Even as San Jose, Calif.-based Portola Packaging Inc. struggles to right itself financially in the United States, its modest, 5-year-old molding operation in China is broadening its product line and customer base and preparing to expand.
In late June the publicly held U.S. molder of caps, closures and bottles reported a net loss of $16.2 million for the first nine months of its fiscal 2004. It blamed higher resin prices, lower U.S. sales volume and competitive pricing pressures in the United States and Great Britain. Portola, which has 15 plants worldwide, has closed three U.S. plants in recent months.
Meantime, the 12-press, 21,500-square-foot plant in Shanghai is working around the clock, and experiencing double-digit sales growth. The unit is looking to expand production space by 25 percent and to add 40 more employees to its 87-person workforce by year's end, according to Huang Hui, plant manager of Shanghai Portola Packaging Co. Ltd.
Part of the growth in China is related to Portola's acquisition last fall of Tech Industries Inc., a Woonsocket, R.I.-based firm that does injection and compression molding and decorating for the packaging market. A new unit that formed after the acquisition, Portola Tech Industries, will start metalizing operations at a pair of small, leased workshops in Shanghai by March, said William Jiang, SPPC deputy general manager. Jiang changes hats Sept. 1 to become sales manager of the new PTI unit there.
The firm will rent two workshops because it can't find a single production facility that is suitable and large enough, he said in a July 5 interview at the plant.
Portola Tech also plans to add thermoset compression molding capacity in China next year, said corporate marketing director Pam Patterson. The firm will keep the Portola food and beverage packaging operations, which are subject to Food and Drug Administration manufacturing guidelines, separate from PTI's cosmetics packaging business.
PTI in Shanghai will focus on doing what Tech became best known for - compression molding closures and containers for the cosmetic and personal-care sectors. Portola already did thermoplastic compression molding prior to the Tech acquisition, but now has broadened its product base, said Jack Watts, Portola's chairman and chief executive officer.
``We're converting a lot of our high-volume injection molding to compression molding,'' Watts said in a July 27 telephone interview from California.
Meantime, a scan of Portola's shop floor in Shanghai revealed other products and customers not normally associated with the packaging molder. About three or four years ago, Portola quietly got active in molding for some high-technology customers in the computer, electrical and electronics markets. It's an area in which Watts - one of the former founders of contract manufacturing giant Flextronics International Inc. - has some experience.
The China operation has been injection molding electrical connectors for Amp Inc. for more than two years. Another press churns out clear plastic cutlery, and the plant also molds and uses Chinese-made pad printers to decorate computer USB memory sticks for Dell Computer Corp.
Then, getting into more traditional Portola territory, three 396-ton Demag Haitian injection presses pump out caps for 5-gallon water bottles, and a half-dozen 396-ton Chen Hsong injection molding machines produce three-piece, 20-millimeter, push-pull drinking spouts for Coca-Cola Co. in Australia.
Plant officials also have purchased three Maguire low-pressure resin dryers - the first such units sold in China, according to Marshall Guo, chief representative for the Shanghai office of Maguire Products Asia Pte. Ltd. Singapore. One of the $15,000 units was operating, drying polystyrene resin running through an 88-ton Demag press, while the other two Maguire units were still in the warehouse, waiting to be set up.
The study in contrasts that is China was clear even in Portola's molding shop. Not 50 feet from an automated cap-assembly machine sat a team of four hairnet-clad employees manually inspecting molded parts and trimming flash with X-Acto knives.
Meanwhile, Jiang lamented the negative effect on his business of intellectual property theft in the local market. He said unscrupulous suppliers had knocked off Portola's push-pull spout design for bottled drinks, but done so poorly - leading to cheap imitations that leaked and cracked. That created a quality perception problem for all such spout designs with the region's consuming public.
As a result, Jiang said, ``Market demand locally is down, so we're exporting more'' to places such as Australia and Japan, where such image problems do not exist.
Watts noted that the company has had to deal with occasional, planned electricity outages in Shanghai - a fact of life in a country where demand outstrips the supply. But he said the government announced when the blackouts were coming, ``and we were able to work around it.''
So, while China offers some challenges, it also has logistical advantages, Watts noted.
``We're ramping up our design capabilities in China,'' he said, pointing out that having design operations in Asia allows Portola to speed up its product development cycle by working nearly around the clock globally.
``What's amazing to us,'' he added, ``is the internal demand for cosmetics products, both in China and in Eastern Europe.''
Portola reported 2003 sales of $215.3 million, and has 1,500 employees worldwide. It operates 13 molding facilities - five in the United States, four in Canada and one each in England, Mexico, China and the Czech Republic - plus two other plants. Its Portola Allied Tool facility in Michigan Center, Mich., makes blow mold tooling and its plant in New Castle, Pa., makes capping equipment.