HONG KONG (May 18, 3 p.m. ET) — Hong Kong's medical-related plastics manufacturing industry is making a push to develop its own brand of products, as it looks for a profitable edge against fast-developing counterparts in mainland China.
At the recent Hong Kong International Medical Devices and Supplies Fair, held May 7-9, several prominent medical-device processors in Hong Kong said they are investing heavily in launching their own products.
Hong Kong's manufacturers historically have focused on making products for global manufacturers, typically in toys, electronics and other light industries. Since China's economy began opening to outside investment in the 1980s, the manufacturers have used their factories in mainland China and the engineering and management skills in the former British colony to carve out a niche for lower-cost manufacturing.
But with labor costs in China seemingly rising 15 percent every year and mainland China companies improving their manufacturing skill sets, Hong Kong firms are looking for new business models and more-profitable products.
Providence Enterprises Ltd., for example, launched several of its own devices last year, including one using lasers to simulate traditional Chinese acupuncture and another to help monitor and track sleep positions to fight insomnia.
Providence sales and marketing director Ng Kok Khen said the old business model of making products for OEMs, while still important, doesn't offer as many opportunities and Hong Kong firms must move into knowledge-based products.
“If we are still going to depend on OEMs or playing the middle-man role for Western companies, that is a smaller space for us,” he said.
But original-equipment making is still the largest part of Hong Kong-based Providence's medical business, as it was for most of the Hong Kong companies interviewed at the fair, and the firms said they remain committed to that business.
Switching to making their own brands entails risk, because it requires substantial investment in research, marketing, product design and distribution, he said.
“Only those companies who spend years understanding the medical market can succeed,” he said, noting that Providence spent more than four years researching its products.
Molding and extrusion firm Vincent Medical Inc. has also launched its own products, including a device used in intensive-care units to help keep patients' airways humid.
Calvin Koh, the company's marketing manager, said OEM will still be the mainstay of the Hong Kong industry for at least the next five years.
But the growing sophistication of mainland Chinese companies willing to work for very low profit margins and labor costs going up 20 percent a year in China are calling that model into question, he and others said.
“A lot of Hong Kong manufacturers have this problem” he said. “You need your own brand and technology.”
Moving into own-branded products is not for everyone, however, and many companies are still making good profit margins with OEM work, said John Chai, chairman of the Hong Kong Medical and Healthcare Device Industry Association and managing director at measuring equipment manufacturer and molder Fook Tin Technologies Ltd.
“I would not advocate every company go ahead and develop its own brand,” Chai said. “There are a lot of people talking about own-branded manufacturing because there have been some success stories, a few well-known examples.”
Medical manufacturing, whether OEM or own-brand, is attracting a lot of interest among Hong Kong manufacturers, with membership in the HKMHDIA doubling in the last two years to 160 companies, Chai said.
“I still maintain Hong Kong is a good research and development base for this type of industry,” he said. “We have a strong base of traditional industry in Hong Kong, and those companies can move to medical manufacturing.”
One Hong Kong injection molder that has developed substantial business with its own-branded medical products is Medu-Scientific Ltd.
The company, which has 4,000 employees and 200 injection molding machines, has about the same amount of sales of own-branded products such as plastic suction devices for hospitals as it does from its medical OEM manufacturing work, said Jonathan Ho, senior marketing manager.
Medu-Scientific has been making its own-branded products in healthcare for a decade, and in general, Ho said own-branded products carry higher profit margins. But that company has to invest a lot to support its brands, and it still faces challenges getting them accepted in the risk-averse medical industry.
“Unless we can give up to a 30 percent discount” against established global brands, it is hard to get attention from some hospitals, he said.
While branding is important, Ho said he still sees opportunities for Hong Kong firms to do OEM work for global firms. The city's strong legal system and intellectual property protection is an advantage over mainland Chinese-based competitors, he said.
“I still see there are lots of opportunities,” he said. “Health-care costs are increasing globally. Hong Kong companies could be the solutions providers for lower-cost solutions because of the Chinese labor force and Hong Kong engineering skills.”