Top learning from china trip

Learnings from China: Making and Manufacturi

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Beijing Maker SpaceInnoConn…

Seeed StudiosPCH InternationalFoxconnHAXLR8RLi & FungHuaqiangbeiShenzhen factories…

Terry ChengDavid LiBunnie HuangEric PanLiam CaseyGE FirstBuild…

XinchejianFab LabDFRobotInnovation House…

Many conversations and visits over the course of 10 days…

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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

…..

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Learning #1

“Hardware is not defensible”- Cyril Ebersweiler, HAX

Member Firms and DTTL: Insert appropriate copyright (Go Header & Footer to edit this text) 5Slide credit: Eric Pan, Seeed Studios

Hardware can be easily reverse engineered

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What used to be a tablet factory is now producing many variations of electric uni-bikes

Member Firms and DTTL: Insert appropriate copyright (Go Header & Footer to edit this text) 7Slide 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. ”

8Slide credit: Eric Pan, Seeed Studios

Xiaomi

• Weekly builds, direct sale• Fan community• “Design as you build”

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“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

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Learning #2

Scale manufacturing is very different from ‘Making’ and ‘Prototyping’

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Even in Shenzhen, hard tooling still take up to

20 days due to the level of precision and raw material required

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Many product lines are still shockingly

labor intensive

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160

worker required on a line manufacturing a charge cord

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Wage has been increasingEmployee benefits has significantly improved

Application of robotics in manufacturing ranges significantly with production line from extremely labor intensive to highly automated

2010 2011 2012 2013 20140

500

1000

1500

2000

11001320

1500 16001808

Minimum wage in Shenzhen (RMB/Month)

Manual labor vs automation

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150 engineers to design the ‘perfect clasp’

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Large contract manufacturers have deep expertise in

testing and inspection

• Durability testing• Functionality testing• Environmental examination• Physico-chemical

examination…

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Learning #3

Makers need help for

Design For X

ManufacturabilityPowerVariabilityCostYieldReliability…

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“Quirky had a great industrial design, but the engineering would not have passed the regulatory specifications”

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seeed studiosOpen Parts Library

Collection of most commonly-used componentsIncrease development efficiencyShorten lead timeDFM ready

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King Credie & KosagiFlexible PCB

Mutual respect is needed to take advantage of both sides

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Learning #4

Small run manufacturing and

“order of 1”

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Doing small run manufacturing

economicallyUsing excess capacityLeveraging existing resources

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Other incentives for factories to work with makers:Building up capabilityGetting involved earlyInvestment mindset

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Learning #5

Building a

product vs Building a brand

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Leverage the best of both sides

Different strengths for West and China

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Short term demand Sustainable demand

Unbra

nded

Bra

nded

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

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Driving sustainable demand is the key to cross “bridge of death”

Slide credit: HAXLR8R

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Learning #6

American big brands are holding strong in China

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Learning #7

Size Matters

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Size

matte

rs for

Pro

toty

pin

g

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Size

matte

rs for

Manufa

cturin

g

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Size

matte

rs for

Fulfi

llment/S

hip

pi

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Learning #8

“Big retail is killing innovation” - Liam Casey, PCH international

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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

COGInventory/Distributio

n

Branding/

Marketing

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Ocean freight cargo

3 months

Air freight

5.5 days

84 additional days to sell

• 15 day payment terms • WACC for three months vs. air freight

PCH partnership with RadioShack

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Learning #9

Speed to Market is King

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“Speed 速度 Shenzhen speed 深圳速度” – PCH

“If you need a part, you can order it and have it delivered the same day”

– HAX

Shanzhai phones: rapid responsiveness to the market

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“In our business, time is the number one currency.” – Liam Casey, PCH

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Learning #10

China’s maker movement is deeply

embedded in strong manufacturing expertise

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Millions with deep manufacturing knowledge

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Mobile recycling market

Mobile recycling market

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Tacit knowledge on components and manufacturing

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Not many hardware hackers (yet)

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Huaqiangbei – Responsiveness to market trendEconomic value driven

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Learning #11

Build to order vs

Build to Stock

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Build to order examples:Local MotorsKickstarter campaignXiaomi

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Learning #12

A new approach to supplier relationship

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Long-term vision Beyond complianceMutual 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

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Learning #13

Catalysts play a valuable role in

connecting disparate worlds

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Imperfect market

Many shanzhai items remain as hidden gems in Huaqiangbei even to the localsMost consumers in the US are not aware of ecommerce channels such as AliExpress

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People are take advantage of the gap of disparate worlds – in both ways

Aliware – repackage a product sourced on Alibaba

Kickstarter to demohour

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Bunnie Huang

Terry & Friends

David LiEric

Pan

Cyril and Ben (HAX)

Liam Casey (PCH)

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Learning #14

The hardware innovation space is heating up

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Previously friendly partners are increasingly seeing each other as competitorsBig and small players are all jumping in to participateRoles are constantly evolving

The question is – who does what in the space? Name Start date

HAX 2011

Lime Lab 2012

Highway 1 Mid 2013

Innoconn Early 2014

Kick2Real Early 2014

…

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Chinese government (national and local) is throwing money into the space

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Anything else?

Let us know!

Duleesha Kulasooriya

[email protected]

Mengmeng Chen

[email protected]