Thursday, May 31, 2007

Fast Train to China Manufactoring

This article was posted on the China Business Blog by Jeremy Gordon at the end of 2006. This article discusses the troubles and rewards a company can have moving from its base of operations to somewhere within China.

Hornby is a famous British brand that makes high-quality, model trains and cars. The China-Britain Business Council’s China-Britain Business Review (September, 2006), contained an interesting case study, by Humphrey Keenlyside, on the company’s move to manufacture in China.

According to the article, Hornby found itself facing hard times as competitors moved to China. Having employed around 2,000 people in their UK in the 1970s, this number had fallen to 750 by 1997. Big changes were needed to reverse the decline.

Interestingly, the main reason for the move was not simple cost-cutting (though tooling costs were cut in half) - that was just a means to an end, and the cost reductions allowed the firm to refocus spending on design and quality improvements, and to speed the introduction of new lines. At the same time, specialist design and engineering functions were kept in the UK.

The company decided to build on its relationship with a Hong Kong supplier, and to move
manufacturing to China. This was done by transferring all of their specialist tooling equipment from the UK to Dongguan, in Guangdong. Frank Martin, the CEO, reported that the good relationship with their local partner was critical:

  • “Our Chinese partners recognise that if our business grows, then their business will grow. They are not looking to go it alone, because they know that together we can both benefit”
As the article points out, Hornby were perhaps lucky to be in a niche market where they had strong control of branding and distribution, and where the potential for piracy was relatively limited. Not all companies are so fortunate on that front – but all can benefit from remembering that, by avoiding the old “same bed, different dreams” issue, a lot of potential partnership problems can be avoided. The Review says:

  • “With Chinese manufacturing secure – and with an all-important competitive advantage – the company contemplated a big push into new markets, particularly in Europe and the US”.
While other European companies failed under competitive pressures, Hornby was able to make acquisitions – including a liquidated Italian firm (whose tooling was also sent to China). It has now “built up the broadest brand portfolio in the world” in its sector, and thinks that moving to China “was one of the best moves it has ever made”.

To view the entire article at its original location click on the title of this post.

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