Medical injection molder Classic Industries Inc. is establishing a plant in Puerto Rico, and said it may set up shop in Asia or another low-wage location in response to health-care industry price pressure.
The Latrobe, Pa.-based firm will have a molding and assembly operation running in Ponce, Puerto Rico, in the third quarter, and will add contract manufacturing work there next year, said President Joseph Policastro Jr. Much of the firm's growth is coming in contract manufacturing associated with molding, work that requires the company to reduce labor costs, he said.
The company announced the Puerto Rican plant at the Medical Design and Manufacturing West show, held Feb. 19-21 in Anaheim.
Classic wasn't the only company at the trade show eyeing expansion into lower-cost markets. Molder Martech Medical Products said it is doubling its Mexicali, Mexico, molding and assembly operation, and insert molder Sun Microstamping Inc. said it opened a small molding facility in Matamoros, Mexico, in early February.
``I see anything where there is a higher labor content going to Mexico, and anything with an extremely high labor content in Asia,'' said David Davis, vice president of sales and marketing at Clearwater, Fla.-based Sun.
In Classic's case, its 30,000-square-foot Puerto Rican plant will start with 10 injection presses with clamping forces up to 330 tons, with space for 24 molding machines, in a Class 100,000 clean room. It will employ about 35.
``We have customers in the [mainland United States], obviously, who we do design and development for,'' Policastro said. ``They have a need for quality manufacturing of plastic parts and subassemblies in Puerto Rico. Being that we do business domestically, it's only natural that we support them.''
About 95 percent of the firm's $50 million in annual sales come from medical manufacturers that are heavily invested in Puerto Rico. Classic's operation in Ponce will be doing work for three customers, and it has five other customers with operations on the small island.
The U.S. government historically has given income tax breaks for manufacturers setting up on the island. While those incentives are being phased out, the local government in Puerto Rico is replacing them with other tax benefits, said Ricardo Lugo, Classic's general manager of the Ponce plant. Lugo spent 18 years as an executive with medical manufacturers on the island, including Baxter Healthcare Corp. and Millipore Corp.
Policastro said Classic also is looking at lower-wage locations such as Asia. Those plans are at least two years away, but he said the company feels it needs an operation like that to compete for more contract manufacturing work.
``We have already embarked on a program for a low-labor facility because we are getting more and more into contract manufacturing and value-added services,'' he said. ``I expect within the next 24-30 months, we would be migrating to another low-labor market. At this point it looks like Asia.''
Some medical molders who do work in Mexico probably will move that work to Asia, he said.
Classic's work, too, is shifting, away from being primarily molding. Five years ago, less than 5 percent of its work was in contract manufacturing, while that figure now is 20 percent, he said. In five years it is likely to be 50 percent, Policastro said.
The company installed three form, fill and seal packaging lines in the past year, for example.
The Puerto Rican plant will give the firm 85 injection presses in four plants, including two in Latrobe and one in El Paso, Texas. The molding machines in Ponce are expansions of capacity, not shifting of other machines from the mainland, he said.