A British Fan Manufacturer Goes Where Its Customers Are

Published: June 16, 2010  Read Article in New York Times

Halifax Fan began manufacturing industrial fans in 1965; its factory in West Yorkshire, England, with fewer than 75 workers, produces heavy-duty machinery for customers like power plants, food processors and pharmaceutical makers. But in recent years, the company noticed more and more of its products were being made for use in Asia.

York Li, operations manager for Halifax Fan in Shenzhen, inspects some fan parts in the company’s factory. 

"I thought, ‘This isn’t going to last long. Asian makers will copy us and we’ll lose all that business,”’ said Malcolm Staff, 46, the company’s managing director. "We needed to be closer to where our customers are.”

The company turned to York Li, an English-speaking Chinese engineer who was a former colleague of one of Halifax’s managers. In 2005, he signed on with Halifax and spent the next year working out of his apartment in China, investigating business regulations, handling paperwork, talking to government officials and looking for a suitable manufacturing site.

"In the U.K., there are lots of big lawyer and accountant groups who will help you get started in China, but if you go to those guys, you get slaughtered in terms of costs,” Mr. Staff said. "We just couldn’t afford to go that route.”

Halifax investigated various cities in China to figure out where to set up a plant. "Many cities were interested until they found out we didn’t want to put in $1 million of registered capital,” said Mr. Staff, recalling offers of tax abatement and cheap rent from government officials. The company instead wanted to put in about $150,000 in registered capital because, Mr. Staff said, it did not have a lot to spend.

Ultimately, Shenzhen’s proximity to Hong Kong and the ease of shipping from its port persuaded Halifax to establish operations there.

In late 2006, the company received approval from the city authorities to register as a wholly owned foreign enterprise. Then Mr. Li began outfitting the rented factory floor and hiring workers. The initial plan, he recalled, was to make small fan cases, but not impellers — the blade mechanism that spins inside. And they would make products only of carbon steel, not stainless.

Then the first order came in, from a longstanding client of the England factory.

"They wanted impellers only, not fan cases,” Mr. Li, 38, recalled. And the second client? "They wanted a stainless steel fan case.”

Loath to say no to any orders, the company dispatched workers from the factory in England to advise on what tools to get and to train workers. Although Mr. Li had translated a welding quality manual and had hired Chinese workers with welding experience, there were cultural barriers to overcome.

"For the Chinese workers, speed was the most important thing in their minds. If they did it quickly, they thought they’d done a good job,” Mr. Staff recalled. "It’s taken a long time to get a different mind-set in place.”

Another problem has been finding raw materials in small quantities, like titanium and stainless steel with a specific European certification.

Over the past three years, the company’s Shenzhen factory has grown to more than 30 workers from five. Staff turnover has been low – only four employees have left — and in a city where labour shortages are common and workers switch jobs frequently to get more pay, that is a point of pride for Mr. Li and Mr. Staff.

The company offers perks to keep workers happy. For example, the entire Shenzhen factory staff just took a weekend trip to Guilin, a town in southern China, to help bring employees closer together.

The company expects revenue of $10.8 million this year, with about 20 percent of that coming from China. The Shenzhen factory is now capable of making about 80 percent of the types of fans that are produced at the England factory.

Last year, 60 percent of the products Halifax made in Shenzhen were for use in China, while the rest were exported to elsewhere in Asia. Mr. Li said he expected 70 percent of the factory’s fans to go to China this year.

Although the cost of raw materials is about the same for the Shenzhen and West Yorkshire factories, labour costs in Britain can be as much as five times greater, Mr. Li said. That initially led to concern at Halifax’s home factory that jobs would be lost to China. But Mr. Staff said that having the factory in China has led to more business for the England operation — particularly for the most sophisticated fans that cannot be made in Shenzhen.

"The business climate in China and Asia in particular is much more buoyant at the moment than Europe, where project after project is being put on hold,” Mr. Staff added. "If we had not developed our own facility here in China to sell, manufacture and service our customers, and we were just reliant on the U.K., we could be in a hard position at the moment.”