Kin Yat moves production base to reduce costs
With the US market sinking into recession and import orders declining, mainland toymaker and electrical appliance producer Kin Yat Holdings is accelerating the relocation of labour-intensive manufacturing activities to lower-cost Shaoguan in Guangdong province.
Deputy chairman Vincent Fung Wah-cheong said he now expected that by March next year 90 per cent of the group's toys and 40 per cent of home electrical appliances would be produced in a recently commissioned production base in Shaoguan.
The group's existing production hub at Songgang, Shenzhen will be converted into a research and development centre and a facility for the production of higher-value added and artificial intelligence-driven products such as vacuum-cleaning robots developed with Nasdaq-listed iRobot Corp.
Kin Yat, one of the most profitable of Hong Kong-listed toymakers, was aiming to reduce costs of labour, raw materials, electricity and transportation as consumer demand contracted in the US and Europe, the group's core markets, he said.
Wal-Mart last month said it would cut orders globally for next year by 10 per cent. Mr Fung expected the store was also likely to focus on lower-ticket merchandise, ranging in price between US$10 and US$20. 'US retailers are tightening their belts,' he said, forecasting that other retailers Target and Sears were likely to follow the Wal-Mart move. 'But orders in Europe have held up so far.'
To boost profitability, Kin Yat would relocate most of its production of toys, home electrical appliances and micro motors to Shaoguan, where wages and electricity were cheaper and logistics costs were acceptable despite its distance of almost 500km north from Shenzhen, Mr Fung said. The minimum wage stood at 580 yuan (HK$656) at Shaoguan, about 26 per cent lower than in Shenzhen, while the city's hydro electricity costs were about 80 fen per unit, or 50 per cent lower than Shenzhen tariffs.
Despite its near 9,000 workforce in Shaoguan, Mr Fung believed the pressure on wage rises would be lower next year on the back of the mainland government's concerted efforts to help smaller enterprises to stay afloat amid the financial crisis. 'It will be easier and cheaper to hire workers next year partly because many factories are closed,' he said. 'Raw materials like plastic will see prices come down along with lower crude oil prices.'
To lower reliance on the Christmas and Thanksgiving peak seasons, Kin Yat obtained HK$150 million worth of orders on toys related to films to be released next year and 2010, which included Transformer 2, X-Men Origins: Wolverine and Iron Man 2. 'These orders are keeping workers and production lines rolling during the traditional low season from now through the winter,' Mr Fung said.
As a relief to exporters, the mainland restored value-added tax rebates for about 3,000 types of exports including toys, garment and textiles and furniture on November 1.
About 1,600 toy factories in the Pearl River Delta have failed in the past year.
The minimum wage at Shaoguan was, in yuan: yuan 580