going to be tough to get them back."
Chinese toolmakers, on the other hand, are anxious to work with their U.S. counterparts.
"We are in the process of upgrading our industrial structure most rapidly," said Qi Zhen Li, chairman of the Mould Industry Association of Guangdong Province, in Guangzhou.
Li, who spoke through an interpreter at a mold-builders' matchmaking event Jan. 27, said the need remains acute for overseas toolmakers to partner with Chinese companies and bring needed technology.
"We're serving highly sophisticated industries," he said. "As our industry grows up, it can use more communication with American companies."
But Li cautioned that the window of opportunity could close soon unless U.S. companies are willing to invest now. And there is evidence of that shift already.
Good Mark Industrial Ltd. is an example of a mold shop that already has made international headway. Company owners moved the small shop eight years ago from Hong Kong to Shenzhen, where production of such products as cameras, fax machines, copiers and plastic gears was booming.
Now, the company is booming too, sending tools to Germany, Japan, France and Switzerland and developing new business with U.S. customers. Its 140 workers sometimes put in 16 hours a day, six days a week, with top employees earning as much as $642 a month.
"We've grown to become a very high-precision molder and mold maker," said Good Mark director Leung Pak Wo. "We've now gained the experience of greater engineering skills that can compete with shops worldwide."
Or take another company, Ace Mold Co. Ltd. of Shenzhen. The company, with Hong Kong owners, ships 70 percent of its molds to America and exports about 550 injection tools a year, said Ace President Wilfred Yeung.
The company bids for jobs at about 70 percent of the U.S. price, Yeung said. Ace now regularly turns down work, while keeping a core of about 40 customers representing a who's who of corporate America.
"The only difference between us and a U.S. company is pure labor costs," said Yeung, whose shop pays between 50 cents and $4 an hour to employees.
Those shops are only the cream of the Chinese mold-building market visited by the tooling mission. Many more still work on dirt floors or in dingy garages.
Yet, Shenzhen toolmakers are challenging the notion that Chinese mold shops make simple, cheap and poor-quality molds. Government controls have been relaxed in the city; the China Shenzhen Machinery Association is one of the first groups in the country to be privately supported instead of government-funded.
The association, serving 200 toolmaking and machinery companies, has encouraged Western ways. Companies are asked to speak English and to gain QS 9000 quality certification, said general secretary Huang Shaoping.
More importantly, Shenzhen itself has opened its borders. Foreign companies flock to Shenzhen's free-trade zones, where no import duties or currency restrictions hinder commerce. Goods can flow freely to Hong Kong's port, about a 30-mile drive away.
"We are one of the first cities in China to open to the outside world," Shaoping said through an interpreter. "After 20 years of development, we've become a modern, international city."
Hong Kong wants a cut of that action. China has its challenges, and Hong Kong officials believe they can help. Those obstacles include customs issues: Getting across the border from Hong Kong to China requires running a time-consuming gauntlet of multiple checkpoints.
They also include trust issues, said Ned Quistorff, commercial consul for the American Consulate General, based in Guangzhou. "You have to pick your partner carefully," Quistorff said. "And keep your eye on [your partner] as you go along."
Enter Hong Kong's new role as regional middleman for China. Due to lack of space, land is expensive in Hong Kong, and many toolmakers cut steel on cramped upper floors of tall buildings.
Many Chinese tool shops have Hong Kong-based owners.
Those companies keep administrative offices in Hong Kong, where they can clear logistical hurdles, said Frederick Lee, manager of product promotion for the Hong Kong Trade Development Council.
The council acts as a sales and distribution agent for many of the 479 U.S. companies on the island, Lee said.
Lai, director of CIM Precision Molds, put Hong Kong's retooled position in blunter perspective. Western companies doing business in China face a morass of cultural barriers, language problems and ingrained corruption, he said.
"It's nightmarish in some ways," Lai said. "Foreign companies should not go jumping blindly into China. They should get Hong Kong partners. It will be different entirely."
How long the boom in Shenzhen lasts is anyone's guess. The growth in skilled labor in China could drive up wages and tooling prices, leading the industry to migrate farther north into China, said Andrew Hsuan, general manager of software provider Unigraphics Solutions Inc.'s Hong Kong office.
But others say the sky's the limit in Shenzhen.
Tung Kong Plastic Products Co. Ltd., a Hong Kong-based maker of injection molds for appliances and mobile phones, started injection molding in Shenzhen seven years ago and tooling three years later.
The company has amassed an impressive list of clients in the electronics and household appliance industries, including Sony Corp. and Black & Decker Corp. Its 127,000-square-foot plant includes 39 molding machines and high-speed steel-milling equipment spinning as fast as 43,000 revolutions per minute.
The company is not about to give up its turf in Shenzhen anytime soon, said Tung Kong General Manager Michael K.C. Yung.
"Chinese companies have had an upturn in quality," Yung said. "But we also have many laborers to choose from in a big country. We will always be quite competitive with our labor costs."