Episode #4 – The Advantages and Challenges of Manufacturing in China with Case Engelen of Titoma
In this episode we discuss the advantages and complexities of manufacturing electronic hardware products in China and Taiwan.
I am interviewing Case Engelen who founded a company in Taiwan called Titoma which specializes in manufacturing electronic hardware products.
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Case Engelen, Founder of Titoma
Links mentioned in the show:
Titoma.com
sofeast.com
TheHardwareAcademy.com
Podcast Transcript:
John Teel: Welcome to the Predictable Designs Podcast where we discuss all things related to developing, manufacturing, marketing and selling successful new electronic hardware products. I’m your host John Teel. This is episode number four. Today I’m speaking with Case Engelen, who is the founder of a company named Titoma. Titoma specializes in manufacturing electronic hardware products and is based in Taiwan. Welcome to the show, Case.
Case Engelen: Thanks, John. I’m from Holland, my name is Case Engelen. I went to Taiwan about 25 years ago, and I’ve been living happily there ever since with some stint in China as well. Originally, I went there to learn the language and then I got into industrial design. I started representing a Dutch design firm. Did that for five years or so with a very international team.
That was all nice and cool, but the problem is a bit if you’re a design consultant, then you tell the bosses of the factories that you’re working with– that this is our design, and this is how it should be implemented, and they say, “Yes, yes. Yes, yes.” but then they make their little tweaks and leave the rest to us and what comes out is often not quite the way you had envisioned it. So being a bit of a control freak, we decided to really take the whole process from start to finish all the way from design to delivering the final products. That’s why I started Titoma, which stands for Time To Market.
John: Okay, great. So you had not been involved in manufacturing before– You began your career in manufacturing after you had already moved to Taiwan so you didn’t have experience from Holland in manufacturing and then located to Taiwan?
Case: No, no, no. Full disclosure, I’m not a EE or an engineer even. I really trained on the job there. Being in Taiwan, working in the electronic products, designing, then getting them prototypes made, that’s how I slowly got into the business.
John: Okay, interesting. Sometimes that can be one of the best ways to learn is from direct experience. A lot of obviously manufacturing and obviously engineering you study in school, but manufacturing is definitely one of those things I find that you have to learn as you go to some extent.
Case: Yes, and there’s always so many details and a lot of heads need to know about mold making, about injection parameters and the PCBs and the certifications. There’s a great many fields of experts you have to juggle. The way I got into this in Taiwan I was working with all these great factories and I thought, “Well, hey, these guys they know their stuff and I’m going to work with overseas clients from the US and Europe and they need something done and we’re going to do it ODM way.”
That is where a factory that is already making say a digital signage or an MP3 player or whatever it was at that time, then the client wants something similar and we just give it a nice design and then further rely on the factory to do all the other stuff. They have been doing that for 10, 20 years, they know their job, they have seen all the potential problems, they have negotiated all the prices for all the components, they have tested all the possible– how can you ever be that experienced just trying to go from zero? That was the model I ran with for like five or six years and then we got rather frustrated with that approach. Then the main thing is that you have to wait for a long time.
For many factories, product development is not really the core thing, of course, they make their production lines, some. If they can help it, they would work on existing orders and big clients that already are manufacturing. If you are a new client to them with a new product, that there are all these pesky details that need to be worked out, very often that is not the highest priority for them. Every factory they have their little whiteboard with their top priorities to work on this week. That little design projects for unproven customer is very often on the bottom of that ranking. It takes a lot of patience and a lot of talking and talking and, “What is the progress?” [crosstalk] very frustrating.
John: Yes. It’s something I’ve dealt with and talked about in the past, because a lot of people, startups, or entrepreneurs want to look to a manufacturer in Asia to do the development of the product, and that has a lot of complexities. It tends to be one of the cheapest routes to go but also like you just said, you’re going to get the lowest priority. They’re obviously going to focus on the large customers that are actively manufacturing and not the development of some potential product that may do well in the future. I think that’s something that I see a lot is people hoping to find a manufacturer to develop it.
In general, I tend to encourage people that you have to think of development. It’s different than manufacturing a lot of I think people without experience, they think, “Okay, I have a prototype now I need to find a manufacturer to manufacturer it.” but they skip all those pesky details that have to come out as part of the development. From my experience, I’ve found that China or perhaps Taiwan is great and fantastic in manufacturing, but doing product design isn’t their core strength, as you said.
Case: They are really good at it. For example, Nest was designed by a super team of ex-Apple hot rod engineers, but that whole product was completely redesigned, optimized from a factory in Taiwan.
John: Okay. There was an original design for it, but it wasn’t one that had been done for manufacturing and then the manufacturable design was done in Taiwan?
Case: Yes. That is very often the way it happens. That is one of my big insights is really that there is no universal done design for me. There is no one best way to make it. There is a product design that is optimized for BOPs factor. In your design process, the best way to get to market anytime soon, of course, is to do this in really close collaboration interaction with the factories and the different main components suppliers.
Very often they’re going to give you feedback like, “This design I would do it that way and try to avoid this and that.” and da-da-da. So you optimize for that particular mold shop or that particular factory which has certain capabilities, certain machines, certain suppliers that they have really good relationships with and they got certain components really cheap, other components may need to be imported and are much more expenses. There’s lots of details like that. If you completely optimize your design for Canada, Alabama, and then just put all that in a package and send it over to Taiwan or China, that’s going to create a lot of problem.
John: Okay, that’s interesting. That’s I guess, still better than giving no thought to manufacturing, which is what I see a lot of designs do. They get to the prototype stage and they’ve designed an enclosure for their product that is something that could never be injection-molded without massive changes. That’s one of the things I see, is that people tend to drastically underestimate the complexity to take a prototype and then to set up manufacturing, whether that be– just injection molding, for instance, tends to be one of the big obstacles I find from going from a prototype to full manufacturing is all the rules and limitations and restrictions of injection molding.
Case: Some parts of it can be a bit of a blank art still, like over-molding one part with rubber, for example. You can do mold flow analysis and all that, but even that, you still need to go through a lot of iteration. There we get, I think, through the whole debate on whether you should develop at home or with a factory abroad. I do think that if you’re a startup team and you engineer your own products, really could design, and engineer that up to a point where you really have it working, like you say, the general housing needs to be moldable, needs to be injection molded, and then get some short-run done and get some feedback.
You always need a lot of feedback because there’s always got to be things, aspects, way of using it, there’s a lot of unexpected stuff that is going to happen [crosstalk] the most important points, go slowly, go with 50 units first, and then 200 and then run up.
John: That’s what I had done when I had brought my own product to market, which probably is about seven years ago, is before reaching out to a big manufacturer, I had prototyped the unit multiple times, had done all this development to get it where it could be injection molded. I wasn’t doing injection molding at that point but knew enough and had designed it to be something that could be injection molded. Then I was able to use that prototype to get a big retailer interested and the party expressed interest in the product.
That’s when I started seeking a manufacturer that could, not design the product from scratch, but basically, they went through and did a mold flow analysis and all these different things to optimize the design for manufacturing. I had the product pretty close to being something that could be manufactured. It wasn’t a total redesign, that’s the process I have found works best is if you can work out at least a lot of the details upfront before going to China.
Case: Yes, but I think an important point is that you want to use off the shelf as much as possible. Knowing what is out there, what is available in Asia in terms of components, displays or camera module, is really important. You do not want to pick a nice looking camera module from Digi-Key and then spend nine months optimizing your firmware for it only to come to China and your factory says, “Hey, I have this camera module, exact same specs, but a third of the price. Why don’t you go with that?”
John: Yes. Absolutely. That’s why I tend to encourage trying in the early days sourcing the components from China that you can, and then doing the assembly domestically, at least, till you get far enough along that you’ve got a good control over the quality and the tasking process. I definitely encourage people to source, especially things like cameras and modules, not so much chips but the modules and things like that, to source those from China.
That makes the transition once you are ready to fully transition to China, that makes it a smoother transition, but you also get the price benefit sourcing components because like you said, you tried to look at a camera module or something through Digi-Key, it’s going to be three, four times or more than what you could get something equivalent from China.
Case: Again, it also depends on which factory you’re talking with because they may have a special deal with this or that module maker that if they buy 400,000 a year from them if they hit that target, that 10% off or so, it depends on that factory.
John: Yes, that’s a good point. So the specific solution can depend on the factory that you go with since they may have discounts for certain solutions that you wouldn’t know of in advance when partnering with that- [crosstalk]
Case: Another interesting example was where we designed our product, a certain flavor of STMicroelectronics, STM32, and then the factory said, “Well, this one is rather hard to get and therefore you have long lead times and the prices are rather high, why don’t you go with a slight different flavor that more or less does the same because that is used in abundance here and you can get it in a week, and it’s $1 cheaper.” “Okay.” So we did that and it wasn’t too much work to change from one flavor to the other.
John: Was it still an STM32 or did they switch to a totally different manufacturer?
Case: No, no. Still STM32, but a different flavor.
John: Got you. They have so many different options that I can see for the STM32.
Case: It just happens to be that, for example, that there is a really big factory next door making 100,000 products a week with this particular IC, and you can piggyback on that, so you get a really good pricing.
John: Okay, that’s a great point. That’s interesting. [crosstalk] I’m sorry, go ahead.
Case: Another thing is lead times, that is really in your design. You need to look at the lead times for all the components because if you have one component that has a 32 week lead time, that is a real issue, and from Digi-Key, you can often get it very quickly but in most manufacturing, 32 weeks becomes a problem.
John: Good point. Availability and then our lead time and then obviously long term availability as well is a component nearing its end of the life or anything like that is obviously critical as well.
Case: Yes. That’s true. I often get to see BOMs with components on them that are not really meant to be designed, in their end of life. That is also actually an argument why time to market that’s where a company like Titoma comes from is important because the longer you spend on perfecting a certain design the more problems you’re going to get in terms of components going EOL. Just if it takes too long, you lose momentum with your factory, with your different components suppliers, and you’re not being taken seriously anymore. It really goes down the hill that way.
John: Yes, that’s an interesting point. Then, of course, the whole time you’re doing this, the market’s moving and changing and adapting as well. It’s a moving target that you’re trying to hit. I don’t think weeks make differences, that much of a difference, but years, things can change a lot in a year or two.
Case: Yes. In terms of camera modules, for example, if you’ve designed, started your design two years ago and somebody else has just started six months ago, then you’re completely outclassed by him.
John: Yes absolutely. There obviously certain types of components that change very rapidly like a camera module, for instance. I’m curious, what would you say are some of the biggest mistakes that you see people making when setting up manufacturing in Taiwan or China or Asia in general? This can be specifically for startups but I know that Titoma, you tend to work with more established companies that have other products on the market, but in general, are there any certain mistakes that you see repeated by different people in regards to setting up manufacturing in China?
Case: I think the most important thing whether it’s in China or in the US is to try and find a right-sized factory. You need to be important for the factory. The boss of the factory needs to show up when you come. If not, you’re going to be at the bottom of that proverbial whiteboard and things are going to move very, very slow. The assembly factory that is really where all the different components come together and all the, especially the customized parts or custom parts, plastics or metal bracket, or cable trays, all these custom parts, they are all product developments in their own right. The samples are going to have issues. The pilot run is going to have.
All these problems, they come together in the assembly plants. There is a lot of stuff to be worked out there. The speeds that they’re going to resolve all these issues for you is directly proportional to how important you are to them.
John: Great point. Great point. That was actually one of my questions was, how important do you think it is to find a factory that really believes in the product and sees the vision for it and is excited about it versus a factory that just says, “Hey, we’ll make anything if you pay us for it”?
Case: I’ve had one very successful or had the experience where there was this factory and he was really wanting to go with us in this new more medical style of product development. He was fantastic to work with. If you have their interests and your interests aligned then that is perfect.
John: I also found that it can be how the size of the factory but also how near are they to capacity. From my experience if you find a manufacturer that’s not anywhere near capacity, then they’re going to be more open to new possibilities since they’re looking for new products to manufacturer versus if someone is at full capacity then they don’t really need new customers, is bad, so they’re not going to be quite as flexible working with, especially with a new startup.
Case: Yes. That’s true but this kind of things tend to come and go because the time that they take you on and they give you a really good price and they put all the people on the table discuss the problems, but if then three weeks later they land a really big client, then yes, it’s going to take much longer to get your emails answered.
John: Yes, that’s a good point. That’s definitely one of the upsides I guess, especially from the development standpoint. I’ve heard a lot of people they have an idea and they just want to go right to the manufacturer, and they kind of– I’ll tell them that they’re skipping a major step, and that’s called development. A lot of times you’re going to get a lot much faster response if it’s a development fund that you’re paying to actively develop your product versus a manufacturer who’s helping you with development in the hopes that you’ll eventually manufacture the product.
Although it happens regardless of the situation, I’ve seen lots of stories where someone has hired, not so much with firms, but with freelance engineers, to develop their product and then all of a sudden they get pulled on to a more important project and then all of a sudden the entrepreneur, the startup becomes the lowest priority. I guess regardless of who you’re working with, that’s always a concern when you’re not one of the big players, is you’re going to get moved down in priority.
Case: Yes, and for example with some of the really big guys like Flex and Jabil, they all say that their startups are the future and they’re really important to us and we have the special program, but they tend to work with what they call shared resources and that means you get a project manager who also manages three other programs. Cisco has a big problem, then for the next two, three weeks you’re not going to get your emails answered anytime.
John: Yes. Absolutely. I know that you get a lot of inquiries from startups wanting you to develop or manufacture their product. Do you get the sense that’s kind of a general thing that a lot of manufacturers get inquiries from startups to develop new products?
Case: I cannot speak for a lot of factories, but yes, sure.
John: At least on your experience, obviously, I know that you get a lot of inquiries. I’d known when I found my manufacture, they told me that, “We get pitched new products all the time and 99% we ignore, but we thought this is that 1% that could be an exception.” I know it goes beyond just you that gets a lot of inquiries to develop products and I think that’s just the first thought a lot of people have when they have an idea is they think, “Okay, well, it needs to be made in China. I’ll start reaching out to Chinese manufacturers.”
Case: I think that’s a very important point. You built a really good case for your product because you did a very thoughtful design, you talked with the experts, so many of them, for the housing, and you secured an order with a big-name retailer or brand, that is all stuff that you can tell the factory. Especially as a startup, you really need to woe the factory.
John: Absolutely.
Case: Sometimes I get inquiries, “Yes, I am the chief purchasing officer of a startup this and that, please fill out this 17-page Excel form and, by the way, you were CC-ed as one of the 17 other candidates so far.” That doesn’t go over very well.
John: No, not at all. You definitely have to make progress upfront and so many they get over-focused on the idea and thinking that I’ve got this great idea everyone wants to help with it but it’s really all about the execution. You have to show that you can execute on the idea to some extent before you’re going to get a manufacturer interested because you’re asking them to invest in you and the product, it’s no different than if you were asking just for money. You’ve got to convince them that the product will succeed and that you, even more importantly, that you have what it takes to succeed.
I don’t think I would have got nearly the response from my manufacturer if I didn’t already have a prototype. I didn’t actually have a purchase order, but I had a letter of intent from Blockbuster Video, who was very well known at that time and that’s definitely what made it so they gave me notice because I had already executed and proved that it was more than just an idea that I was going to take this forward.
Case: A clear road to sales, I think that is really, really, important because like you’re saying, setting up manufacturing is always a lot of work and involves lots and lots of details and things that go wrong and it’s a real time-sake. Just setting up a factory for a run of 500 units, that is for every factory or almost every factory that is a money-losing proposition. They’re always looking for, “Okay, that is the pilot run, but what’s the next order going to be? How sure will it be that you can actually do dependable recurring orders?”
John: Absolutely. Obviously, it doesn’t help that a lot of inventors and entrepreneurs have unrealistic expectations, so they get pitched, I’m sure products that have no market proof whatsoever, but they’re being told this is going to sell billions and we’re all going to be rich.
Case: Never call yourself an inventor.
John: Yes. Yes, I could not agree–
Case: They don’t want to hear that.
John: That word needs to be removed from your book. If you’re listening to this, eliminate that word from your vocabulary. I’ve even written an article in the past where I’ve mentioned, don’t ever call yourself an inventor because inventors aren’t a business. Call yourself an entrepreneur because that’s about making something and selling it and making a profit and inventor is someone that likes to invent things and that’s really like 5% of the big picture of what has to happen. Like you said earlier, there’s many hats you have to wear in manufacturing but there’s even more hats you have to wear as a startup. Obviously everything from development, manufacturing, marketing, sales and operations, and logistics.
Case: That is a thing for a lot of the listeners who are going to be technical founders. That is one of the big things I would say to them is don’t ignore the marketing and sales because people tend to get so caught up in making the design perfect and making the manufacturing perfect and it’s a real-time sink. If you’re not selling, then you going to be that, really soon.
John: Yes. Engineers tend to be the worst at this because the development, that’s where they feel comfortable. That’s the fun stuff. We all, whether you’re an engineer or just a maker, we all like making things, but going out and finding customers and selling and marketing that sounds a bit more intimidating and maybe not as much fun to some people. I always say that it really needs to start with the customer and you have to work backward from there starting with the product and working forward from there.
You touched on some of the biggest mistakes and you may have already answered this when we talked about mistakes, but I’m curious about some of the biggest challenges you see in general for setting up manufacturing. Do you say they–
Case: Doing it with an overseas company, if you’re doing it from from the US, the time zone would be a real issue if you don’t have somebody present local because you sent your email, you have seven points and they answer only two of them. Then another 34 hours has gone by. That that is a slow way to make progress. We discussed the problem of being a priority for them.
John: Sorry. I’m curious about– You mentioned the time zone and it made me think the other thing I’ve noticed when dealing with Chinese manufacturers and I don’t know if this is a cultural thing, I’m always hesitant to make generalizations about a culture, but I get the impression that it’s sort of part of just the way they are that they don’t want to tell you anything bad or give you negative news. I’ve found that they tend to be overly optimistic and, “Oh, no problem.” I feel like “no problem” is very common. “We can do that, no problem at all.” Is that valid? You’re obviously on the ground there. You know but much better than I do, is that a valid statement, you think?
Case: Yes. If you’re new then, “Oh yes, the factory was very enthusiastic and they said it would be no problem for them, so very, very positive.” One small tip there is don’t ask them, “Can you do this?” but ask them, “How would you do it? That is quite a different version.”
John: That’s great. They can’t just say, “Yes, no problem.” they have to explain how they’re going to do it. That’s a great tip.
Case: Of course, look for a factory that makes the kind of products that you need made. A company can be really good at making Swiss style watches but if you need a diesel generator made, then they’re not the guys for you.
John: Yes. Absolutely. You don’t want to go too far. It doesn’t have to be the exact same products that they already manufactured, they just have to have the capabilities. Like you said, you don’t want some company that makes furniture and you contact them to make your electronic product.
Case: Yes. Timelines: It’s always going to take longer than you think. Be very careful with booking trade shows or promising people that this and that will be ready at that time. It always takes longer than you would hope. That is, of course, one of the real difficulties of being a startup founder. “We have a whole PR team. We hired a great PR company. We have these sales guys sitting there and we need product to sell, so ship it to as soon.” The flip side of that is if you haven’t properly tested all your pilot run sample, then the big risk, of course, is getting a big recall. Samsung is a nice example of that with their tablets, the ordered notes.
John: I don’t know if they would use the word nice to describe it.
Case: No, not so nice.
John: But it is a good example.
Case: On the other hand, there’s also what– Somebody said, “If you’re not so much ashamed of your first product, you’re probably launching too late.” which is interesting, but do mind that this was said by, I think, Benioff of Salesforce, which is a software company. In software, it’s always easy to have another update, and another update, and another update, but in hardware, that is a lot harder,
John: Still, I very much believe the minimum viable product or lean startup concept applies to hardware. It’s just not quite as intuitively obvious as it is for a software company. I would tend to agree with the statement that you made because the other flip side is you spend so long and you try to make it perfect and get it out there. Then you’ve definitely waited, I think, too long to get it out there. It’s all about getting something out there, even if it’s not something that you think is perfect or fits all of your goals, but get it out there and start getting feedback and then you can improve it from that point.
Case: You really need to get some work and validation because, without the markets, you’re just wasting all your time. I’ve seen people work on a product for three years and it was so secret that they couldn’t show it to anybody.
John: Definitely, something I see a lot of people do as well. They’re very secretive, want to just focus on development and they don’t want to tell anyone, they don’t want to get any feedback until the product’s completely done. I just think that is the absolute worst strategy to go. That’s fine maybe if you’re an inventor and you’re doing this for fun but if you want to make money and get it on the market and succeed, you’ve got to start getting feedback as early as possible; whether that’d be market feedback or engineering feedback or manufacturing feedback.
Case: Yes, you have to be a little bit careful with the feedback of friends and family because they’re always going to say, “Yes, Bob, that’s a great idea. That would be so nice.” but are they going to pay money for it if it was from anybody else? That is the real question. In that sense, Kickstarter can make– That is a good money validation but–
John: Absolutely. I think that’s one of the best. I think the best thing about Kickstarter is the market validation you get.
Case: Even testing out different configurations like, “Are people really willing to pay $7 extra to have this little feature on there, yes or no?” I think that would be good to validate. Also, if you’re marketing, you can do that with Kickstarter or even with experiments just running AdWords for a product that doesn’t necessarily already exist but just show them three propositions, spec with a price and then see what most people go for.
John: This is exactly why I recommend that people from the moment you decide to pursue the product that while developing that you also start marketing. Start building your audience is the key thing. Then, that audience you can use for feedback, you can send that audience to get your Kickstarter campaign, the momentum going on that once you have that done. Instead of doing development, then marketing, I think it’s much better to do marketing and development simultaneously, there’s no reason you can’t. Obviously, you’re somewhat limited without having the physical product and units to ship, but the point is you don’t have to wait until development is done before the marketing process begins.
What are your thoughts on– For a lot of people finding a factory in China and sourcing all the components is pretty overwhelming. I’m curious to your thoughts on sourcing agents in-store versus working directly with a factory.
Case: I think if you can find a good one, then it’s really good to have somebody on the ground because as a start-up, you have a pretty weak position, so having somebody there in their time zone who’s in regular contact with them to emphasize the importance, that’s very valuable. It’s also that they can source the right factory for you, there’s like 100,000 factories literally in China, without help that’s quite a long search.
John: Yes. Absolutely. Along with this question, I’m curious to your thoughts on– I tend to recommend that people visit a factory if you’re going to be doing any type of long-time agreement or partnership that you want to visit the factory. Would you tend to agree with that? It seems like a sourcing agent could be beneficial instead of you visiting a bunch of factories if he had one person that you dealt with.
Case: Yes. A lot was made of the garnishee. You need to have lots of dinners and get drunk to get this very special bond going, and that is also true, but there’s also good business, the business proposition that you’re presenting to them is that compelling. As the founder, it would be good to make that case, do your PowerPoint and say we’ve got a stake and we’ve got the newspaper writing about us, and we have this and that happening, we got subsidy, whatnot. That is important. If a project stalls, then just going there and showing up, then out of politeness, they will put some people together on your project to try and solve the issues. Being there physically really tends to help.
John: Okay, good point. If someone is at the stage where they’re ready to go offshore with manufacturing, you’ve already talked about some of these, do you have any suggestions on how to find a manufacturer in China?
Case: I would use somebody. The thing is you already have to wear so many hats. There are guys from sofeast, Fabian. I think they’re nice guys to work with. They charge by the hour, they don’t take markups, the factories that they source for you. Because if you go too deep into the manufacturing, you have to enter design, enter manufacturing likely to forget about the sales too much. The sales and marketing, least 50% of the success of the– The other thing is that it’s really important that we record technology, but hardware is becoming more and more of a commodity these days.
To protect yourself to be a long term company, you need to come up with things around your products like user groups or databases or with the SimBits where you can compete, gamification. All that software website stuff around the hardware, that is where you can build a lasting competitive advantage. Because as soon as you cover the markets, which are your hardware, anybody can send units over to factories in copy disc form. It’s not necessarily China that does it, it’s people in the US who go to a trade show and say, “Oh, this is cool. Make this.”
John: Yes, that’s a great point. I’m curious about– because I know Titoma is located in Taiwan, but I’m curious about– let’s discuss manufacturing, specifically electronic products, and everyone thinks of China being the hotspot for manufacturing electronic products. How do other countries compare to that? Taiwan, how do they compare? Or other Asian countries or other– I tend to think of China being and Taiwan being where most of the manufacturing happens. I heard you talk about the ecosystem in China, supplier ecosystem is just unparalleled anywhere else.
I’m curious to hear your thoughts on manufacturing in China versus, are there any other alternatives that people should look at after they are ready to go from domestic manufacturing to going mass production offshore?
Case: Well, yes. Like I said in the beginning, try with off the shelf parts as much as possible as your first bit then, your custom parts or customized parts, that is where you built your BOM costs. As you were saying, a lot of people sell their products to the consumer at three times the BOM cost. The cost of the materials needed to manufacture. Any extra dollar means three dollars extra for the consumer.
If you’re making some difficult parts, in China the competition is so intense that if this factory is not fast enough or cooperative enough or they suddenly raise the price on you, you just go to the next factory then because there’s tens of those factories within an hour drive. If you have to look for that in America– I heard a story of Apple that they got stuck on, they needed a few thousand custom screws made and they couldn’t for the life of them find a factory that could make 50,000 screws. Those kind of issues is also something that you’re going to have if you go up to newer countries like Vietnam, for example.
Vietnam does not have a developed supply chain at all and one missing component is going to stop your production.
John: My understanding is that it’s really that the supplier ecosystem is really one of the major benefits to China. Most people think of the lower labor cost and that lowering the cost of the product, but for most of the products I’ve seen, labor costs are really a very small percentage of the total product cost. Is that something that you would tend to agree with, the supplier ecosystem is the big advantage and not necessarily the low labor costs?
Case: Absolutely. China stopped being the cheapest labor 10 years ago. They provide so much added value, much knowledge, how to get stuff done. That is really a strength. With the tariff war, we see some factories move away from China, for example, to Thailand or to Indonesia, but those are often big cell phone factories that whenever they set up new plants they require their top 10 components factories like their USB factory, housing factory, cable factory to set a factory in Vietnam as well. If you’re making 50 million phones a month, you can demand that from the suppliers, but if you’re making 3,000 units or something, then you need to have a ready invested structure there.
John: How does Taiwan fit into this picture? Obviously, Taiwan and China is a lot of complexities in that relationship. Are there advantages to manufacturing in Taiwan and is it still as far as accessing the Chinese supplier ecosystem, is that pretty much still open to you? Is it similar than if your factory is located in China as far as access to the supplier ecosystem?
Case: Yes, Taiwan was– First it was Japan then came Taiwan and Korea and then China came up as electronics manufacturer. Actually, a lot of the electronics in China is being managed by the Taiwanese for example Foxconn making Apple products, they employ a million people in China but it’s a Taiwanese company. Apple is known for being relentless in demanding customs from their suppliers, you would think that they would go factory direct, but no. A lot of these companies, they want a Taiwanese company in the middle to manage that relation because they got to think, of course, Taiwanese factories is that they tend to be reliable business partners.
That is very important, and that is why, for example, I think 97% of all notebooks are designed and manufactured by the Taiwanese firms.
John: Oh, wow 97%.
Case: Yes. I think trust there is really important and so a lot of the factories in China have been set up by Taiwanese management, so yes, they are very familiar with the components ecosystem there. For startups, working with a Taiwanese factory, I think is a good thing because they are much more open to lower quantities than factories in China and they are really experienced. The Boss has been doing this for 25 years, and they tend to be very friendly people, they tend to be very helpful. Of course, Taiwan was becoming more expensive than China, but if you have to deal with 25% tariffs, that would really balance out.
John: Yes, that’s what I was about to ask. I’m assuming there’s a shift more toward Taiwan production with the tariffs. I’m assuming the trade wars between the US and China only affect imports from China not from Taiwan.
Case: That’s correct.
John: You mentioned 35%, it changes so often. It’s really difficult to keep up with. You really have to follow the news to find out what the latest tariffs are, last I’d heard it was at 25%.
Case: Yes, 25%.
John: 25%, okay. Interesting. Case, this has been really great, I think there’s so much information here, and obviously, you’re on the ground in Taiwan and obviously do manufacturing, so you have direct insight to a lot of the complexities and issues the listeners of this podcast have to deal with in setting up manufacturing. This has been extremely valuable, I really appreciate you taking the time out of your schedule to do this podcast interview. If anyone here wants to reach out to you or learn more about you is titoma.com is that the best place to learn more about you?
Case: Yes, that will work very well, titoma.com. Short for Time To Market, so T-I-T-O-M-A, and I’m also pretty active on LinkedIn.
John: Yes, of course. I’ve seen you quite active on there.
Case: Yes, it’s been great talking with you again, John. It’s been really fun, so thanks a lot.
John: Thanks so much. I appreciate it. Okay, that’s it for today. Be sure tune in next week for another episode of the Predictable Designs Podcast.
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