HONG KONG (Jan. 27, 2:10 p.m. ET) — An ambitious but risky move into China's domestic market making its own brand of plastic child-care products has given Hong Kong-based injection molder Fu Hong Industries Ltd. a solid growth strategy, the company says.
Frustrated by shrinking profit margins in its traditional business as a manufacturer of bottles, teethers and other baby-care items for major global brands like Gerber, Fu Hong in 2008 launched its own brand of baby products in China.
Founder and Chairman Herman Lo said the new business has grown quickly, and though there have been missteps, this year he expects the branded business — Qin Qin Wo in China, which translates as “kiss me,” and overseas as Kidsme — to surpass sales from contract manufacturing for the first time. Kidsme was launched as a brand last year.
It's given the company, which employs about 1,000 and runs 70 presses, a hedge against tough times for Chinese export factories, said Lo. The designer of plastic baby products founded Fu Hong in 1989.
This year Lo plans to double staff on the brand side to more than 200 and launch Fu Hong's first product outside China — a polypropylene and silicone teether/feeder that allows parents to put food into the teat for babies to suck. The teether has a worldwide patent, said Lo.
In an interview at the Hong Kong Toy Fair in early January, Lo talked about the risks and rewards in going from manufacturing for the top 10 global baby product companies to marketing its own brands. The motivation was simple, he said.
The molder began seeing products it had made and exported for global brands showing up in Chinese stores — but selling for roughly five times what brand owners like Gerber Products Co. or NUK paid Fu Hong for its manufacturing services. But Lo said those same customers, wanting to save a few pennies, pressured Fu Hong to cut its prices. “Let's say I get net profit of 10 cents, if you squeeze me 2 cents, then that's 20 percent of my profit,” he said.
The experience motivated him start his own business: “I have to say thanks to my customers. They gave us too much pressure. ... I had to think about another way to survive.”
Overseas sales manager Ben How said Fu Hong sees opportunities as Chinese consumers spend more. “We also want to serve the Chinese market with a quality product,” he said. “If we can do something in between [in price] we can serve more people.”
Becoming a brand required a fresh start and a new sales and marketing mindset. Lo decided to hire new staff. The firm recruited 1,500 fresh university graduates, put 120 through months of training, and from them chose a core staff of about 20, he said.
Lo said he has made plenty of mistakes. The firm's first brand name sounded good in Cantonese, his native dialect — spoken in Hong Kong and South China. But the name was difficult to pronounce in China's official Mandarin, so the brand was not well-received by some customers.
“I had the patents, the copyright and packaging,” he said. “Luckily we can fix [the errors] in the early stages.”
He recruits staff from throughout China, trains them on Fu Hong culture in Dongguan, and sends them to their native parts of China to build sales. That region-specific marketing is vital.
Guangdong province, bordering Hong Kong, understands foreign culture, he said, but Hunan and Sichuan provinces “have their traditional way of doing things. It is not easy to penetrate to have success,” Lo said.
Today, Fu Hong's sales are split equally between its own brand and contract manufacturing, Lo said. But he thinks the firm may double its brand sales this year.
“Nowadays everyone says creativity and innovation is the way to survive,” Lo said.
