HP to Manage PC Manufacturing Plant in China

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Hewlett-Packard will manage a computer factory in Chongqing, China, part of a strategy to strengthen its operations in the country's less affluent Western region.

The 20,000-square-meter plant will enter operation in 2010 and be used to produce desktop and laptop PCs, as part of an agreement struck between HP and the Chongqing municipal government. HP did not disclose what the production capacity of the plant will be, but said it will have the capacity to meet market demand in Chongqing as well as other parts of China."

HP did not detail the amount of investment or who will provide the funds required to build the factory, only describing it as an "HP-managed plant."

Chongqing, a city that is administered by China's central government, lies next to Sichuan province in southwestern China. The city, including surrounding areas, had a population of 28 million in 2006, according to official figures.

Much of the growth now taking place in China is happening away from the country's relatively affluent coastal areas. The country's interior and smaller cities and towns are growing at a much faster rate, albeit from a smaller user base, and PC makers are competing for buyers in these markets.

Nevertheless, PC vendors rarely build their own plants these days, as most production capacity is provided by contract manufacturers that have more experience in manufacturing and managing the complex web of suppliers required to build computers. This strategy, upon which HP relies heavily, means the company can keep inventory expenses low and enjoy lower production costs that contract builders achieve through experience and economies of scale.

In the case of the Chongqing factory, government backing appears to play a crucial role. HP cited Chongqing's work force and "development conditions offered by the local government" as factors behind its plans to operate the plant, it said in a statement.

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