Amid the drumbeat of challenges for Chinese manufacturing — wages rising more than 15 percent a year, weak markets in Europe and North America, and a strengthening Chinese yuan — it's easy to forget that some companies find ways to make it work.
Injection molder Eva Precision Industrial Holdings Ltd., which built its business making precision plastic and metal components for Japanese office equipment makers, is diversifying into China's domestic auto market and looking at technology upgrades to keep competitive.
This summer the company, which is listed on the Hong Kong stock market, bought a metal-stamping factory in Chongqing, where it plans in time to add plastic production. It is looking seriously at metal and plastic factories in Wuhan — all aimed at China's auto sector.
Eva Chairman Zhang Hwo Jie and Chief Financial Officer Francis Wong sat for an interview in the company's Hong Kong office in mid-September, to talk about how they're handling an economy that's causing some of China's less-efficient plastics factories severe problems.
Eva's not been entirely immune. Earnings growth slowed after the Japan earthquake in March, but the company managed to hit record sales and profit in 2010, as Japanese companies like Kyocera and Canon look for cost savings in their supply chains.
The company has 300 Japanese-made Sumitomo and Toshiba injection presses in its China factories, and said it expects growth to continue as its customers recover from the March crisis.
The reason for Eva's growth, Zhang said, is a focus on highly engineered precision parts for the Japanese industry. Those parts account for 85 percent of Eva's annual sales of HK$1.7 billion (US$218 million). It also wants to upgrade into more technology-intensive markets.
“In general, the renminbi appreciation and the rising labor cost is really a big challenge to the manufacturers in China,” said Zhang. “In order to solve this problem, we took a number of steps. First we target higher-end products, because if you are targeting a high-end product, you have more pricing power.”
“Every year we upgrade our technology,” he said. “We also try to reduce the cost. We are starting to use a lot of production automation. We use a lot of robotic arms and high technology to reduce the number of people.”
Eva intends to expand that to all of its production lines, and has upgraded its workforce, increasing the number of engineers from 1,100 in 2009 to 1,600 last year, among its 5,000 employees.
The company does not see China's manufacturing zones in the Pearl River Delta around Guangzhou and the Yangtze River Delta around Shanghai as being low-cost any longer, but as having the right balance of skilled labor and cost for precision manufacturing, Wong said.
“If you are still a labor-intensive business, it is very difficult to locate in the Pearl River Delta,” Wong said. “But if you target higher-end products, you need a lot of good engineers. It is an advantage to stage in the Pearl River Delta and the Yangtze River Delta. If you need a very high-quality engineer, this is the place where you can find a lot.”
Long term, the company would like to reduce its reliance on the market for office automation equipment, which now makes up 70 percent of sales.
Zhang said it wants to build from the that market, where it specializes in components like gears for professional machines and use those skills to make precision automotive components, along with consumer electronics parts. In the office equipment market, Eva is a Tier 1 supplier. Its long-term goal is to become a Tier 1 in automotive.
The target, Zhang said, is import substitution. “Within the car, we will produce something that was previously produced by the foreigners, rather than compete with the domestic Chinese in the low-end market,” said Zhang, who was named a “Young Industrialist of the Year” in 2008 by the Federation of Hong Kong Industries. Also, Forbes (Asia) named the company to its 2007 “Best Under a Billion” list.
Only about 10 percent of Eva's business now is in the auto market, but the company plans significant investment in Chongqing and, if it proceeds with preliminary plans, in Wuhan as well, Zhang said. It opened a new factory in South China's Zhongshan late last year, partially for automotive customers, and plans to open another Shenzhen factory later this year.
About 40 percent of Eva's production now is for China's domestic market, up from 20 percent in 2008, the company said.
Eva started in 1993 as a metal-parts fabricator, but has developed since then into supplying components critical to both functioning and product development — the precision molds needed to make parts like dependable and quiet plastic gears for high-volume office copiers.
“In the [office automation] business, when we started in the 1990s, to be honest, most of the molds were imported from Japan,” said Wong. “The China guy was only responsible for making components. But now, our customers ask us to manufacture molds on a large scale. So we can see the progress.”