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Top learning from china trip

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Top learnings from Chia Trip - On Shenzhen, On Making, On Manufacturing

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Top learning from china trip

  1. 1. Learnings from China: Making and Manufacturing
  2. 2. 2 Beijing Maker Space InnoConn … Seeed Studios PCH International Foxconn HAXLR8R Li & Fung Huaqiangbei Shenzhen factories … Terry Cheng David Li Bunnie Huang Eric Pan Liam Casey GE FirstBuild … Xinchejian Fab Lab DFRobot Innovation House … Many conversations and visits over the course of 10 days…
  3. 3. Top Learnings from China: #1 “Hardware is not defensible” #2 Scale manufacturing is very different from ‘Making’ and ‘Prototyping’ #3 Makers need help for DFX #4 Small run manufacturing and “order of 1” #5 Building a product vs building a brand #6 American big brands are holding strong in China #7 Size matters #8 “Big retail is killing innovation” #9 Speed to market is king #10 China’s maker movement is deeply embedded in strong manufacturing expertise #11 Build to order vs build to stock #12 A new approach to supplier relationship #13 Catalysts play an important role in connecting desperate worlds #14 Hardware innovation space is heating up ….. 3
  4. 4. Learning #1 “Hardware is not defensible” - Cyril Ebersweiler, HAX 4
  5. 5. Member Firms and DTTL: Insert appropriate copyright (Go Header & Footer to edit this text) 5 Slide credit: Eric Pan, Seeed Studios Hardware can be easily reverse engineered
  6. 6. 6 What used to be a tablet factory is now producing many variations of electric uni-bikes
  7. 7. Member Firms and DTTL: Insert appropriate copyright (Go Header & Footer to edit this text) 7 Slide credit: Eric Pan, Seeed Studios What is defensible? • Software • Community “Direct relationship with the consumer is crucial ” “Our core value is in software. Hardware is just a vehicle. ”
  8. 8. 8 Slide credit: Eric Pan, Seeed Studios Xiaomi • Weekly builds, direct sale • Fan community • “Design as you build”
  9. 9. “Protection of IP takes the form of complex manufacturing or product, community and cloud based services that are hard to reproduce outside of the hardware itself” - Idan Beck, HAX Fund 9
  10. 10. Learning #2 Scale manufacturing is very different from ‘Making’ and ‘Prototyping’ 10
  11. 11. Member Firms and DTTL: Insert appropriate copyright (Go Header & Footer to edit this text) 11 Even in Shenzhen, hard tooling still take up to 20 days due to the level of precision and raw material required
  12. 12. Member Firms and DTTL: Insert appropriate copyright (Go Header & Footer to edit this text) 12 Many product lines are still shockingly labor intensive 1 160 worker required on a line manufacturing a charge cord
  13. 13. Wage has been increasing Employee benefits has significantly improved 13 Application of robotics in manufacturing ranges significantly with production line from extremely labor intensive to highly automated 1100 1320 1500 1600 1808 0 500 1000 1500 2000 2010 2011 2012 2013 2014 Minimum wage in Shenzhen (RMB/Month) Manual labor vs automation
  14. 14. Member Firms and DTTL: Insert appropriate copyright (Go Header & Footer to edit this text) 14 150 engineers to design the ‘perfect clasp’
  15. 15. Member Firms and DTTL: Insert appropriate copyright (Go Header & Footer to edit this text) 15 Large contract manufacturers have deep expertise in testing and inspection • Durability testing • Functionality testing • Environmental examination • Physico-chemical examination …
  16. 16. Learning #3 Makers need help for Design For X 16 Manufacturability Power Variability Cost Yield Reliability …
  17. 17. “Quirky had a great industrial design, but the engineering would not have passed the regulatory specifications” 17
  18. 18. seeed studios Open Parts Library Collection of most commonly-used components Increase development efficiency Shorten lead time DFM ready 18
  19. 19. King Credie & Kosagi Flexible PCB Member Firms and DTTL: Insert appropriate copyright (Go Header & Footer to edit this text) 19 Mutual respect is needed to take advantage of both sides
  20. 20. Learning #4 Small run manufacturing and “order of 1” 20
  21. 21. Doing small run manufacturing economically Using excess capacity Leveraging existing resources Member Firms and DTTL: Insert appropriate copyright (Go Header & Footer to edit this text) 21
  22. 22. Member Firms and DTTL: Insert appropriate copyright (Go Header & Footer to edit this text) 22 Other incentives for factories to work with makers: Building up capability Getting involved early Investment mindset
  23. 23. Learning #5 Building a product vs Building a brand 23
  24. 24. Leverage the best of both sides Member Firms and DTTL: Insert appropriate copyright (Go Header & Footer to edit this text) 24
  25. 25. Different strengths for West and China 25 Short term demand Sustainable demand UnbrandedBranded Shanzhai phones Tinno Mobile Wiko Successful kickstarter campaign Chinese companies generally are good at building commodity at a competitive price Western companies can create brand through customer experience
  26. 26. Driving sustainable demand is the key to cross “bridge of death” 26 Slide credit: HAXLR8R
  27. 27. Learning #6 American big brands are holding strong in China 27
  28. 28. Member Firms and DTTL: Insert appropriate copyright (Go Header & Footer to edit this text) 28
  29. 29. Learning #7 Size Matters 29
  30. 30. Member Firms and DTTL: Insert appropriate copyright (Go Header & Footer to edit this text) 30 Sizemattersfor Prototyping
  31. 31. Member Firms and DTTL: Insert appropriate copyright (Go Header & Footer to edit this text) 31 Sizemattersfor Manufacturing
  32. 32. Member Firms and DTTL: Insert appropriate copyright (Go Header & Footer to edit this text) 32 Sizemattersfor Fulfillment/Shipping
  33. 33. Learning #8 “Big retail is killing innovation” - Liam Casey, PCH international 33
  34. 34. Big retailers control direct access to consumer and pushes additional cost to manufacturers  A significant portion is spent on multiple intermediary costs E.g. inventory management, forecasting, distribution  Final sales price is usually 5x COG for most manufacturing segments Member Firms and DTTL: Insert appropriate copyright (Go Header & Footer to edit this text) 34 COG Inventory/ Distribution Branding/ Marketing
  35. 35. Ocean freight cargo 3 months Air freight 5.5 days 84 additional days to sell Member Firms and DTTL: Insert appropriate copyright (Go Header & Footer to edit this text) 35 • 15 day payment terms • WACC for three months vs. air freight PCH partnership with RadioShack
  36. 36. Learning #9 Speed to Market is King 36
  37. 37. “Speed 速度  Shenzhen speed 深圳速度” – PCH Member Firms and DTTL: Insert appropriate copyright (Go Header & Footer to edit this text) 37 “If you need a part, you can order it and have it delivered the same day” – HAX
  38. 38. Shanzhai phones: rapid responsiveness to the market
  39. 39. “In our business, time is the number one currency.” – Liam Casey, PCH Member Firms and DTTL: Insert appropriate copyright (Go Header & Footer to edit this text) 39
  40. 40. Learning #10 China’s maker movement is deeply embedded in strong manufacturing expertise 40
  41. 41. 41 Millions with deep manufacturing knowledge
  42. 42. Mobile recycling market Member Firms and DTTL: Insert appropriate copyright (Go Header & Footer to edit this text) 42 Mobile recycling market
  43. 43. Member Firms and DTTL: Insert appropriate copyright (Go Header & Footer to edit this text) 43 Tacit knowledge on components and manufacturing
  44. 44. Member Firms and DTTL: Insert appropriate copyright (Go Header & Footer to edit this text) 44 Not many hardware hackers (yet)
  45. 45. Member Firms and DTTL: Insert appropriate copyright (Go Header & Footer to edit this text) 45 Huaqiangbei – Responsiveness to market trend Economic value driven
  46. 46. Learning #11 Build to order vs Build to Stock 46
  47. 47. Build to order examples: Local Motors Kickstarter campaign Xiaomi Member Firms and DTTL: Insert appropriate copyright (Go Header & Footer to edit this text) 47
  48. 48. Learning #12 A new approach to supplier relationship 48
  49. 49. 49 Long-term vision Beyond compliance Mutual economic benefit Social impact Supplier Facility Upgrade Program Technical and financial assistance Staff engagement Supply chain transparency by creating a comprehensive factory evaluation, qualification and development tool set
  50. 50. Learning #13 Catalysts play a valuable role in connecting disparate worlds 50
  51. 51. Imperfect market Many shanzhai items remain as hidden gems in Huaqiangbei even to the locals Most consumers in the US are not aware of ecommerce channels such as AliExpress Member Firms and DTTL: Insert appropriate copyright (Go Header & Footer to edit this text) 51
  52. 52. People are take advantage of the gap of disparate worlds – in both ways 52 Aliware – repackage a product sourced on Alibaba Kickstarter to demohour
  53. 53. Member Firms and DTTL: Insert appropriate copyright (Go Header & Footer to edit this text) 53 Bunnie Huang Terry & Friends David Li Eric Pan Cyril and Ben (HAX) Liam Casey (PCH)
  54. 54. Learning #14 The hardware innovation space is heating up 54
  55. 55. Previously friendly partners are increasingly seeing each other as competitors Big and small players are all jumping in to participate Roles are constantly evolving The question is – who does what in the space? Member Firms and DTTL: Insert appropriate copyright (Go Header & Footer to edit this text) 55 Name Start date HAX 2011 Lime Lab 2012 Highway 1 Mid 2013 Innoconn Early 2014 Kick2Real Early 2014 …
  56. 56. Chinese government (national and local) is throwing money into the space 56
  57. 57. Anything else? Let us know! Duleesha Kulasooriya dkulasooriya@deloitte.com Mengmeng Chen mengchen@deloitte.com 57

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