Betting that cost pressures in health-care systems will push medical manufacturers to shift more of their production to China, small California injection molder Plastikon Industries Inc. is making significant investments there.
The company recently opened a medical clean room thermoforming plant in Dongguan in a joint venture with Hong Kong's Hung Tat Industrial Ltd. and plans to add 10 injection molding machines there later this year.
For now, the venture, dubbed PlasTat Ltd., is small: The factory has a custom-made thermoforming line that is on track to turn out 50 million components a year, which are exported to the United States and used as part of a laboratory diagnostic device.
But officials with both companies hope Plastikon's customer base and experience with the stringent requirements of medical manufacturing, and Hung Tat's experience in thermoforming and in navigating the eddies and currents of mainland China, will be a prescription for growth.
``As the U.S. health-care industry is under pressures for cost reductions across the board, medical manufacturers are forced to look for lower-cost manufacturing,'' said Kaveh Soofer, Plastikon vice president of global sales and engineering. The Hayward, Calif., molder runs 50 presses; about 35 percent of its business is in medical markets, Soofer said March 7 at PlasTat's Dongguan plant.
The generally conservative medical device industry has been slower to source offshore, given tight government controls and higher stakes involved if something goes wrong, but its comfort level about putting manufacturing in places like China is growing, Soofer said.
``Everybody clearly understands that there is the technical capability, as well as the discipline, in China now to govern a medical manufacturing facility,'' he said.
Plastikon is not new to China. The firm has another joint venture in the Dongguan area, with an unnamed Chinese firm, where it builds molds and does molding for electronics and industrial applications, and for its largest market back in the U.S., automotive.
But Soofer said the firm saw additional opportunities when it learned that one of its medical customers wanted to switch some thermoforming to China. Plastikon declined to describe the device, citing customer confidentiality.
Plastikon, which had not done thermoforming previously, said it knew some thermoformers through other work in China and wanted a chance to bid on the project, Soofer said.
``We just felt like this product and its uniqueness lent itself to a good starting point for a clean room medical facility,'' he said.
So the company sought out Hung Tat, which had several thermoforming plants in mainland China, including its largest, with 18 lines, next door to what would become the PlasTat operation.
Soofer said Plastikon looked at several potential partners but worked with Hung Tat because it had been a good supplier for Plastikon projects, and both companies found similarities in their family-owned cultures.
Most of Hung Tat's work, however, had focused on packaging for multinational firms such as toy makers, and it didn't have much experience with stringent quality controls needed in clean room manufacturing of medical devices.
Hung Tat was very interested in Plastikon's proposal because it had been trying to break into medical packaging but was finding it difficult because it lacked clean room facilities, said Alvin Lim, general manager for both Hung Tat and the PlasTat venture.
Hung Tat is growing - it opened its third thermoforming plant on the mainland last year, in Zhongshan, China - but has faced more competition in its traditional markets, said Jason K.H. Ho, a Hung Tat employee who serves as PlasTat marketing manager.
Soofer said the two firms, which are 50-50 partners in the venture, decided to build a new plant from the ground up rather than try to build a unit within Hung Tat's factory, which had been manufacturing in Dongguan for a decade.
``It becomes a lot more difficult to take a company with 500 people and try to shift their outlook on how to manufacture because it's a much larger ship to try to turn,'' he said. ``Because it's a brand-new company, we wanted to start with a fresh approach.''
Plastikon knew enough about production in China to know that it didn't want to start the venture on its own, however, Soofer said.
``There are a lot of unwritten rules on how business is done in China, from taxation to building to permits to the relationship with utilities,'' he said. ``If you don't have a good relationship with the local government, are you necessarily going to get enough power?''
As well, he said, basic tasks like ordering materials are different.
``As an individual in the U.S., I would think it's logical: I pick up the phone; I order the material, and it's delivered,'' he said. ``Well, it doesn't work that way. How you order it is different; fluctuations in pricing are different; how you get the material over the border is different; how you classify the material is different.''
Soofer said Plastikon sees the venture long term, with an offering of injection molding, thermoforming and toolmaking in the U.S. and China. The PlasTat plant, including living space, offices and manufacturing, has 125,000 square feet. It employs 30 in its 25,000-square-foot Class 100,000 clean room. It's a much smaller operation than the company's California plants, which have 290 employees.
``It wasn't made and developed to be this huge moneymaker at this point; it was really the foundation for additional growth,'' he said. ``That is really where the profitability of the organization will come.''