Bonso Electronics International Inc. designs, develops, produces and sells
electronic sensor-based and wireless products for private label original equipment
manufacturers (individually “OEM” or, collectively, “OEMs”),
original brand manufacturers (individually “OBM” or, collectively,
“OBMs”) and original design manufacturers (individually, “ODM”
or, collectively, “ODMs”).
Since 1989, we have manufactured all of our products in China in order to take
advantage of the lower overhead costs and competitive labor rates. From 1989
until 2013, all of our production took place in our Shenzhen factory; however,
we began production in our Xinxing factory. We moved all production processes
from our Shenzhen factory to the Xinxing factory, and we rented out the old
Shenzhen factory to a third party as a source of rental income.
Our primary business has been the design, development, production and sale
of electronic sensor-based and wireless products. Effective with the transfer
of manufacturing operations to our new factory in Xinxing we leased our factory
in Shenzhen to a third party. This lease marks our entry into the “property”
business. The lease with the third party terminates in August 2019. We intend
to begin the process of seeking the necessary governmental approvals to permit
us to redevelop the Shenzhen factory into a high end commercial complex, containing
retail space, office space and some residential space. If we are successful
in obtaining the necessary governmental approvals for the redevelopment, we
believe that the rental income derived from leasing the redeveloped property
will be a significant contributing factor to our profit in the future.
We believe that our future growth depends upon our ability to eliminate or
decrease the manufacture and sale of lower margin products, strengthen our customer
base by enhancing and diversifying our products, increasing the number of customers
and expanding into additional markets while maintaining or increasing sales
of our products to existing customers, and focusing upon the production and
sale of higher margin products. Our future growth and our ability to become
profitable are also dependent upon our ability to control production costs and
increase production capacity. Our strategy to achieve these goals is as follows:
Increased Focus Upon Manufacturing and Selling Higher Margin Products and the
Elimination or Decrease in the Production and Sale of Lower Margin Products.
In seeking to return to profitability, we analyzed our product mix and concluded
that we were most likely to return to profitability if we eliminated the production
and sale of lower margin products that require the employment of larger numbers
of workers and the commitment of substantial resources to carry or stock raw
materials and components inventory. We advised our largest customer for these
low margin electronic scale products that without substantial price increases,
we would not be in position to continue manufacturing these products in the
calendar year beginning January 1, 2015. That customer did not agree to the
price increases that we requested, and has shifted this business to alternative
suppliers. We are optimistic that this will result in improved profitability
for the Group.
Product Enhancement And Diversification. We continually seek to improve and
enhance our existing products in order to provide a longer product life-cycle
and to meet increasing customer demands for additional features. Our research
and development staff are currently working on a variety of projects to enhance
our existing scale products and in the postal scale/meter area. Further, we
are developing certain electrical pet care products. See “Product Research
and Development” and “Competition,” below.
Maintaining And Expanding Business Relations With Existing Customers. We promote
relationships with our significant customers through regular communication,
including visiting certain of our customers in their home countries and providing
direct access to our manufacturing and quality control personnel. This access,
together with our concern for quality, has resulted in a relatively low level
of defective products. Moreover, we believe that our emphasis on timely delivery,
good service and low cost has contributed, and will continue to contribute,
to good relations with our customers and increased orders. Further, we solicit
suggestions from our customers for product enhancement and when feasible, attempt
to develop and incorporate the enhancements suggested by our customers into
our products.
Controlling Production Costs. In 1989, recognizing that labor cost was a major
factor permitting effective competition in the consumer electronic products
industry, we relocated all of our manufacturing operations to China to take
advantage of the large available pool of lower-cost manufacturing labor. Continuing
this approach and recognizing that labor costs are significantly lower in Xinxing
than in Shenzhen, we moved all of our manufacturing from Shenzhen to Xinxing,
and there was a reduction in our labor costs as a result. In addition, we have
continued to shift production and manufacturing of various parts and components
to third party suppliers, including plastic injection molded parts and metal
parts. In some cases, we have entered into agreements with third parties in
which they lease our equipment from us, and then manufacture parts and components
that we use in assembling our final products. Those third parties provide the
workers and supervisors, and the necessary raw materials. We lease our machinery
or equipment, our dormitory facilities for their workers and supervisory staff
and our meals or cafeteria services for the third party’s workers and
staff. There are other third party contractors that utilize their own equipment
and their own facilities in manufacturing specific components or parts for us.
We are actively seeking to control production costs by such means as redesigning
our existing products in order to decrease material and labor costs, controlling
the number of our employees, increasing the efficiency of workers by providing
regular training and tools and redesigning the flow of our production lines.
New Manufacturing Facility. In November 2006, Bonso entered into a land purchase
agreement to acquire 133,500 square meters of land use right for future expansion
in Xinxing, China. We have completed construction of the new manufacturing facility
and moved all manufacturing operations from Shenzhen to Xinxing. The office
building on the Xinxing site was completed in February 2015, and we expect to
complete leasehold renovations by December 2015. We intend to carefully monitor
our capacity needs and to expand capacity as necessary in the future.
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