Many factories in Dongguan and other coastal cities of China have this problem in common: keeping good staff in a place with rapidly rising wages and a transient workforce.
Dongguan is a major mold making center with thousands of tool shops. Shaoguan on the other end has only a handful of similar tooling enterprises. The company Cosmos Tooling moved its factory from Dongguan and settled into its new 20,000-square-foot factory in May. The move to Shaoguan, in northern Guangdong province, puts it in unfamiliar territory for a foreign-invested operation, away from the international supply chain and safety net clustered around Dongguan and neighboring Guangzhou and Shenzhen.
But general manager Hercules Shum said the company sees the 6 million Chinese yuan ($985,000) investment as giving it an advantage in dealing with worker churn, one of its big challenges.
Shaoguan is a city of 3.5 million people, overwhelmingly local residents, while Dongguan’s population of 8.2 million, according to city statistics, includes 6.3 million migrant residents who travel from elsewhere in China to work in its factories and businesses.
“The biggest reason for us to relocate is the loyal, stable, skilled workforce,” Shum said. “When we were at Dongguan, people come and go and no one wants to stay or work long term. Even when we provided all kinds of incentives to our staff, we could not keep them for long.”
There’s another, more personal, reason for choosing Shaoguan. Shum was born there, and his grandfather was a government official in Shaoguan in the 1940s, before he eventually died in prison during the country’s tumultuous Cultural Revolution.
Shum’s own father migrated to Hong Kong more than 30 years ago and eventually was able to bring his family, including Shum, there. But now the family is returning, and Shum has become a member of a Shaoguan city advisory board.
Cosmos is a small mold shop by Chinese standards, with about 70 employees and $2.5 million to $3 million in annual sales. Shum said that’s the way the company wants it.
The company is owned by Shum, three other Hong Kong investors and executives at two U.S. companies in Michigan, Wakefield-based mold maker Extreme Tool and Engineering Inc. and Swartz Creek-based mold designer Future Engineering Inc.
They say they prefer to focus on upgrading people and equipment rather than becoming a thousand-employee workshop.
China’s rising costs, while still much less than in the United States, are changing the game, Shum said. Adding to that, running labor intensive businesses will become more difficult as a long-term result of the one-child policy, Shum said.
At the same time, the company is facing more competition from manufacturing in the United States, known as reshoring, Shum said in a late November interview. Business slowed some in 2012, and the company thinks that’s part of the reason.
“In the old days we competed mostly with Chinese mold makers, but now we compete more with American mold makers,” Shum said. “Manufacturing is going back to the States.”
So Cosmos needs to continue its focus on being more efficient, he said. When the company started in 2008, it had 120 employees and $1.5 million sales. Since then, it’s cut its workforce almost in half and nearly doubled sales, he said.
It spends a lot more time on mold design before it cuts any steel. It buys more expensive, automated Japanese equipment, and takes steps it says are less common in China, like 100 percent inspection of electrodes in a mold.
It’s trying to adopt practices common in the factory of its partner, Extreme Tool. Extreme President Mike Zacharias is the largest shareholder in Cosmos, and provides guidance in how the company can automate, Shum said.
“Mike shared with us what happened with mold making in the U.S. in the last 15 years,” Shum said. “He said ‘I was there 15 years ago. I know how tough it will be.’ We want to be as efficient as an American shop.”
Cosmos is overwhelmingly export-oriented, although in an interview in 2010, Zacharias and other company executives said they saw potential selling molds to domestic Chinese companies.
That has not developed as quickly as they’d hoped, Shum said, because the local market will not pay the higher prices of export molds. That could take five years to change, so the company remains focused on the international market, Shum said.
In the meantime, the company will continue to work on being lean.
“We never want a big operation,” he said. “The mold making we are doing is very different from other mold making shops.”
Dongguan is losing its competitive edge as a low-cost manufacturing base. Many factories from handbags to shirts to basic electronic components relocating to cheaper locales like other inland cities or other countries in Southeast Asia, like Indonesia, Thailand and Vietnam.