Every year, seven million weighing scales bearing the Terraillon brand come out of a 50,000 square-metre factory that employs 2000 people in the booming southern Chinese city of Shenzhen. This is not, however, another example of a Western company offshoring in China to take advantage of cheap labour costs.

Terraillon, a symbol of French know-how in design and manufacturing of bathroom and kitchen scales, is now a Chinese company, owned by the wealthy Chai brothers of Hong Kong. Their company, Fook Tin, a manufacturer of electronic products, used to be Terraillon’s main supplier until the up-and-coming entrepreneurs bought Terraillon which had suffered much turmoil in 2002. Under Chinese ownership, Terraillon has regained stability and is thriving in world markets.

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At a time when Western investors are pouring billions of dollars into China, the Chai brothers’ venture shows how Chinese industrialists are also busy buying Western companies in a drive to become world players. “It’s quite normal,” says John Chai, Fook Tin’s joint managing director. “Twenty years ago, doing business with a foreign company was quite a novel thing to do. Not much attention was being paid to strategic alliances. Since the late 1990s, consumer electronic companies have tried to enter into exclusive supplier agreements or go into mergers and acquisitions.”

 

 

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Fook Tin group's joint managing directors: John Chai (left) and brother Sunny Chai

 

What was the rationale for the Terraillon acquisition? “We have been Terraillon’s strategic partners for the last 12 years,” says Mr Chai. “There are strong synergies between the two companies.” Fook Tin is very good in the manufacturing and R&D of consumer electronic products. Terraillon has a profound knowledge of the market. We are also financially very stable, and that helps win market share.”

Healthy order book

Fook Tin is swamped by orders as it surfs on a worldwide wave of demand for health-related products. The Chai brothers are building another factory at a nearby site in Shenzhen that will increase capacity by 50%. Fook Tin now exports Terraillon scales to 70 countries. In France, the brand has regained a leading position and holds almost half of the market. The scales are also popular in Germany, Spain, Italy, South Africa and Australia. Double-digit growth of the market should raise Terraillon’s sales of e45m by 7% this year.

When Terraillon became Chinese owned, the French had to swallow their pride. Now that offshoring has become a sensitive issue in France, there is considerable relief that a Chinese investor has allowed this French household name to live on.

Company history

Terraillon’s story began back in 1947 when Paul Terraillon, a young engineer from Annemasse in Haute Savoie near Geneva, began to design and build kitchen and bathroom scales. He met with immediate success. Design was a strong selling point. In 1970, his kitchen scales were shown at the New York Museum of Modern Art, and they are still there today. Trouble started in the 1980s, when the company was stifled by rising domestic competition and R&D costs.

Terraillon was bankrupt when flamboyant French entrepreneur Bernard Tapie bought it in 1981. But Mr Tapie was unable to sort out Terraillon’s problems and when he ran into trouble himself, the company also suffered. Some 300 employees of the Annemasse factory lost their jobs and Crédit Lyonnais took over the company’s assets.

Then entered Chris Duggan, an Irishman who was a Terraillon manager and is now the company’s CEO. Together with Terraillon’s management team, he organised an MBO-MBI with an Irish venture capital fund and turned Terraillon’s fortunes around. “The venture fund sold it profitably to MSI, an American electronics company,” he recalls. That proved to be bad luck. MSI’s shares dropped on Wall Street. MSI had to sell. Despite its recovery, Terraillon looked as if it was about to become an orphan until landing on the safe shores of Hong Kong.

 

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Terraillon’s BX206 kitchen scales: design has been one of the company‘s main strengths since inception

 

East-West test case

Terraillon’s prestige makes its interaction with its Chinese shareholders a test case for what Chinese-Western relations might become as Chinese entrepreneurs assert themselves in world markets. “Terraillon is now stable,” states Mr Duggan. “It has entered into a long-term ownership relationship with the Chai family and we expect it to remain so.”

Mr Duggan talks daily with Sunny Chai, Fook Tin’s managing director in charge of operations, and weekly with John Chai, who is responsible for administrative issues. “We have known each other for a long time,” he adds. “We are comfortable with each other. We can communicate in a casual way.”

Despite the long-term relationship, cultural differences remain an issue. “The most difficult part is the language barrier,” says Mr Duggan. Everyone speaks in English, but differently. “We have English spoken by French people, by native English speakers and by people from Asia. We have to be very careful, particularly on the phone, to avoid misunderstandings. We succeed more often than we fail,” he adds.

Acquiring Terraillon may have been a bold new step, but it follows on naturally from the rise of the Chai family. John and Sunny Chai’s father, Chai Man Chung, began by working as a toolmaker. He founded Fook Tin – which translates into English as ‘rich field’ – in 1963 as a modest producer of plastic toys. Fook Tin later expanded into mechanical and battery-operated consumer items before moving into the profitable business of mechanical scales. As the industry adopted electronics and computers, Fook Tin included them in its bathroom scales.

The group’s R&D is largely carried out in Hong Kong and Shenzhen. However, mindful of French sensitivities, the Chai brothers have kept a large R&D operation in Annemasse, where 120 engineers work tirelessly on new products. The most spectacular breakthrough is the TFA 100, scales which tell you how many calories you may consume a day to lose weight and which measure body fat and body water content.

Local recognition

The Chai brothers achievements have not gone unnoticed in the Hong Kong industrial community. Fook Tin has won many awards and Sunny Chai has been named Hong Kong young business person of the year by the Federation of Hong Kong Industries.

Terraillon aims to grow to be a world leader in health-related household products. Chinese drive and French flair might just do it.