VTech co-founder Allan Wong utilises the Hong Kong-PRD business model to produce top-selling electronic items for the US, UK and European markets

VTech Holdings, listed on both the Hong Kong and New York stock markets, bases its corporate affairs at its Hong Kong headquarters at Tai Po in the New Territories, where management functions, marketing and sales are centred.

But when it comes to manufacturing, VTech turns to its two plants in the fast-growing industrial zone between Shenzhen and Guangzhou. At Liaobu, the consumer-focused technology company makes telecommunications products sold under the VTech and AT&T brand names. Contract manufacturing services, which earned VTech a place in Manufacturing Market Insider's list of top 50 contract manufacturers worldwide, are also undertaken there.

Another major product facility at Houjie turns out the highly successful electronic educational aids that delight children in America and Europe and have earned VTech top slot in sales in the UK, France, Germany and Spain, and second place in the US.

Allan Wong, who co-founded the group in 1979, sees the synergies between Hong Kong and Dongguan as unbeatable. "Hong Kong gives us the best of three worlds," he said. "It has low taxes, a good legal system and a good communications system, coupled with manufacturing sites one-and-a-half hours away by car, with unlimited labour available."

Proximity a key advantage

It was the close proximity to Hong Kong that first persuaded Mr Wong to move his manufacturing capabilities from Tai Po to the PRD - that and the co-operation he was offered by local and provincial officials. It was 1987 and he was finding difficulties in expanding his 6,000-strong workforce in Hong Kong to meet growing demand for VTech products. He needed somewhere within a one-day round-trip and looked at many places before settling on Dongguan.

"The Dongguan people were very responsive," he said. "We wanted to rent space to start operations as a trial. Next morning the contract was on our table. It was as quick as that."

Mr Wong did have doubts at first. Smaller businesses had located to Dongguan in the early 80s, but VTech was among the first major movers. "We had concerns about reliability, moving goods in and out of Dongguan and 'under the table' stuff. But none of that has come to anything."

With VTech already established there, Dongguan was the natural choice a few years ago when it needed to open its second facility. It now employs 20,000 people between the two. Both are under outward procurement contracts with no local partner needed.

VTech's plants turn out products that resulted in sales worth HK$7.5 billion (US$959.8 million) in the 2002 financial year with a wide variety of high frequency cordless phones and electronic learning products that include interactive robots, adventure software, and high-tech gadgets.

PRD growth boosts competitiveness

The extraordinary growth of the PRD as a major global manufacturing zone has brought further benefits. The opening of a new highway cut the one-day round-trip in half and the constant increase in the quality of VTech's workforce has meant more functions can be transferred to the PRD where cost advantages make its products more competitive.

Mr Wong has seen the level of technical expertise increase year by year in the PRD thanks to China's quickly improving education system, and VTech's own training programs.

The company invested HK$257 million (US$33 million) in research and development in 2002. The Hong Kong-Dongguan partnership also played its part in that.

Front-end R&D is carried out at centres in the US and Canada. Hong Kong looks after aggregating and product development, while Dongguan is taking increasing charge of back-end development with some design work transferred there. A new R&D centre has also been opened in Shenzhen. Some 700 VTech experts are involved in R&D worldwide.

As for the future, Mr Wong believes the Hong Kong-Dongguan partnership will hold firm. "We see Dongguan continuing to expand both in manufacturing and R&D and certain back office functions," he said. "And Hong Kong will stay our headquarters."

Related link:
VTech www.vtech.com