Contract manufacturer Jabil Circuit Inc. is investing $10 million in a new injection molding factory in China for the health-care market, to respond to what it says are global medical-device makers seeking lower-cost manufacturing in emerging markets.
The new facility in Shenzhen, next door to Hong Kong, is being built within a much larger existing Jabil manufacturing campus that caters to electronics and other markets. The medical operation will start with 18 injection presses, all Japanese Fanuc machines, with plans calling for 50 within two years.
Cost pressures among medical manufacturers are part of what is driving the investment, said Gaet Tyranski, business unit director for the health-care and life sciences business of St. Petersburg, Fla.-based Jabil.
I would maintain that the excise tax on medical devices coming out of the most recent health-care reform act [in the United States] is causing OEMs to look for lower costs to maintain their margins, he said during a mid-January interview at the Shenzhen factory. If they predominantly have facilities in Europe and the U.S., they are looking a lot more closely at both moving production overseas and outsourcing more production, such as to subcontractor manufacturers like Jabil, he said.
I think it is an industry that is experiencing more outsourcing and the outsourcing is moving outside the United States, Tyranski said. Such moves could be to Asia or closer to the United States, such as Mexico and Costa Rico, he said.
All of the company's single-use disposable medical-device manufacturing is done in Asia, including at another facility, in Malaysia, where the medical-device manufacturing industry is more established, he said.
The Shenzhen facility will focus on making drug-delivery devices to export to the United States and Europe, although the facility has a license to produce for the domestic Chinese market and sees opportunities there in the future, he said.
The Shenzhen operation will have the capacity to make 12.5 million disposable drug-delivery devices a year, and will be certified to Class 8 clean room manufacturing.
In spite of China's rising inflation and manufacturing costs, particularly in Guangdong province, Tyranski said that single-use disposable medical devices can generally be made for 25 percent less than in more mature markets.
China still has lower overhead and facility costs, and lower salaries for managers and technical staff, he said.
But staffing costs are rising quickly. The Shenzhen factory has seen wages for factory workers climb 40 percent since early 2010, as minimum wages have risen and local factories have been hit with labor shortages, said E.S. Lim, manager of emerging business at the Shenzhen factory.
That's prompted much more automation in the facility, which in total has more than 220 injection molding machines and employs about 3,200, Lim said.
For the medical unit, which will take up only a very small portion of the factory space, that means only having one worker for every two presses, Tyranski said. It will be very light on labor, highly automated.
The push into medical is part of an effort by Jabil to diversify away from its traditional electronics market.
The publicly traded company is targeting US$300 million to $500 million in annual revenue from its medical and life sciences unit by 2014, and wants new markets such as health care and solar to account for 50 percent of its revenue by 2013.
The company has a large presence in China, including substantial plastics molding operations, and employs more than 20,000 at other factories in Tianjin, Suzhou and Wuxi.