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

1. Learnings
from China:
Making and
Manufacturing

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. 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. Learning #1
“Hardware is
not defensible”
- Cyril Ebersweiler, HAX
4

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Slide credit: Eric Pan, Seeed Studios
Hardware can be easily
reverse engineered

6. 6
What used to be a
tablet factory is now
producing many
variations of electric
uni-bikes

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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
Slide credit: Eric Pan, Seeed Studios
Xiaomi
• Weekly builds, direct sale
• Fan community
• “Design as you build”

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. Learning #2
Scale
manufacturing
is very different from
‘Making’ and ‘Prototyping’
10

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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
1
160
worker required on a line
manufacturing a charge cord

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

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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
…

16. Learning #3
Makers need help for
Design
For
X
16
Manufacturability
Power
Variability
Cost
Yield
Reliability
…

17. “Quirky had a great industrial design, but the
engineering would not have passed the regulatory
specifications”
17

18. seeed studios
Open Parts Library
Collection of most commonly-used
components
Increase development efficiency
Shorten lead time
DFM ready
18

19. King Credie & Kosagi
Flexible PCB
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Mutual respect
is needed to take advantage of
both sides

20. Learning #4
Small run
manufacturing
and
“order of 1”
20

21. Doing small run manufacturing
economically
Using excess capacity
Leveraging existing resources
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Other incentives for factories
to work with makers:
Building up capability
Getting involved early
Investment mindset

23. Learning #5
Building a product
vs
Building a brand
23

24. Leverage the best of both sides
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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. Driving sustainable demand is the key to
cross “bridge of death” 26
Slide credit: HAXLR8R

27. Learning #6
American big
brands are
holding strong
in China
27

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29. Learning #7
Size Matters
29

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Sizemattersfor
Prototyping

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Sizemattersfor
Manufacturing

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Sizemattersfor
Fulfillment/Shipping

33. Learning #8
“Big retail is
killing
innovation”
- Liam Casey, PCH international
33

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
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COG
Inventory/
Distribution
Branding/
Marketing

35. Ocean freight cargo
3 months
Air freight
5.5 days
84 additional
days to sell
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• 15 day payment terms
• WACC for three months vs. air freight
PCH partnership
with RadioShack

36. Learning #9
Speed to
Market is King
36

37. “Speed 速度 
Shenzhen speed
深圳速度”
– PCH
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“If you need a part,
you can order it and
have it delivered the
same day”
– HAX

38. Shanzhai phones: rapid responsiveness
to the market

39. “In our business,
time is the number
one currency.”
– Liam Casey, PCH
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40. Learning #10
China’s maker movement
is deeply embedded in
strong
manufacturing
expertise
40

41. 41
Millions with deep
manufacturing knowledge

42. Mobile recycling market
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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 trend
Economic value driven

46. Learning #11
Build to order
vs
Build to Stock
46

47. Build to order examples:
Local Motors
Kickstarter campaign
Xiaomi
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48. Learning #12
A new approach to
supplier
relationship
48

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. Learning #13
Catalysts
play a valuable role in
connecting
disparate worlds
50

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
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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

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Bunnie Huang
Terry & Friends
David Li
Eric Pan
Cyril and Ben (HAX)
Liam Casey (PCH)

54. Learning #14
The hardware
innovation
space is
heating up
54

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?
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Name Start date
HAX 2011
Lime Lab 2012
Highway 1 Mid 2013
Innoconn Early 2014
Kick2Real Early 2014
…

56. Chinese government
(national and local) is
throwing money into
the space
56

57. Anything else?
Let us know!
Duleesha Kulasooriya
dkulasooriya@deloitte.com
Mengmeng Chen
mengchen@deloitte.com
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