SEM move production to China

SEM move production to China The Board of Opcon AB has decided to relocate production of ignition systems for small engines in China. This segment is currently worth SEK 60 million in sales turnover for SEM. SEM AB, which is located in Åmål, Sweden, has been manufacturing engine ignition systems for cars, motorbikes, boats and equipment such as chainsaws for nearly 90 years. The company is today the world leader in its field. The ignition system segment for small engines has been making a significant loss in recent years due to competition from companies in low-cost countries. These competitors sell their products in US dollars and the weak level of the dollar has been another factor that has made it hard for SEM AB to compete and maintain profitability. The global market for small ignition systems is estimated at 50 million systems per year. To get to grips with profitability problems in this segment, the Opcon Board has investigated various measures, including a sale of the product group, decommissioning or the movement of production to a country where costs are lower. Following its analysis of the situation the SEM Board has now recommended moving operations to China. This move has the support of the company's main customers. Based on current turnover the cost saving is estimated at around SEK 20 million. The move will be in stages and should be completed by the end of 2005. The Opcon Board's recommendation is based on the awareness that China is not only a low-cost country for production but also will be the largest market for the company's products. This measure is also in line with Opcon's established strategy for achieving increased growth and a higher return for investors. "While production will be moved to China in stages there are plans for new production of ignition systems for more environment-friendly gas engines and the growth of REAC AB, a subsidiary of SEM, which has its production in Åmål. This will mean that moving operations to China will have a limited effect on manning levels," explains Svein Valheim, Managing Director of SEM AB and REAC AB. Moving production to China will cut production costs considerably, which will help SEM to improve its competitive edge. SEM can also swiftly win market shares by selling ready-made systems to new and existing customers when the profit margin improves with a lower cost base. "There is obviously a strong motive for making this decision when you consider that the potential market is 50 million units and SEM currently produces just one million units per year. A marketing campaign will be started immediately with the aim of winning new customers," adds Svein Valheim. SEM is Opcon's largest subsidiary and is expected to have sales turnover of around SEK 140 million this year. SEM currently has around 160 employees of whom around 60 are involved in the production of small ignition systems. ------------------------------------------------------------ This information was brought to you by Waymaker http://www.waymaker.net The following files are available for download: http://www.waymaker.net/bitonline/2003/11/03/20041004BIT20610/wkr0001.pdf