HONG KONG (Dec. 9, 3:40 p.m. ET) — Hong Kong-based injection molder Vigor Precision Ltd. is making major changes to cope with China's tougher manufacturing climate, including building a new factory in lower-cost Guangxi province, investing heavily in automation and branching into markets beyond its traditional plastics business.
The company, which employs more than 2,000 people at three China factories, says it is one of the world's largest makers of the tiny, sometimes microscopic, precision plastic gear assemblies that power toys and watches, make mobile phones vibrate and allow powered car seats to smoothly adjust to a driver's preferences.
But even that strong position offers little protection from China's rising costs and an uncertain global economy. Its executives conservatively estimate wages are increasing 20 percent a year at its factory base in Dongguan, so Vigor is taking some aggressive steps.
It is spending HK $60 million (US$7.7 million), for example, on the new molding and assembly plant in Guangxi; it's investing more than HK $50 million (US$6.4 million) in a completely new business, to make automatic transmissions systems for Chinese cars; and it's continuing a decade-long focus on automation and lean manufacturing, which it started before most Chinese factories gave the topic much attention.
“We keep on investing, in terms of technology and people and knowledge,” said S.W. Wong, executive director of Vigor. “We enhance our competitiveness with automation, not with cutting labor costs.”
During a recent visit to Vigor's three factories in Guangdong province, where it has more than 200 Japanese-made Toshiba and German-made Arburg injection molding machines, senior executives offered a look at strategies they said have allowed sales to keep growing.
Privately owned Vigor had sales of about HK $400 million (US$51.35 million) in 2007, maintained that during the global financial crisis in 2008 and 2009, and then saw revenues rise to about HK $500 million (US$64.18 million) last year, with projections of HK $600 million (US$77.02 million) next year, said Chairman Henry H.H. Chan.
The revenue growth has allowed it to keep investing, rather than being forced to scale back.
Its biggest plastics investment is the new factory in Wuzhou, China, which it plans to open in 2013 with 1,000 workers and 40 molding machines.
That factory is designed to be a safety valve against conditions in Guangdong, where there are both wage increases and, conversely, labor shortages, as workers who used to leave their home provinces in droves to work in Guangdong increasingly find jobs back home.
Many of the company's workers already come from Guangxi, Chan said.
“The reason we invest in Guangxi, is in the Dongguan area it is not easy to find workers, but in Guangxi, the workers come from the local communities,” he said.
Vigor is making other plastics-related investments, including building a smaller new factory at its Dongguan campus to meet orders from Danish toy maker Lego, adding clean room manufacturing for medical products and doing microinjection molding.
The other major focus in Dongguan is automation.
The company is in the final stages of testing a fully-automated production process for assembly of plastic gear boxes, which it developed and built by itself. The new equipment should be widely used in its factories, reducing the need for some assembly jobs, Wong said.
It's similar to what Vigor did 10 years ago, when it developed its own machine to automate production of metal springs, a key component of the gearboxes. That development reduced its manual labor force by 1,000 jobs, the company said.
“We have been looking at automation for a long time, since the 1990s,” Wong said. “We are always trying to be lean.”
Back then, the company employed more than 4,000 people directly, and many more indirectly in smaller subcontracting factories scattered in nearby towns, Wong said.
“Many villages worked for us but we already planned to replace this by automation, by engineering, even 10 years ago,” he said. “We were aware of what the conditions would be in the future. It was a huge investment.”
Today, Vigor's evolution also means looking beyond plastics.
It's the lead company in an effort funded by Hong Kong government to develop local capability to produce economy class seats for Airbus and Boeing commercial airliners, a highly regulated market with strict safety requirements.
And it's invested HK $50 million of its own money in a 2-year-old project to develop technology to convert some types of manual transmission vehicles to partially automatic transmission.
Both of those new businesses build on Vigor's existing manufacturing competencies, whether it is plastic in the aircraft seats or its understanding of precision gears for the transmission business. And both of those new businesses have the growing Chinese domestic market firmly in mind.
“We find the Chinese auto industry is very good at manual gearboxes, but we find not one Chinese company that can make automatic transmissions,” Wong said.
The company has hired academic researchers and auto industry veterans from around the world, and put them to work in part of its Dongguan campus. It expects to spend another HK $50 million in research and development before commercializing the transmission project next year, Chan said.
The new products may be moving away from its traditional plastics businesses, but for Chan, they are really a continuation of Vigor's focus on innovation since he founded the company in 1982, along with Wong and Wong's brother, Wong Wah Tung.
By the late-1990s, the company had grown from a startup into one of the biggest makers of plastic gears for toys for customers like Mattel Inc., McDonald's Corp. and Disney, supplanting Japanese firms that had dominated that niche business.
Since then, it's moved into gears for more demanding markets like automobiles, consumer appliances and medical products and picked up customers including General Motors Co., BMW AG and Samsung.
Today, it's trying to bring that manufacturing expertise into potentially higher margin, non-plastics businesses.
Innovation is essential, Chan said: “We have to change. Otherwise we will die.”