Rakon gets lessons in cost cutting

The Rakon factory in Mt Wellington Auckland. Photo / Supplied

Kiwi tech firm Rakon's plans to establish a Chinese manufacturing base are nearing completion, after being placed on hold during the recession.

The NZX-listed, hi-tech crystal maker will open the facility on July 11.

Rakon's products are now manufactured in Europe, New Zealand and India, and are vital components of smartphones and GPS systems, as well as telecommunications infrastructure.

Rakon Chengdu Crystal is a joint venture with Timemaker, a China-based manufacturer in which the New Zealand firm holds a 40 per cent stake. Rakon managing director Brent Robinson says the new plant, located in the Chengdu Hi-Tech Industrial Development Zone, will employ 200 staff.

"We wanted to start manufacturing crystals in China to get our costs down - that was the main driver," he says. "And we wanted to have better access into the Chinese market."

Robinson says 50 per cent of Rakon's products now end up in China, and that is set to grow in the future.

The company is already making inroads with Chinese firms ZTE and Huawei, large-scale manufacturers of telecoms equipment.

Rakon used to manufacture the products Timemaker makes in China - known as blanks - in Auckland. Blanks, pieces of quartz that are lapped and shaped to final dimensions, are labour-intensive to produce.

As volumes grew Rakon began outsourcing the production of blanks to Timemaker, as well as suppliers in Japan, says Robinson, whose father Warren founded Rakon in his Howick garage in 1967. The quality of Timemaker's products prompted Rakon to buy its stake in the Chinese company, Robinson says.

Timemaker will continue making blanks, while RCC will manufacture the crystals. RCC's products will mostly go into consumer products like smartphones.

Robinson says Rakon will gain 30 to 40 per cent cost savings through manufacturing in China, where labour costs are about a fifth of New Zealand's, And by manufacturing in China, Rakon will be looked on more favourably by the Chinese firms, he says.

Rakon holds 70 per cent share of RCC and has also invested $13.5 million for its stake in Timemaker. The company completed a capital raising in late 2009, netting $65 million from regular and institutional investors to fund the construction of the Chinese plant. Timemaker have bought a 3 to 4 per cent shareholding in Rakon.