After years of testing the waters, Pittsburgh Plastics Manufacturing Inc. is opening a 32,000-square-foot joint venture facility in Changzhou, China, to make soft-cushioning products for the medical, safety and foot-care industry.
PPM is finalizing the deal with an undisclosed Chinese partner that has been a primary PPM subcontractor for ``a long time,'' according to PPM Chairman and Chief Executive Officer James Zona. Production will start in the third quarter of this year.
The Butler, Pa.-based contract manufacturer is facing pricing pressures from its customers, Zona said. It supplies private-label products to retailers, including Publix, Safeway, Albertsons and Loblaws. The company began subcontracting work to factories in China four years ago.
``There are six factories we work with,'' Zona said in a Feb 1 telephone interview. In 2006, Chinese factories manufactured about 10 percent of PPM's product. The firm's 91,000-square-foot facility in Butler manufactured the rest.
The company began sourcing raw materials and tooling from China two years ago. Last year, it began placing jointly purchased machinery in its subcontractors' factories. Zona said he has had little trouble dealing with suppliers in China. Toolmakers there are getting tools to work and debugged more quickly than in the U.S., he said.
``When we make a tool in the U.S., it takes at least double the time,'' Zona said.
And, though buying resins in China is not a cost-cutting effort, Zona said the firm's Chinese supply of raw materials has been ``equal to or better than we are able to get in the United States, in terms of quality and consistency.'' But, he noted, thermoplastic elastomers are slightly more expensive and polyurethane prices are much higher than in North America - ``almost double the price.''
The Changzhou operation, 120 miles outside of Shanghai, purchased a Chinese-brand, 70-station compression molding machine to make PU and ethylene vinyl acetate foam insoles.
Meanwhile, PPM also plans to install four Taiwanese-made injection presses there - two with 160 metric tons of clamping force and two with 190 metric tons. The factory will open with 35-40 employees.
The Chinese plant also will do inspection and retail packaging, using clamshells, blister packs and possibly horizontal flow wrap, for PPM's global customers. Europe is PPM's largest selling destination, representing half of its total sales.
About 4 percent of PPM's total production is delivered to Asian customers, primarily in Japan. The remainder is sold in the U.S. market.
``Europe has become receptive of made-in-China goods, compared to five years ago, because of the consistent quality and delivery,'' Zona said.
Down the road
Although PPM is developing sales in Asia, its focus will remain on Europe and North America.
Zona expects 20 percent of PPM's 2007 sales, projected at $19.7 million, to come from China. By 2010 that percentage will jump to 50 percent of projected total sales of $43 million, according to Zona.
He said the joint venture is a temporary facility and that his company hopes to turn the Chinese operation into a wholly foreign-owned enterprise and move it into Shanghai's tax-free zone by 2010.
Zona recognizes that since PPM's Chinese operation is designed to be export-oriented, it would receive more favorable tax policies if it were located in one of China's tax-free zones.
However, by starting with a joint venture partner, PPM is receiving help with legal matters, taxes, leasing the plant and managing the employees. Even though he is still learning about doing business in China, Zona believes he stands a little ahead of his competition.
``We should have started a couple of years earlier even,'' he said. ``We waited too long.''
But Zona took time to do the homework. In 2002, he flew to India to investigate and evaluate subcontractors and suppliers there but decided against setting up shop.
``There is a good legal system [in India] and people speak English, but you can't get everything you need there,'' he said. ``If you thrive on business energy, China is where you need to be.''
His advice for others interested in China: ``Quit thinking and get involved.''
Fearful when he got off the plane in China in 2002, Zona said has found that working in the country is not as difficult as some people imagine. He cited good communication with suppliers and partners.
``You just need to understand each other and be fair to each other,'' he said.
Zona expects his Chinese operation to grow 100 percent in the coming year. Meanwhile, PPM's main production facility in Butler, which employs 158, will see 5-10 percent growth, he said.
At Butler, PPM is equipped with 14 injection molding presses with clamping forces from 90-300 metric tons, one compression molding machine, 14 ultrasonic welders and six automated PU casting machines.
PPM produces 600,000 foot-care parts a week.