Proactive Investment:<br>Bracing For Change In China

December 31, 1996

Moulders in the People's Republic of China (P.R.C.) who continue to pursue general-purpose, low-technology, labour-intensive moulding work may find business becoming more difficult. Though still extremely competitive, the P.R.C. is paying the price for its fast economic growth rate. There is double-digit inflation, electrical rates are high, a new import tax on machinery is coming into effect, and as workers gain more technical experience, labour rates are expected to rise. Multinational OEMs sourcing low-technology parts eventually may source them elsewhere, in countries like Vietnam, the Philippines, Thailand, or India. One P.R.C. custom moulder believes that now is the time to make the kind of capital investments that will attract OEMs requiring high-quality, high-technology, value-added production at P.R.C. prices. His name is Nelson Ngai. He is general manager of Nypro Shenzhen.

"It's all about quality, repeatability, and efficiency. Customers demand more quality in a place like China," says Ngai. "We are the most cost-effective Nypro plant in the world. Our machine hourly rates put us right on top when benchmarked against other Nypro plants. And our quality benchmark is less than .03 percent reject, even running fast, complex moulds like one U.S. mould we have with 18 actions, running with high injection pressure, and a .5-second injection time. We also have the best quality among the Nypro family."

Anyone who knows Nypro knows that these are extraordinary claims. Nypro Inc., Clinton, Massachusetts, USA, has a combined worldwide sales turnover approaching US$ 300 million, and it operates showcase precision moulding plants in 20 different locations. Plans call for Nypro to earn revenues of US$ 100 million in Asia alone by the year 2000. Ngai will play an important role. "It is safe to say that Nypro is still the only truly global custom moulder," Ngai says. "Lankton (Gordon B. Lankton, Nypro's president) is a visionary. And who else has the guts to go into places like Russia and India?"

Ngai's goal is simple: "I want to be the best moulder in China." He says that he has always wanted to mould high-tech parts. "My plant was never set up to compete against run-of-the-mill job shops." A Hong Kong native who earned his undergraduate engineering degree in London, Ngai originally worked for Nypro Chen in Hong Kong, but set up his own custom moulding shop in Shenzhen in 1991. The next year he invited Nypro in on his Mainland venture. In 1994 Nypro assumed full ownership, but even before then it began transferring advanced manufacturing technology to the plant to support local Nypro customers.

As a WFOE (wholly owned foreign enterprise), 30 percent of Nypro Shenzhen's custom moulding production, by law, is for domestic sales. Its present plant is 4,645 sq m (50,000 sq ft), housing 16 moulding machines ranging from 20 to 330 tons from a number of European and Japanese suppliers, and employing 155. Nypro Shenzhen enjoyed a US$ 3 million sales turnover in fiscal 1996 and estimates, conservatively, it will do US$ 6.5 million in fiscal 1997.

Ngai believes success comes from value-added production. There are a few good examples of his commitment to higher technology that one might not expect to see in a P.R.C. custom moulding shop. The first are two, two-colour/two-material Engel moulding machines. Ngai says his company was the first with such machines in China.
I think we are still the only custom moulder that has one," he says. The machines run around the clock, producing ultra-modern toothbrushes in PP and Santoprene elastomer for Johnson & Johnson in rotating-core tooling with an 8+8-cavity layout. The toothbrushes are mostly exported for sale in Japan.

Another good example is Nypro Shenzhen's self-contained EMI/RFI shielding room. The company has a sophisticated, six-axis, European-built ABB Tralfa industrial robot that automatically shields Motorola cellular phones. It operates on its own in a closed, climate-controlled room equipped with all the necessary support equipment, representing an investment of more than US$ 500,000.

Other examples: Ngai says electrical rates presently are high-US$ 0.14/ kWh. Yet, Ngai's plant is fully air conditioned. "Climate control improves the productivity of my people and my machines," he explains. The 8+8-cavity mould for toothbrushes is equipped with Belgian-made Boucherie hot runners, controlled by an American MSI controller. "Why spend $12,000 on a degater?" he asks. One more example: Nypro Shenzhen has begun to operate a computerized Soabar barcoding system for customers like Motorola and Dennison. "We still have a lot of old labels here that we have to use first," Ngai jokes.

In his quest to be the best, Ngai is doing anything but resting on his laurels. He has ambitious plans. For example, Nypro Shenzhen has invested US$ 1.5 million to purchase eight, new top-of-the-line moulding presses from JSW. These will be closed loop, computer-controlled machines with on-board SPC and all the other modern amenities. "My new machines will knock our customer's socks off," Ngai says, smiling. "Most others here in China are low-end machines. I expect that they will help us bring in more than enough new business to pay for them, and that business will keep my machinery replacement program going. I never intend to operate machines more than eight years old. By December 1997, the average machine age of Nypro Shenzhen will be under two years old." With the exception of two-component Engels, Ngai plans to standardize on JSWs. He made his investment at a good time. When the new 37 percent import duty goes into effect, his local competitors might find the idea of upgrading very expensive.

Ngai plans to move into what he calls a "real Nypro plant." He has already secured land adjacent to a US$ 60 million GE Plastics PC and ABS/PC plant that is about 1 hour west of the crowded industrial park he's in now. He has no definite plans at the moment as to the timing of the construction or the move. "The new building will come when we find new customers. Of the three that I'm talking to today, any one of them will give us enough business to start the new plant." Meanwhile, he has already added four salespeople to pursue business on the Mainland.

When it is up and running, Ngai says, it will more closely resemble the standard type of Nypro-styled operation you would find anywhere else in the world. Plans call for it to have cleanroom moulding. Ngai intends to aggressively pursue medical moulding work. Also, he plans on adding more analytical instruments like differential scanning calorimeters and coordinate measuring machines to complement the flow index tester he already uses to test incoming material and moulded parts. Plans also are already in place for pursuing ISO 9000 certification, and Ngai has purchased a number of desktop computers to link his operation into the worldwide Nypro network.

Ngai concludes, saying, "Every year we have to give customers an incentive to do business with us. I do not believe we can do this through cutting margins. We have to make improvements in tooling, packaging, product design, and process design. We think of ourselves as a service company and enter into partnerships with both our suppliers and our customers." Is he satisfied with how things are going so far? "No. We should be moving faster. We want to drive more of our own sales. We want to be more aggressive." You should expect to hear such answers from someone who wants to be the best.

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