Tessy Plastics Corp.'s growing injection molding operation in Shanghai has a new tenant under roof - Erie, Pa.-based mold maker Custom Tool & Design Inc.
CTD this fall plans to occupy a 5,000-square-foot manufacturing space within Tessy Plastics (Shanghai) Co. Ltd.'s 65,000-square-foot plant in the Pudong region of the 17 million-person city. Brian Berchtold, who is setting up the venture and will serve as general manager of Custom Tool Shanghai Co. Ltd., has been in China since February, and in August plans to move his family to Shanghai for three years.
In a July 6 interview in his office-to-be at the Tessy site, Berchtold professed a strong loyalty to the U.S. mold-making industry, but explained that ``opportunity brought me here.''
``I was a toolmaker for 23 years,'' he said, ``and then did [tool] design for 11/2 years. The vast majority of my customers are here. They're having trouble finding high-precision-type tooling. The potential is just astronomical.
``My focus here is not to build tools for the U.S. market,'' he said - although he admits he may have to do some of that initially to help the new business gain traction. Rather, his goal is to build tools for China and service his firm's U.S.-made tools being used by customers in China.
CTD will be moving into space vacated recently by a Chinese toolmaker that relocated to a sister facility, said J. Brian Noll, general manager of Tessy Plastics (Shanghai).
Berchtold said he just hired a local finance person, and is applying for the obligatory business license, followed by an import license. He said he plans to ``go slow'' in China, emphasizing staff training and ramping up to a dozen or so employees after the first year. He hopes to begin moving in equipment in October and to be in production no later than the beginning of 2005.
Tom Mertz and two partners started Custom Tool & Design as a part-time endeavor in a garage in 1971, and by the late '70s Mertz was sole owner. He has overseen the firm ever since. The 42-employee CTD's sales have grown by double-digit percentages annually during the past five years, including by 35 percent in the most recent fiscal year, to reach $6 million. About five years ago, Mertz redirected CTD to focus on precision, high-cavitation tooling, making molds with up to 128 cavities. Today it serves largely the consumer products, medical and electrical markets. But some of the firm's key customers have shifted operations to China and are looking for local support.
Berchtold plans to start with lower-cavitation, precision tooling in China, before moving into high-cavitation molds later. He said the firm will keep all its tool design and engineering in the United States.
CTD Vice President Jeff Mertz, the founder's son, said in a recent telephone interview that the whole process of setting up in China is taking a lot longer than expected and has been much harder than he anticipated. Bureaucracy is an issue, as is being a very small company looking to secure capital to start a new operation halfway around the world.
He said it's been a challenge to get his customers to understand and be patient. But things are moving now - and he said he's grateful to be teaming up with a solid partner like Tessy in Shanghai.
CTD and Tessy met via a common customer and have been in discussions for some time, said Noll, whose firm is growing steadily in its own right.
Tessy's Shanghai operation recently installed four new injection molding machines, giving it a total of 19, has two more on order and yet another planned, which will give it 22 presses by year's end.
The firm, which employs four toolmakers on staff in Shanghai, sources about 80 percent of its tooling from suppliers in China, using mostly Swiss-made steel. It currently uses seven Chinese tooling shops and is about to expand that list to nine.
Noll described the local tool quality and support service as good overall.
When the company has a need for molding speed, Noll said Tessy goes with Sumitomo presses, and will be installing a 130-ton electric Sumitomo soon. It also runs Nisseis, Arburgs and Sandrettos, but recently bought some Chinese-made Haitian machines, and is happy with them. Its two 530-ton Haitians are its largest presses - bigger even than anything in Tessy's headquarters plant in Elbridge, N.Y. - and carried a sticker price of less than half that of a comparably sized model from its usual suppliers. Noll said those machines have run for six months so far without a problem.
The Shanghai facility also recently installed a pair of 250-ton Haitians, as the plant gears up to launch a major program for a U.S. automotive Tier 1 supplier.
Tessy, which recently invested to install a new, larger water system throughout the plant, also just obtained a second business license to allow it to do more trading, distribution, service and consulting for customers, said Renee Ren, deputy general manager.
Ren, who has been at the plant since it opened four years ago, explained that in China, a company must limit its activities to whatever is specified in its government-issued business operating license.
Therefore, to expand its range of activities, the company applied for and just received a second license, for an operation it is calling Tessy Precision Plastics (Shanghai) Co. Ltd. It is not selling new distribution or service functions, but merely using them to serve existing customers better.
Such support helps to build relationships and, Noll pointed out, ``China is built 100 percent on relationships.''
Noll has run the Shanghai facility since it opened, but he spends only about 150-180 days a year in China. The rest of the time he is abroad, usually in the United States, soliciting new business.
``We see the potential here as [being] the China market,'' he said. ``Others come here to make products more cheaply for the U.S. market,'' but that is not Tessy's goal. He said Tessy first came to China looking for low-cost assembly operations and to support major customer Xerox Corp.
The molder gained approval for its Shanghai plant in June 2000 and soon began operations. One year later, Xerox announced it would close its Shanghai plant by December 2001. That left the molder scrambling.
Noll and Ren recounted how their plant, with three injection presses and 150 employees in June 2001, went into a tailspin.
``We went knocking on doors in all the industrial parks here,'' asking if anyone needed molding or assembly work done, Noll said. Staffing tumbled to just 40 employees throughout nearly all of 2002.
But their perseverance paid off. Today Tessy employs 300 in Shanghai and the firm reported a record sales month in June. In fact, sales in the first three weeks of June eclipsed those for all of 2002, Noll said.
Xerox remains the plant's biggest customer, but the molder now is serving the business-equipment maker in such places as Brazil, Egypt and the Philippines.
It also molds battery seals for Gillette Corp.'s Duracell unit, makes household lighting products and has a growing automotive business.
``This is now the second-biggest market in the world,'' Noll said. ``You've got to consider getting over here. I don't know of any Fortune 500 company that's not here in Shanghai.''
But Noll also urges caution when contemplating a partnership; Tessy instead established itself as a wholly foreign-owned enterprise.
Noll praised the Chinese workers for their ``phenomenal'' work ethic and their hunger to learn and improve themselves. Still, Ren noted, there is a strong need for workers to gain more training and skills.
But few things matter more in China than relationships, according to Noll.
``You build these every day. How well you do with these relationships determines how well you do here.''