Finnfund

Teknikum (Suzhou) Technology Co. Ltd. is a subsidiary of Teknikum Group of Sastamala, Finland. It began making rubber components in Suzhou, East China at the end of 2008. Kalevi Vuorisalo, a member of the parent company’s board, says that the expansion into China was extensively and thoroughly considered.

“The board examined the possibility of establishing operations in China for several years. Certain of our global customers had shifted or were shifting a significant part of their operations into developing markets, particularly China,” he explains.

“Consequently we were talking with customers about meeting demand in this region by manufacturing locally. The reasons were logistical as well as competitive.”

Deciding against a joint enterprise

Initially Teknikum studied whether to establish a joint enterprise in China with a local company. “A couple of years went by but we couldn’t negotiate satisfactory terms, so we opted for a wholly owned subsidiary. It was then established and located in Suzhou.”

Among the components made in Suzhou are rubber shock absorbers and bearings. The company aims to expand its range in line with customer requirements.

“At present our key customer areas in China are shipyards and manufacturers of conveyors and hoists. As new projects emerge, the product range will grow,” says Vesa Vihavainen, Teknikum Group’s managing director.

Secure power supply clinches location

The first challenge was to find a competent person to run operations in China. The choice fell on Cary Kilpinen, who had existing solid experience of the country.

The site of the plant was a critical decision. Suzhou Industrial Park emerged as the ideal location in China, largely because of the high dependability of its electricity supply.

“Making rubber is a process industry and has to be continuous. If there are interruptions, the rubber gets stuck in the channels and moulds, and it takes time to clean them. For an uninterrupted process, you need a continuous power supply,” Vihavainen points out.

Launch beset by challenges

One of the greatest challenges in the Suzhou project was to transfer production processes and related competence from Finland to China.

“There are many variables when starting up production. To exactly copy Finnish production methods wasn’t an option because in China we have different machines, new feedstock suppliers and new employees.”

Production eventually began half a year later than originally scheduled. On the other hand, Vihavainen says, the formalities involved in establishing a subsidiary were actually less time-consuming than expected.

“It’s not much exaggeration to say that the paperwork was handled in an instant. We were advised to establish a new company but we decided to buy a dormant company from a European firm. The bureaucracy of getting a business license hardly took any time.”

Teknikum is currently recruiting new workers for its plant and the number of employees will pass 30 this spring. It trains its own machine operators.

Investment loan from Finnfund

Finnfund is financing Teknikum’s China project with an investment loan. Kalevi Vuorisalo says that cooperation with Finnfund has, for the most part, gone well.

“Although some of our company’s people had experience of operations in China, it has been vital for us, as a small enterprise, to work together with an organization that has a broad grasp of China and the histories of Finnish companies that have set up there.”

He adds: “We’ve certainly avoided some pitfalls by hearing of the problem areas that other companies have faced.”

Finnfund’s broad network of good contacts has helped in handling complex interactions with officials and the paperwork involved, Vuorisalo says. Chinese language skills have also been essential.

“I hope that our close cooperation will continue, not only as this project progresses, but also in other international expansion projects that we are planning.”

Vihavainen agrees that, once a common approach was found, cooperation with Finnfund has gone well. “We value a stable domestic financial partner. Especially in the current economic climate, Finnfund’s financial instruments are important for a company operating in international markets”

For market research in the Chinese market, Teknikum was supported by Finnpartnership. A small market survey was also ordered from Finpro.

On the lookout for new customers

The plant has made its first deliveries. Vihavainen says that, despite the global recession, prospects in the Chinese market are reasonable.

“We are feeling the slump in vehicle manufacturing but shipbuilding has long cycles and there are adequate orders for several years ahead. So far, conveyors also continue to be in demand. Construction of new ships and buildings is slowing down but a recession is when all sectors turn to renovation.”

Teknikum is also looking at new markets, especially in energy and the environmental industry. Mining and civil engineering are other fields where Vihavainen sees new opportunities. “A global recession is a challenge to all enterprises. Our advantage is that our business spans several sectors. There is always one area that pulls ahead when times are tough.”

Building infrastructure is an example of a sector that will continue on the strength of reflationary spending by national governments, Vihavainen believes. This will boost demand for machinery and components.

“To build infrastructure you need the shock absorbers that Teknikum manufactures.”

A leading Nordic enterprise in its field

Established in 1989, Teknikum Group is one of the leading Nordic groups of companies specialising in polymer technology. Its range includes hoses, moulded products, rubber linings and coatings, polyurethane and liquid silicon products, rubber compounds, sheets and mats. Turnover was about 47 million euros last year. The Group employs about 390 people.

In addition to Finland and China, Teknikum has production in Russia and a sales office in Germany.