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Seeing silver linings in business

It may be a difficult year for Hua Yu (S), but it's not all doom and gloom as the firm might benefit from the US-China trade war.

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Hua Yu's factory in Tuas. The firm manufactures optical components such as lenses and prism, which eventually go into products for commercial, medical and defence industries.

BUFFETTED by headwinds from an ongoing US-China trade war and sluggish global growth, Singapore optics manufacturer Hua Yu (S) still manages to see a silver lining despite having a tougher year.

Business this year has been "struggling", according to the firm's managing director Lee Chee Teck, amid weaker demand from customers in America and Europe.

Hua Yu manufactures optical components such as lenses and prisms which eventually go into products for commercial, medical and defence industries. The majority of its customers - including the likes of camera maker Leica Camera and eyeglass lense manufacturer Zeiss - hail from the US and Europe.

"Everyone is rushing for the same piece of cake and the cake is smaller," Mr Lee told The Business Times at his factory in Tuas, which the firm moved into in 2015.

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"And because of that everybody is also cutting down the price just to win. So, you get the same number of jobs but your profit margin drops."

Mr Lee now predicts that this year's sales may miss his forecast by about 10 per cent and end up close to last year's figure. Last year, the firm - which now employs 37 people - had recorded about US$29 million in sales.

However, it is not all doom and gloom as the firm might benefit from the trade war.

The tit-for-tat tariffs between the two economic powerhouses have led global companies to look at assembling or manufacturing their products in countries in South-east Asia, which do not yet face the brunt of duties.

OPPORTUNITY IN CHALLENGES

"All my customers are coming back to me and saying: 'Hey, why don't I let you do the assembly job, so you make here and the country origin will be Singapore, so there's no duty' ", Mr Lee explained. "That's why I say it's kind of an opportunity."

Beyond the macroeconomic environment, Hua Yu also tries to make the best out of other challenges and adapt to changes.

As labour costs in Singapore continue rising, relative to those at cheaper bases in the region, the firm has started looking at high-precision manufacturing.

"There's no way for us to compete with China or the Philippines; the labour cost here is high. So, therefore, we have to move to high precision, so the value will be higher," said Mr Lee.

Such precision would involve measurements in nanometers - a unit that's used to measure the wavelength of visible light - according to Mr Lee, who has worked in the optics field for about 20 years.

Demand will come from companies in America and Europe which will need to outsource more high-precision production as their own labour costs rise. According to Mr Lee, who travels to Europe almost six times a year to visit customers, the cost of labour there is about three times that of Singapore's.

"So, what we need to do is compete with Europe and the US. Their labour cost is higher than us, so we do what they are doing. And they have to change, they cannot stay at what they are doing, otherwise their product price will get higher."

As a result, he said, they are likely to turn to outsourcing. And, if they do, they would turn to companies like Hua Yu.

To be sure, Hua Yu's move would require investments in precision equipment as well as allowing time for trial and error. The managing director claimed he has "(thrown) away a lot of money" and turned down projects while the company fine-tunes its production.

But should Hua Yu make the shift to high-precision manufacturing successfully, it's set to increase sales on average by about 15 per cent a year, said Mr Lee, without putting a timeline to it.

Today, Hua Yu may just be supplying components to original equipment manufacturers but, in the coming years, it aims to become one too. The next step for the firm will be to do more sub-assembly and gradually move on to manufacturing the final products for its customers, explained Mr Lee.

Mr Lee said he has a few German as well as American customers expressing their interest. But he can only do so when the company is ready. He estimates that the firm might need another two to three years' time to make the move into original equipment manufacturing.

AWARD-WINNING

This year, Hua Yu is ranked among the top 10 at the Enterprise 50 (E50) Awards which seek to recognise the 50 most enterprising local, privately-held companies who have contributed to the economic development of Singapore, both locally and abroad.

It is the company's fourth time making the final cut for the awards, having first done so in 2015, 2016 and 2017.

From its start as a company of three - including Mr Lee himself - and paid-up capital of just US$10,000, Hua Yu has certainly come a long way.

"There's no secret, you have to work hard and get the result, right? That's your natural business," Mr Lee said, when asked about the secret to maintaining the company's winning streak.

"It's not only about winning, this is our day-to-day job. We have to work hard and be committed to what we're doing - and we must always be better," he said.