For some plastics packaging firms in the cosmetics industry, China is starting to lose its luster as the favored manufacturing spot.
Pushed by factory wages rising 10-20 percent a year in mainland China and by cosmetics manufacturers worried about disruptions of global supply chains, some of them are starting to look elsewhere.
They're not leaving China and they do continue to invest there, especially to tap the booming domestic market. But judging from interviews at the recent Cosmoprof Asia 2011 show, decisions on new investment are getting more complicated, and that increasingly means putting new plastics factories outside mainland China.
Taiwan's Esmin Co. Ltd., for example, said skyrocketing labor costs and difficulty finding workers for its three factories in South China's Guangdong province are prompting it to build two new injection molding factories in Taiwan, at its headquarters in Chang-Hua and in Jiayi.
The new factories, with 43 injection presses, robots and peripheral equipment from Austria's Wittmann Battenfeld GmbH, will open early next year, said Esmin sales manager Aiko Liu, speaking in an interview at Cosmoprof, held Nov. 9-11 in Hong Kong.
The company employs 1,500 people at three molding plants in Dongguan, where its labor costs have tripled in the last few years.
That contrasts with Taiwan, where salaries have been basically stable, Liu said: “For this reason, we're expanding in Taiwan.”
For other companies, the change in thinking about China is driven by the desire among global cosmetic brand owners to shorten supply chains to bring out new products faster, and reduce the risk from disasters and other surprises in far-flung countries — like this year's crisis in Japan or flooding in Thailand.
Shanghai-based HCP Packaging, one of the world's largest molders specializing in cosmetic packaging, seems to have Europe in its sights, as it seeks outside investors to help fund an acquisition there. It also is considering spending US$12 million or more to set up an Eastern European injection molding factory.
It would be the company's first manufacturing outside Asia, where it's heavily invested, and the Americas.
The company wants to shorten lead times and supply chains for customers, and has concerns about rising costs in China at its three factories there, HCP CEO Jeff Chen said at Cosmoprof.
“We still need to maintain our China operations,” but those factories will increasingly focus on the country's domestic market, said Chen. “We will continue with investment in China but not as much as before.”
He stressed that the company remains very interested in China, where its business is growing 25 percent a year from both global and Chinese cosmetics brands.
Another longtime executive in the U.S. cosmetics plastics packaging industry said rising costs in China are creating opportunities for manufacturing in the U.S., a trend dubbed “reshoring” in the business media there.
“In today's market there is a focus on moving back to the U.S.,” said Rick Schofield, former president of Portola Tech International in Cumberland, R.I. “Reshoring is not a big trend, but there is definitely interest. Shorter supply chains are becoming more important.”
He added: “There is no longer the significant cost premium” for manufacturing in the U.S., and it can be hard for global cosmetics makers to predict market trends, so they want more-responsive supply chains.
Portola, however, is still investing in China, and the country still has “support technology” like mold making or contract decorating that is much better than other low-cost countries, he said.
The company opened a factory in Guangzhou, China, last year with “state of the art” metalizing, including a vertical metalizing chamber, and is consolidating its Shanghai molding operations into Guangzhou, said Mark Egan, Portola's global sales director.
Some South Korean packaging firms exhibiting at Cosmoprof said they also see opportunities as Chinese costs go up.
South Korean firms have costs in the middle range of global suppliers — higher than China, lower than Europe, the U.S. and Japan — but with quality comparable to Europe and other developed markets, said Mickey Moon, general manager of packaging developer Nest Filler Packaging in Bucheon, South Korea.
Nest Filler relies on a network of 25 Korean factories, including plastics molders, and believes more business will come to South Korea, particularly since the country recently signed trade agreements with the European Union and the U.S., said Moon.
South Korea had the third-largest number of exhibiting companies at Cosmoprof, sending 232 out of 1,790 firms, behind only mainland China and host Hong Kong. South Korean plastics molding firms had a substantial presence in the fair's packaging section.
South Korean firms are innovating to stay ahead of lower-cost competitors, said J.K. Hwang, president of Seoul-based injection molder FSKorea, which also has facilities in China and Belgium.
The company has seen its sales hold steady at about US$50 million since the 2008 financial crisis, but has significantly beefed up its research budget, spending US$5 million last year on new tools for plastic packaging and new materials.
For example, it's designed new products like better powder applicators and new materials like a plastic/waste paper compound and wood-plastic compounds for “greener” packaging, Hwang said.
Some Chinese firms said rising costs at home are making things tougher.
Kelly Wang, general manager of injection molder Guangzhou Qiaoxin Plastic Co. Ltd., which exports 70 percent of its business to North America, said the stronger Chinese currency and weaker U.S. economy is prompting American customers to look for cheaper manufacturing, and pushing Tianxin Village-based Qiaoxin to find new markets.
“Customers in the U.S. are looking for factories in other countries like India,” she said.