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January 01, 2007 01:00 AM

Cosmos investing in overseas operations

Steve Toloken
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    Faced with tighter margins and more competition in mainland China's crowded injection press market, Hong Kong's Cosmos Machinery Ltd. is investing in overseas operations and technology development, and exploring a joint venture with a Japanese press maker.

    Publicly traded Cosmos, which makes about 4,500 injection molding machines annually and claims to be China's third-largest press maker, is setting up its first service centers outside China - in Germany, India and the United States.

    The company has stepped up research, such as developing a combination injection molding machine/compounder it hopes to unveil at the next Chinaplas trade show, being held in Guangzhou in May.

    As well, the firm is in talks with Japanese press maker Ube Machinery Corp. Ltd. to form a joint venture in China to make injection molding machines, Cosmos' executive director, Richard Yan, said in a Nov. 24 interview from its Hong Kong headquarters.

    Cosmos currently licenses Ube's technology to make presses at a plant in Wuxi, China, selling about 20 units a year, mainly to Japanese carmakers.

    Unlike some of the massive capacity expansions that competitors like Haitian Group Co. Ltd. in Ningbo, China, are undertaking, Yan said Cosmos is focused more on upgrading its offerings.

    ``In the past few years, a lot of our competitors, they have invested heavily in fixed assets, buying more land and building more buildings,'' Yan said. ``But we don't want to follow that same way. ... We have invested in human resources. We have invested in [research and development]. We have invested in diversifying our products.''

    Part of its strategy is to boost sales outside China and Hong Kong, an area where, to date, Cosmos has arguably been more conservative than China's two largest press makers, Haitian and Hong Kong-based Chen Hsong Group.

    Cosmos' new overseas service centers are also designed to fight what Yan said is the notion that Chinese-made machines have poor service and engineering support, even if they are cheap.

    ``A lot of foreign customers, they appreciate that the Chinese-made machine is good costwise, unbeatable in the world. But the one bad thing is they [feel the Chinese firms] don't have service, or [have] bad service,'' said Yan, who is also Cosmos' deputy general manager. ``I think in order to cope with this situation, on one hand we have to train up our agents, but also we have to set up our sales and service centers.''

    The company opened its service center in Columbus, Ohio, in the third quarter, after opening in New Delhi earlier this year and in Neuss, Germany, in 2005. The German center also handles sales.

    Exports this year rose 83 percent and now make up 20 percent of the firm's sales, up from 12 percent last year, including more success in penetrating North America, said Wilson Wong, export sales manager at the company.

    Total machinery sales rose almost 10 percent to HK$310.8 million (US$40 million) in the six months ended June 30, although margins were cut almost in half, to 3 percent. Yan said margins dropped in part because the company is focused on technology development.

    Cosmos spends between 5 million yuan to 7 million yuan (US$640,500-$897,000) a year on research projects, not including salaries of researchers. He argues that is more than many of its Chinese competitors, although it can be difficult to make meaningful comparisons.

    He said the firm has stepped up efforts in the last two years, striking a research partnership with South China University of Technology in Guangzhou to make the combination injection/compounding machines. Cosmos also has sold the first prototype of a triple-screw extruder it has developed, also in conjunction with the school, Yan said.

    Sales of what Cosmos calls ``nonstandard'' injection presses, such as high-speed, multimaterial or two-platen models, increased to 30 percent of its product mix this year, from 20 percent in 2005, Yan said.

    Cosmos, which is listed on the Hong Kong stock market, said it wants to diversify its machinery business beyond injection molding. The firm has other divisions as well, making plastics products, printed circuit boards and trade commodities.

    Sales of noninjection molding equipment grew from 9 percent of sales last year to 14 percent this year, Yan said. The company started its Dekuma GmbH subsidiary, based in Neuss, in 2004 to make blow molding, extrusion and rubber injection equipment.

    The shift in strategy is driven by changes in China's economy.

    As China's currency increases in value and labor and other costs rise, margins for Cosmos' customer base will shrink and that will mean less growth for the lower-cost molding machines. Yan predicted the market for lower-end machines will grow less than 10 percent annually, while higher-end machines will continue to see double-digit increases in demand.

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