A few months ago customs officials in Hamburg, Germany, impounded 250,000 kettles shipped from China and on their way to Russia.

The "seize and destroy" operation was hardly the stuff of international news but it caused quiet pleasure at a small company based on the Isle of Man, located off England's north-west coast.

The privately owned STRIX is the world's biggest maker of small thermostat control systems used in kettles to stop them boiling dry. With sales last year of £85m, it made a pre-tax profit of about £12m, making a 14 per cent ratio, which is high by the standards of most European engineering groups.

Behind the company's success is an emphasis on using intellectual, rather than physical, property as its main competitive weapon.

With less than 1 per cent of its sales in the UK, STRIX has its main plant in China, partly to take advantage of low costs but also to be close to its key customers in the kettle manufacturing business, most of which are based in the world's most populous country.

According to Eddie Davies, chairman and part-owner, the model for STRIX's growth is Intel - the US company that is the world's biggest maker of microchips.

While kettles are a less glamorous sector than semiconductors, STRIX has attempted to emulate the Californian company's approach to protecting its technical secrets and branding.

"The comparison with Intel is appropriate as many of our customers in the developing markets often put stickers on their packaging saying that there are STRIX controls inside [to differentiate themselves from others using competing or counterfeit controls]," Mr Davies says.

The recent operation in Hamburg, partly orchestrated by STRIX in combination with UK customs staff, demonstrated some aspects of the company's strategy. The kettles seized by German officials had been made in China and were fitted with counterfeit copies of STRIX's devices, which it has protected with 250 patents.

If the kettles had been allowed to continue on their journey to Russia, the world's biggest market for kettles and other related electric devices for boiling water, the potential for STRIX's own sales in that country might have been hit.

Mr Davies says there are 10 companies based in China that routinely copy STRIX's controls and, in some cases, try to pass off their own products as made by STRIX. Its a huge problem, says the STRIX chairman, who grew up in north-west England where he retains strong ties as a director and owner of Bolton Wanderers, the Lancashire-based Premiership football club.

Mr Davies has a manufacturing background and bought into STRIX in 1984. That was three years after the company, which is 40 per cent owned by the venture capital group Montagu Private Equity, was started by John Taylor, who retains a stake in the business.

STRIX has three full-time staff who work on combating copying, either through tracking down the sources of the counterfeits and working out where they are ending up or on working with government authorities to crack down on the problem.

In addition, the company has 40 employees in research and development. These staff are involved both in trying to devise new controls that either work better or are more difficult to copy and in helping to steer STRIX into new fields outside the kettles business - such as controls for electric coffee machines.

STRIX claims to command 70 per cent of the world's kettle controls business, with most of the rest shared by China-based groups (including the copyists) and Otter Controls, a UK com pany that Mr Taylor worked for before quitting to start STRIX.

Round the world, about 50m kettles are made every year. Since most of them sit on a "plug-in" stand that connects to the electricity network and also requires its own control, STRIX's high market share means it makes about 70m controls a year.

More than two-thirds of these are manufactured in China, where costs are a fraction of their UK equivalent due to low labour costs and good local availability of plastic and copper.

With 700 employees in a factory near Guangzhou in southern China and another 300 in the Isle of Man and in other operations in the UK, STRIX has cut the costs of manufacturing by 20-30 per cent by moving more production to China, says Patrick Tam, head of STRIX's China activities.

"Within a few years, we hope to bring the difference [in the costs between manufacturing in China and the UK] to 50 per cent," he says. "Our experience of setting up in China and employing people here has been excellent."

As to why STRIX continues with a UK operation at all, given that its main customers are predominantly outside this country, Mr Davies insists that most research and development and prototype production will remain in the UK. He explains that, on grounds of intellectual property protection, it is vital that the core of its controls, the part that causes them to operate as a switch, continues to be manufactured outside China.

These components are small blades based on three layers of metal that are responsible for the control system springing open or shut, according to temperature, thereby breaking an electric circuit. "We make the blades using a top-secret process on the Isle of Man and then ship them to China," says Mr Davies. "We would never produce them in China because the risk of competitors finding out about the technology would be too great."

STRIX's low costs of manufacturing, plus a its strong market position which that gives it the ability to charge relatively high prices for its controls, provides the company with gross profit margins that, although not disclosed, are believed to be 40-50 per cent. This is an extremely high figure for a production company and not much less than Intel's gross margin, which is 56 per cent.

A company's gross profit is its sales minus costs of production excluding overheads and research and development expenses. Intel's gross profit last year was $17.1bn (£9.5bn) on sales of $30bn. A gross margin of more than 40 per cent for a manufacturer is considered good because it gives the company the chance to generate substantial sums of cash on its activities, irrespective of the overheads spent supporting production.

Looking ahead, Mr Davies says that the kettle industry worldwide is expanding at 6-8 per cent a year as more consumers turn to such products, not just for making tea or coffee but also for a variety of other uses such as boiling water for instant soup. He says that, while most China-based kettle makers export most of their products, China will itself become the world's biggest market for kettles, which is another good reason for STRIX to have a sizeable presence there.

"Within the past five years, sales of kettles in China have grown from practically nothing to 5m a year, putting the country behind Russia and also Germany [with sales of about 7m kettles a year] and the UK [6m a year]," says Mr Davies. "But with the pace of economic expansion in China, I can see China soon edging ahead."

An astute businessman, Mr Davies is talking about the possibility of Bolton Wanderers taking part in a tour of China, which could be at the end of the 2004/05 season, to promote the cause of Premiership soccer, a big subject for many football-loving Chinese. Assuming the tour goes ahead, STRIX could decide to sponsor the event, giving the Isle of Man company the chance to strengthen its image in China while helping to bring Bolton's season to the boil.