In upgrading and transforming themselves, many companies try to boost competitiveness through various means, including R&D in technology, product design and branding. Modern Precision Dental Instrument Co Ltd in Foshan, however, goes a step further. In seeking to carve out more market space in a severe competitive environment, it implements an appropriate business layout to enhance product value and marginal profit.

High Value-added Products Strategy

Approved by and registered with the Guangdong Food and Drug Administration, Modern Precision is a manufacturer of precision dental instruments. With a production base set up in Foshan in 1989, it now engages in the R&D, manufacturing and sales of dental instruments. It told HKTDC Research that its core advantages include the R&D, design and production of precision parts and components as well as instruments that are up to the requirements of its clients, related health regulators and various technical standards.

Modern Precision says that the parts/components and instruments it produces are hi-tech, high value-added products. The key to the company’s competitiveness, therefore, lies in the technology, quality and reliability of its products as well as its brand name. This is in stark contrast to the strategy of its competitors who snatch market share through low costs and low prices for their uncertified and non-professional medical products. Instead of transferring its production base to minimise costs, the company’s current development strategy is to enhance product value by raising product quality and precision.

Modern Precision has R&D facilities in both Foshan and Henan Province and is investing continuously to build up the capability of its R&D teams. In the next five years, as well as upgrading the functions of its existing products, it will further develop higher-end and higher value-added products, including laser cutting dental equipment, laser treatment equipment, surgical craniotomy machines and precision orthopaedic surgery equipment.

Modern Precision’s only mainland plant in Foshan is equipped with an array of automated production equipment imported from Japan, Germany and Sweden, including a computer numerical controlled machine tool (CNC) for precision production. It is also outfitted with related testing equipment to ensure the high quality of its products. The Foshan plant currently employs about 120 workshop staff, most of whom are technicians responsible for operating the production equipment. Low-tech staff members are a small minority.

Modern Precision’s automated production line (1).

Modern Precision’s automated production line (2).

Enhancing Brand and Product Values

Modern Precision is serious about building its brand and has been active in advertising and in participating in major exhibitions both at home and abroad. It set up a plant in Gyeonggi-do in South Korea in 2013 so that high-end dental instruments could be produced out of core parts and components made in Foshan, together with locally sourced industrial products to comply with Korean certificate of origin requirements. Modern Precision points out that, currently some mainland enterprises are relying on a low-price strategy, but because the design and quality of their products are often inferior, the reputation of Chinese products suffers. To avoid being tarred with the same brush, Modern Precision uses South Korea as a springboard to expand into international markets and to enhance product value while simultaneously building its brand and boosting marginal profit.

Modern Precision produces dental instruments such as pure titanium or chrome plated copper high-speed drills, low-speed drills, brushless electrical motor drive controls and wireless endodontic motors. Around 60% of its business is in carrying out OEM production for famous brands around the world, while the other 40% is in producing on an ODM or own-brand basis. Currently, some 80% of Modern Precision’s products are for export, and the rest are for domestic sales. Irrespective of their destination, all products are manufactured in compliance with the regulatory requirements of the markets concerned, such as FDA approval from the US or CE certification from the EU. Modern Precision has also set up an office in Hong Kong which, as well as catering to its Hong Kong business, is responsible for handling overseas investment, sales and sourcing and related financial arrangements.

(Remark: The above is among the case studies of a research project jointly undertaken by HKTDC Research and the Department of Commerce of Guangdong Province: Shift of Global Supply Chain and Guangdong-Hong Kong Industrial Development. Please refer to the research report of the aforementioned project for more details.)

In a bid to pursue long-term business development, many technology-intensive and capital-intensive enterprises on the Chinese mainland have, in recent years, been devoting great efforts to formulating their international business plans as well as further exploring market opportunities arising from the Belt and Road. According to Keda Clean Energy Co Ltd of Guangdong, outbound investment in carrying out production offshore should not just take into account labour and direct production costs but also the overall costs, including transportation, logistics and tariffs. Also, investment strategy should be mapped out according to market demand in order to seek maximum benefit for the company’s business.

Keep an Eye on Belt and Road Market Potential

Keda Clean Energy, listed on the Shanghai Stock Exchange, is mainly engaged in building material machineries (building ceramic machineries, wall material machineries, stone material machineries, etc), clean energy for environmental protection (clean coal gas technology and equipment, gas purification technology and equipment), and clean energy materials (dynamic lithium-ion battery negative electrode materials). The company also provides project contracting arrangement, financing and leasing services. It has 27 subsidiaries in Guangdong, Anhui, Jiangsu, Henan and Liaoning, as well as a number of well-known brands in the trade such as Keda, Henglitai, Kehang, Xinmingfeng, Kdneu, Ai’er and Zhuodahao. Today, the company’s products are sold to more than 40 countries and regions.

Where building material machineries are concerned, Keda Clean Energy actively makes use of Chinese-made equipment to expand its overseas markets and has already established itself as a leader in the Asian market.

The company’s director Jason Zhong told HKTDC Research: “The building material machineries produced by Keda Clean Energy are technology- and capital-intensive, with both their quality and technology reaching international levels. This, coupled with the full support of the mainland in supplying metals in the form of raw materials, electronic/electrical parts and components, as well as abundant top-notch design and engineering personnel, is conducive to the production of building material machineries with advanced technology and high price-performance ratio.

“Although labour and production costs in the mainland have been climbing in recent years, Keda Clean Energy still manages to improve its mainland production business, excel in technology and quality, and further develop the market at home and abroad.”

China’s building materials market is coming of age after years of growth.

Zhong added that after 30 years of growth, the mainland building materials market is coming of age and the demand of downstream manufacturers for building material production equipment is becoming stable. To seek long-term business development, Keda Clean Energy is gradually expanding its overseas market. It also attaches importance to the development potential of countries along the Belt and Road. Many countries along the route are eagerly trying to import the necessary equipment for the production of building materials locally to support the burgeoning infrastructure construction and building activities in their countries.

Deploying Overseas Investment Based on Cost and Profit

In addition to exporting building material machineries from the Chinese mainland, Keda Clean Energy has also started to invest in production activities offshore. Such investment projects mainly concentrate in downstream business related to building material equipment, including investing in the production of ceramic building material products in African countries. The ceramic tiles production line the company set up in Kenya began operation at the end of 2016, while its factory in Ghana is scheduled for operation in mid-2017. Infrastructure construction work for its building materials project in Tanzania is also in progress.

Keda Clean Energy keeps an eye on ceramic building materials market along the Belt and Road routes.

Although the building materials made in China have the advantage of low cost, manufacturers in the trade often find it difficult to explore distant markets overseas due to the relatively high import tariffs imposed by some countries and the high transportation cost involved. As construction activities in certain developing countries, such as those in Africa, continue to surge, their demand for building materials is strong. Yet there are hardly any large-scale local investors who are willing to set up building material production lines there supplying the local market.

Zhong said: “Against this background, Keda Clean Energy co-operates with some African distributors whereby China-made equipment is exported to the countries concerned to set up building material production lines there, taking advantage of the raw materials available locally to produce ceramic tile products to supply to the African market.

“Actually, taking into account the labour efficiency and other production costs in Africa, the cost of producing ceramic tiles there is not lower than that in the mainland. But the great savings on import tariffs and transportation cost allow Keda Clean Energy to effectively explore the end market for building materials in Africa. Moreover, the keen demand of the African building materials market means that it can accept higher prices, which in turn brings about greater profit. At the same time, it can also drive the company’s equipment sales to Africa.”

Where building material machineries are concerned, Keda Clean Energy has realised localisation of building ceramic machineries and is moving towards its objective of becoming the world’s building material equipment industry leader. The company has two “state-accredited enterprise technology centres”, one “national engineering technology centre”, two “post-doctoral scientific research workstations”, and three “academician workstations” in the mainland. These innovative R&D platforms complement its mainland production bases in providing advanced equipment and relevant technical support services to its building materials clients. At present, the company is one of the leading enterprises in building material machineries in China and has been awarded honours such as China’s top 500 machinery enterprises, national-level high-tech enterprise, national intellectual property demonstration enterprise, and Guangdong’s top 20 innovative enterprises.

(Remark: The above is among the case studies of a research project jointly undertaken by HKTDC Research and the Department of Commerce of Guangdong Province: Shift of Global Supply Chain and Guangdong-Hong Kong Industrial Development. Please refer to the research report of the aforementioned project for more details.)

In the face of fierce market competition and rising wages and raw materials costs, some enterprises on the Chinese mainland are considering relocating their production to regions offering lower costs. At the same time, a large number of enterprises are choosing to adopt the strategy of transformation and upgrading in a bid to increase competitiveness and meet challenges. PEAK Corporation in Nanhai district, Foshan city, Guangdong province, is actively upgrading its automated production equipment while formulating a strategic production layout plan in an effort to expand its market share.

Introducing Robots to Ease Technical Staff Shortage

Engaged in the R&D and manufacturing of car lifts/hydraulic equipment, PEAK mainly relies on technology and quality to win in the market. Following changes in the external environment, some mainland enterprises seek to lower cost by relocating their production activities. But in contrast, PEAK spares no effort in enhancing its R&D capability and introducing welding robots and other automated production equipment, such as modified computer numerical control (CNC) sawing machines, stamping presses and automated feeder equipment. By so doing, the company can alleviate the problem of technical staff shortage while strengthening its ability to manufacture high-tech and high quality products.

A spokesperson for PEAK told HKTDC Research: “Manufacturing car lifts is a capital-intensive and technology-intensive production activity. While only a small number of non-technical workers are needed, skilled technical staff of the “master” grade are required to carry out the welding and installation processes.

Manufacturing car lifts is a capital-intensive and technology-intensive production activity.

PEAK introduces welding robots for production.

“As such, shifting production to low-cost regions overseas often cannot solve the problem of a shortage in technical staff. Also, the business operations in question have to rely on the support of upstream suppliers in providing raw materials including quality aluminium, iron and steel. The company not only uses the right machinery and production equipment but also has in place a sound quality control system to ensure that its products meet the stringent technical and quality requirements of the mainland and foreign markets.

“Some low-cost regions in Southeast Asia are in short supply of technical workers and their raw materials supply chain has yet to be developed. If the metal materials produced in China are used to support production in these regions, the cost of transportation involved is huge. So relocation just for the sake of taking advantage of the lower cost of non-technical labour in these regions is often not worth the while.

The spokesman added: “In view of the fact that Guangdong province has a well-developed supply chain system and good logistics supporting services, in order to ease the problem of shortage in technical staff, PEAK has started to introduce automated welding robots in recent years. It is also co-operating with colleges and technical institutes in training more technical staff capable of operating robots and automated production lines.”

Actually, PEAK has already invested in setting up production lines in the US, utilising automated equipment to produce and assemble car lifts and hydraulic products. The production lines are slated to begin operating in the second half of 2017. The products will be mainly sold to the markets in North America, South America and Europe. Apparently, this move has not been made to lower production cost but to save on tariffs levied on products (or raw materials) imported into the country. It also serves to provide better sales and after-sales services to local clients. In addition, the company can capitalise on the sound local logistics network to cut logistics costs and transportation time in supporting its sales activities in markets neighbouring the US.

PEAK was established in 1999. Today, the company boasts not only advanced production equipment and high technology, but also a strong team of management personnel. Its products include single-post, twin-post, four-post and scissors car lifts, which are designed and manufactured in accordance with the technical standards of the America National Standard Institute (ANSI) and/or European Union’s CE. These products reach the relevant quality control standards and are mainly exported to overseas markets. In 2016, the company’s sales amounted to around US$17 million.

(Remark: The above is among the case studies of a research project jointly undertaken by HKTDC Research and the Department of Commerce of Guangdong Province: Shift of Global Supply Chain and Guangdong-Hong Kong Industrial Development. Please refer to the research report of the aforementioned project for more details.)