Profile extrusion executive Klaus Porath of Germany-based Profilex GmbH sees both the risks and the opportunities of business in China.
The company's 220-person operation there has doubled sales since 2004. It recently added three new extrusion lines using equipment it developed with Battenfeld and opened a new factory in the southern coastal city of Zhuhai last year.
But Porath, who started manufacturing in Hong Kong in 1994, sometimes wonders how sustainable the Chinese boom is. Markets are getting tougher, Chinese competitors are getting better, and costs, particularly for labor, are rising dramatically.
An operations manager position that five years ago paid 6,000 yuan (US$760) a month, for example, now gets 20,000 yuan (US$2,540), and shortages will likely push that higher, said Porath, who is chief executive officer of the firm.
``When I compare the salaries five years ago and now, if China continues like this, I tell you, in another five years China will not be very attractive to produce,'' the German-born executive said in an Oct. 23 interview in his Zhuhai office. ``This we need to see very clear. Then other countries are much more attractive, like Vietnam.''
Not that Porath has any definitive plans to shift operations. The company is still finding opportunities from its Zhuhai base, and business right now is good, he said. Sales this year will hit 60 million yuan (US $7.6 million), he said.
Most of Profilex's work is making profiles like packaging tubes for shipping electronics and doing labor-intensive secondary operations such as printing. The majority of profiles are exported to developed countries or sold to multinational manufacturers in China.
But Porath said the firm needs to move into higher-end markets.
As more global manufacturers shift their production to China, it means that local Chinese firms - with excess capacity and that can compete fiercely on price - will be better positioned to challenge for the low-end business, he said.
One growth area is environmental technologies, which Porath said will be in great demand as China tries to clean up its environmental mess. (In June, WorldWatch Institute said that 16 of the world's 20 most-polluted cities are in China.)
Profilex is pursuing work to make complicated plastic profiles for devices that, when dropped in waste water, provide a haven for microorganisms that eat waste and harmful materials. Currently they're made in Sweden and shipped to China, but the customer wants to eliminate transit costs and tariffs, he said.
The firm recently added three Battenfeld extruders made in nearby Foshan, China, giving it 30 lines, and will add more as other projects come on stream, he said. The company moved to Zhuhai last year when it outgrew its factory in Shenzhen.
Porath said he chose Zhuhai, a Chinese resort city that sits on the relatively undeveloped west side of the Pearl River, because of its lower land prices and better quality of life. The city's transit links are not as good, he said, but there are plans to build a bridge connecting Zhuhai directly with Hong Kong.
In spite of his doubts about China's rising costs, Profilex has bet strongly on the country. He started his firm with a West Berlin extrusion factory in 1984 and ran operations in Germany and China for a decade, until it effectively chose China. Profilex sold its German manufacturing plant in 2004 to Danish extrusion and molding firm Inter Primo Group.
In that deal, Inter Primo also acquired 25 percent of the Zhuhai operation, giving Primo Asian assets and Profilex access to Primo's network in Western Europe, Poland and Russia.
The sale left Profilex, which is still formally headquartered in Gross Kienitz, Germany, with Zhuhai as its only manufacturing asset, Porath said.