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Global brands, costs push Chinese toy molder to Indonesia

Pushed by global toy brands looking to diversify their supply chains, Chinese injection molder and toy maker Combine Will Industrial Co. Ltd. has opened a factory in Indonesia, its first outside its home market.

It’s not easy, but the cost savings can be big, said Chairman and CEO Dominic Tam, in an address to a Jan. 8 conference held alongside the annual Hong Kong Toys & Games Fair.

Last year, Combine Will, which is publicly listed on the Singapore stock exchange, opened a toy factory with about 100 injection molding machines in Sragen, Indonesia, a small city about 300 miles east of Jakarta.

Big international toy brands are encouraging their Chinese suppliers to open factories overseas, mainly to keep prices down, he said.

“Basically, the big brands are committing to give you business [at the new factory],” Tam said in an interview after the fair.

Toy companies also want a hedge against the slight but genuine possibility, mentioned by many on the trade fair floor, that the United States will slap tariffs on Chinese-made toys.

“If the U.S. trade war really turns bad, then of course, those overseas factories will be most welcome by [the big brands],” Tam said.

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Kuala Lumpur, Malaysia

Indonesia is not the only investment that the company is making to cut costs. The firm said in a November earnings report that it is opening a manufacturing plant by the end of the year in China’s Guangxi province, a location it calls “lower cost” and with “ample” labor supply.

Still, its move offshore is the latest step in a decades-long migration for toy makers, first from the Pearl River Delta near Hong Kong and then more inland within China.

Now, rising labor costs combined with a scarcity of workers have prompted some of the bigger Chinese toy makers like Combine Will to also look at Southeast Asia, especially Indonesia and Vietnam.

Head count at Combine Will’s Indonesia factory stands at 1,500 workers. When full capacity is realized by year’s end, the company expects to have 3,500.

Each of the plant’s 100 injection molding machines is equipped with a robotic arm — spray-painting is especially suitable for automation — although most assembly is still done by hand, Tam said.

“From our experience, the reject rate in Indonesia is much better than in China,” he said.

Currently the factory makes only toys. Combine Will’s seven Chinese factories make toys and fast-moving consumer goods such as razor handles and soap dispensers.

Smaller Chinese toy companies that target domestic consumers have much less interest in offshoring, Tam said.

Many China manufacturing executives are often wary of moving to less-developed countries. But Tam has no complaints about rustic Sragen, which has one of the lowest minimum wages in the country: roughly $120 month.

HR Talk Show 2019

Building Asia’s Innovation Capability

Conference – April 24, 2019 | Workshops – April 25, 2019

Kuala Lumpur, Malaysia

A new road has slashed travel times to the port in Semarang and the power supply is highly reliable. “We don’t have any electricity problems,” Tam said.

Sragen’s social insurance, water, fuel and electricity are all much cheaper than in China, Tam said, and the company doesn’t have to provide dormitories common in Chinese factories.

There are trade-offs, though, like shipping time, Tam said. As container ships from Indonesia are currently routed through Singapore, shipments to North America or Europe take up to a week longer than those from China. That may change if Indonesia becomes a bigger manufacturing hub.

Still, moving production takes plenty of time and cash. Combine Will began seriously considering options in 2013, simply to reduce costs. “There wasn’t any trade war then,” Tam said.

Indonesia was chosen in 2015 and the 600,000 square foot parcel for the Sragen plant was purchased the following year.

Combine Will had to invest heavily for land and construction, navigate the labyrinth of government regulations and permits, certify the factory to toy brand standards, find qualified local managers, train staff and work with cultural differences in the heavily Muslim country.

Training is an ongoing process, with much shuttling back and forth between Sragen and Combine Will’s China operations, Tam said.

There are other indications that factories more broadly are looking for alternatives to China: 37 percent of Chinese export manufacturers responding to a survey by Swiss investment bank UBS reported moving some production offshore in the past year. Another one-third plan to move some production overseas in the next year.

Established in 1992, Combine Will has seven plants in China. In all, the company has 10,000 workers.

For the quarter ending Sept. 30, the company reported net profit of HK$90.8 million ($11.6 million), up from HK$2.2 million ($280,000) in the year-before period. Sales grew 27.6 percent to HK$424.2 million ($54.1 million).

Combine Will also makes molds and distributes machines and tools used for making molds, die-cast parts and automotive parts.


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