“If it goes on like this, we will be eliminated from the market,” said Jiang Zhou-rong, the 66-year-old president at CSTEK Co. Ltd. in an executive meeting two years ago. During his several decades at the helm of the company, it was rarely seen that he spoke with such a harsh tone.
CSTEK is a long established sewing machine company in the industrial area in Taichung City, central Taiwan. It has been an original equipment manufacturer for Brother and Janome, two world-famous Japanese brands, as early as 50 years ago. At its prime, the sewing machine industry in Taichung was worth somewhere between NT$8 billion (US$263.7 million) to NT$9 billion, but now dwindles to two-thirds of that worth. As the second generation of his family, Jiang is aware of the crisis in the traditional OEM industry and has begun taking small orders from various startups.
Yet, he found that senior employees did not think much of those orders and were not enthusiastic about them. “I talked to several senior executives afterwards and they said it felt like being stricken in that meeting,” said Jiang’s son and CSTEK Vice General Manager, Jiang Quan-zhe. “You see, all you have to do is put hops and other materials here, press the panel, choose the mode you like, and you can brew your beer at home.” Jiang Quan-zhe said as he operated an intelligent brewing machine that looked like a small refrigerator.
The machine is an Internet of Things product commissioned by three young Hungarian men, and it accounts for half of CSTEK’s monthly revenue. Every month, there are 200 of these machines shipped to 41 countries worldwide. Whereas sewing machines used to constitute 100 percent of CSTEK’s revenue, this has now dropped to 10 percent. The company’s revolution attracts even big Japanese sewing machine companies that would like to take a look at how it is done. And, surprisingly, this corporate transformation was made possible the relative youngster Wang Ren-zong, CEO at Taipei City-based HWTrek Corp. It is a story of how a long established company with a 53-year history works with a young team whose members are on average less than 30 years old, to revitalize an outdated production line and carve out a new commercial niche.
HWTrek is an international company that chose its name from the combination of “hardware” and “trek.” Insisting that its name does not have a Chinese translation, the company serves as an internet platform that matches supply chains with makers. Last year, it was the only Taiwan company to become one of Amazon Launchpad’s four business partners.
Amazon Launchpad was launched by Amazon.com Inc., a giant in the global e-commerce, to support startup hardware products, and HWTrek is its hardware-producing partner. There are over 10,000 suppliers from Taiwan and Shenzhen in mainland China, as well as more than 2,000 makers, using the HWTrek platform. Even big traditional Taiwan OEM companies, like Pegatron Corp., Quanta Computer Inc. and Wistron Corp., which used to take only huge-quantity orders, began to collaborate with HWTrek.
Wang had been in both the manufacturing industry and venture capital companies, and he saw two trends that originally developed in separate tracks. First, various Internet of Things products emerged in small quantities from the global market. What they had in common was being unprecedentedly creative, and the product ideas all came from young teams. More importantly, these teams usually did not know how to turn their ideas into manufactured products. More often than not, they pitched an idea on a crowdfunding platform, and once the crowdfunding succeeded, mass production became their biggest challenge.
As for companies in the traditional manufacturing industry, they were accustomed to providing large-quantity OEM service for a handful of clients. Although they had already been pressured by the fact that orders went to low-cost manufacturers and the gross profit for OEM was increasingly lower, what they did in response, given their unfamiliarity with the Internet of Things market, was still the old way of going to trade shows to try out their luck and sending salespeople to look for new orders door to door.
“Now, there are customers at the needs end who were raised in the internet age. They satisfy their needs for supply chains through internet searches. If companies at the factory end don’t have access to the internet, they won’t be able to find these people,” Wang said.
So, Wang bridged the gap between the new creativity and the old manufacturing, matching factories whose producing powers lay idle with American and European makers who have manufacturing needs. HWTrek currently has 37 employees, its backbone being 12 project managers from countries like Germany, the U.K. and U.S. These managers, coming from such manufacturing giants as Foxconn Technology Group, Quanta, and Texas Instruments Inc., all have previous experience in the manufacturing industry. On average, they maintain 200 projects on hand. Those estimated to have special market potential will be coordinated according to respective progress, with project managers working to solve communication problems between the needs end and the production end, as carefully as if they were watching over babies.
For instance, project managers have to help the needs end find the most suitable OEM factory, because an Internet of Things product is complicated in design, and one OEM factory may only be responsible for a small part of it. As for the supply chain end, project managers will involve all the related upstream and downstream suppliers for a project in collaboration to find the best solution for a product.
For a big traditional original design manufacturing company, such a process will take months. But for a skilled project manager, it takes only two hours to complete all the communication and collaboration on an internet platform. In addition, since small orders are aplenty, there is no need to withhold from contributing to the discussion for fear of being undercut by business competitors.
Take CSTEK’s intelligent brewing machine for example. CSTEK specializes in metal molds and is not familiar with batteries. Therefore, HWTrek matches CSTEK with battery suppliers to forge a complete supply chain.
This operation model transforms old habits in the traditional manufacturing industry on the one hand and resolves what plagues startups on the other. JD.com Inc., a mainland China-headquartered e-commerce firm, Legend Star, whose parent company is mainland China-based Legend Holdings Corp., and U.S.-based venture capital outfit WI Harper Group recognized the model’s merits and invested a total of US$4 million.
Three years ago, Wang once worked for six months without being paid. And for three months, he was unable to pay his team a penny. There was a time when he ran up against a snag and was called a liar. Big companies in traditional industries were not familiar with Internet of Things and refused to change.
During that time, he and his team went around Taiwan, visiting factories in the industrial areas or next to the industrial roads. They tried to convince long established companies to accept new ideas, reach out to new clients and transform into an Internet of Things model. Most often, he was called a liar right to his face or was given direct refusals by factory owners. These factory owners either said Internet of Things did not interest them or complained that startup orders were too small for their interests.
According to a staff member in a public company who wishes to remain anonymous, those big bosses were still reserved about Internet of Things startups even after being convinced to partner with HWTrek. “From their perspective, this feels more troublesome than the old fashion way of making money,” said the anonymous staff member. Those big bosses preferred the old-fashioned, large-quantity orders. In this way, getting big new clients does not require companies to change their structure and procedures. Taking small-quantity, highly varied and complicated orders, however, means those original structure and procedures have to be transformed. And this could draw opposition not only from big bosses, but also from senior employees who are familiar with the established practices.
It was this kind of attitude that resulted in Wang being shut out by 70 percent of the factories he approached. And of the 30 percent that did grant him a meeting, only 10 percent agreed to partner with his platform. As promising results were hard to come by, Wang also had a difficult time securing potential investors. According to Wu Rong-zhan, vice president of supply chain operations at HWTrek, who has known Wang for over 10 years, Wang has never shown frustration or stress even when things gets rough.
However, what the team does not know is when Wang, who spends three-quarters of a year seeking overseas funds and resources, lingers in one of those big international airports, watching passengers come and go, he finds himself most susceptible to self-doubt. “Will this end up being a money-losing business? Will this eventually be just another small business?” He will ask himself these questions in such moments. And, when trapped in the whirlpool of doubts, he will remind himself of why he started the entire business in the first place.
“If your ideas can change the society, then why not give them a shot? If you believe your ideas are what society needs or what should happen in society, then you should make them happen,” Wang said.
So, how does Wang, a self-proclaimed perfectionist and pessimist, estimate his chances of success? “A 10 percent chance of success, but statistically speaking, the chance was good.”
He started his business while thinking there was only a 10 percent chance of success. But now international investors buy into his ideas, and no one in Taiwan can challenge his dominant position in the field.
Why was he willing to give it a shot when he believed there was only a 10 percent chance of success? “For a perfectionist, life either scores 99 points out of 100, or it scores zero. Since you have not yet scored 99 points, will you be afraid of scoring 70 points? No, because it’s the same thing as scoring zero,” he said.
After three years of hard work, the percentage of Taiwan factories willing to grant HWTrek a meeting increased from 30 percent to 70 percent. Though this young company that treats talented people as its biggest investment is yet to earn a profit, the quickly doubling membership count of the platform is what convinces the stockholders to pay the bill. In its first year, the platform had over 2,000 members. The number rose to 5,000 in the second year and to more than 10,000 in the third.
Three years ago, no one had faith in Internet of Things. But now even Terry Gou of New Taipei City-headquartered Hon Hai Precision Industry Co. Ltd., which trades as Foxconn, has announced to devote 30 percent of the company’s resources to support-makers. And when the tide rises, Wang, who has dedicated himself to this field before everyone else, will be on the top of the tide. “We have yet to see an eligible competitor in Taiwan,” he said.
According to the analysis of Li Ji-ren, a professor from the Department of International Business at National Taiwan University in Taipei City, there exists an information asymmetry between suppliers and startups with hardware needs. The value of HWTrek lies in its ability to remove such an asymmetry. But he also said that one big challenge for HWTrek in the future will be how to increase its members’ loyalty and adhesiveness and provide values beyond matching. For once the one-stop shopping factories enter the scene, the intermediary platforms may be skipped.
His new challenge is to keep looking for the moments when needs change. And the question Taiwan should be asking is: “How is this to be done?”
Wang believes that the needs for a platform in the Internet of Things age will not be short-lived, as such needs represent a service industry whose core issue is to solve problems for its users. “A project manager will want to work on an intelligent microwave after he finishes with an intelligent refrigerator.” So, a skilled project manager is the key to the platform being a babysitter in addition to being a matchmaker.
But Wang also acknowledges that the challenge now is to find new needs end, that is, endless needs. And JD.com Inc.’s investment in HWTrek’s shares has the dynamic to bring in new needs. JD.com Inc. owns the largest crowdfunding platform in mainland China, which is a source for new manufacturing needs. And it is devoting its resources to an intelligent hardware incubator project, for which HWTrek can help find a supplier solution.
“Taiwan industries have come to the moment of change,” Wang said. But he thinks these industries, long accustomed to customization for large scales and large standards, have yet to realize this. “People from other countries are already doing this, but People in Taiwan are still asking ‘why do it’,” he said. The question the Taiwan industries should be asking is: “How is this to be done?” And what HWTrek wants to do is to become the go-to human resources company for the manufacturing industry.
Through the HWTrek platform, CSTEK has transformed from a traditional ironworks, so to speak, into an Internet of Things armory, with an annual revenue of around NT$600 million. Back to 50 years ago, Jiang Zhou-rong could never have imagined that the sewing machine factory inherited from his father should one day start making intelligent brewing machines, coffee machines and even chairs that can adjust height according to users’ health conditions. Now the company’s gross profit is as high as 40 percent. CSTEK later indirectly introduced more than 20 companies in the industry to HWTrek, and such word-of-mouth effects in the manufacturing industry in central Taiwan gave those young people at HWTrek more opportunities to collaborate.
How a long-established company and an internet startup grow together is the story of the new economy thriving in the seemingly dark corner of made-in-Taiwan. (E)
[By Li Xin-yi / tr. by Hsieh Meng-tsung]