This is the first time I review a Chinese book. But this is a book about a company, Foxconn, that I have worked in the past and am curious how Terry Gou manged to grow from a garage shop in 1973 to a behemoth today and continue to grow in leaps and bounds. Some of my ex-colleagues at Sun have joined Foxconn and they still glowed in the progressive culture of the company. How did he do it? Is he just lucky or he’s got real substance? How does he plan to pass the leadership and continue to grow the company? I planned to find out from this book and I found some interesting themes about Foxconn.
The first chapter “Building the Global Competitive Platform: Challenged to be the world’s lowest cost producer.” Terry recognized early that to be globally competitive in costs you must be socially(human resource), country-wide (financial resource), and company-wide competitive. “Being profitable doesn’t mean you’re competitive.” The ASP (average selling prices) for the electronic industry is -30% annually, the only way for a company like Foxconn to survive is to outgrow that in revenue. This is a Darwinism – survival of the fittest – at its best. Terry even equates Foxconn to be the “cockroach” due to its survival in the evolution scenery. Terry also emphasize “credibility” over “transparency.” If the management is credible, transparency is secondary. With respect to global competition, Terry said, “In the overall scheme, it’s not about the supply chain, rather it’s about the global value chain. Every company must create its global value or faces extinction.” Foxconn’s business model consists of 5 letters: eCMMS (e: computerize, C: component, M: module, M: Move (logistics), S: Service). Started with components, modularize, then fast delivery (move) and full service. All of the processes are computerized (e).
Chapter 2 “Global manufacturing sites” In this chapter, the author went into how Terry Gou started a plastic injection company with his mother’s seed money of $100,000NT or US$3000 back in 1974. Due to the oil crisis, the material costs went up so much that it was hard to make any money. He then took over his partners’ share and renamed his company Honhai Industry. At that time, the Taiwan real estate went into high growth/speculative stage and lots of company owners moved the money into real estates. He resisted the idea and with forward looking vision, he invested the money on making better molds.
Chapter 3 “The power of Vertical Integration” This chapter describes how Foxconn started out with the PC chassis and continued to integrate all the way to M/B: from level 5 (PCBA) to level 11 (PC system). His secret of converting a negative-margin order to positive-margin is his obsession with “cost down,” thus his nick name of “Cost-down Terry.” They broke down the costs to product cost and management cost. The material cost can be further broken down to 1) material 2) process 3) testing 4) packaging and transportation 5) quality 6) storage and 7) fixed/machine cost.
Chapter 4 “The flexibly-changing culture”: Terry encourage changes. “Within reasons, organization must encounter changes. Though every change is a risk but once it’s done successfully, the organization and people will advance one more level.” How does Foxconn become a flexible organization? 1) High awareness within organization, 2) Set high goals, 3) Don’t glow over past successes, 4) Don’t cover up mistakes – learn from them. As the organization gets bigger, to prevent bureaucracy, they must practice “together, re-organize, integrate” – the 3 steps. “Once the authority is given to you, you must bear the responsibility. It’s not about ‘management’, it’s about ‘responsibility’.” Terry’s leadership philosophy, “I don’t know what is a successful leader but I know what leadership style would fail – not setting good example, pushing off responsibility, pleasing all the people, 9-to-5, not clear with reward and punishment.” “Manager can be trained but leadership can not.” He believes democracy is not an efficient method. One must be a judicious dictator to be a good leader. According to him, “For a company to grow fast, it must produce products and talents.” He believes in creating jobs from within the company. You can be your own boss. Even if you fail, Foxconn will back you up. He said, “A truly successful organization’s know-how lies not only in talents but also the resource movement within the organization: what people should be moved, what people should not.” Speaking of selecting talents, he pointed out that when a person has no way to retreat, he will give his best. Especially in electronics, one must carry the same attitude. In explaining the Foxconn culture, he summarizes in three words: heart, confidence and determination.
Chapter 5: “Efficient Global Sales Service”: To Globalize the factory, in addition to expedite the service to the customers, Foxconn must “simplify.” Simplification focuses on customers’ part numbers, flow process, management strategy, and framework. The ways to simplify are 1) Rationalize, 2) Standardize, 3) System-ize, 4) IT’ize. Foxconn provides the combination of logistics and e-hub to reduce the inventory costs. To globalize Foxconn, it chooses to develop products globally, manufacture globally, and develop global logistics. The strategies are: 1) Leverage the accumulated China experience, 2) Synchronize with the customers’ order, 3) E-commercialize the central nervous system (IT) to achieve optimal product, optimal quality, optimal timing, and optimal quantity, 4) Globalization means localization – develop local talents and respect local culture and thinking. Also, selecting the right customers is a must by evaluating 1) Would it become Foxconn’s competitor? 2) Does it have the potential – marketing position and sound strategy? 3) Its current market size and profitability. In order for Foxconn to be profitable, its customers need to be profitable. In terms of vertical integration, the downstream (customers) integration has a much larger space, in other words, competing with customers has a much larger space to grow. This is why most of Foxconn’s customers are afraid of Foxconn’s becoming its competitor, thus the love and hate relationship.
Chapter 6: “R&D Know-how Development”: Terry’s 5 steps in developing leadership for changes: 1) Openly betting his/her credibility on the success of changes. 2) Commit to resources needed for the changes. 3) Actively participate and emphasize the commitment to changes. 4) Must be passionate about changes. 5) Requires that the entire team to participate and hold them responsible for the changes. Foxconn’s 8 core competencies are: 1) CAD/CAM software and hardware for molds, 2) BTO (Build-to-order), supply chain, 3) Interconnect technologies, 4) SMT production, 5) Wireless and WLAN technology, 6) Heatsink materials, 7) Precision manufacturing, 8 ) Fiberoptic manufacturing. According to Terry, “R&D means product design, process design and breakthrough material.” To be competitive, Foxconn needs to be build deep roots into core technology, normalize the IP/patent system, and possess strong knowledge (management) into component manufacturing. Terry understands the importance of building a strong IP portfolio; Foxconn has 300+ “IP Engineers” in their legal department. “The road to the future will be much wider, if the IP’s are properly invested, ” said Terry.
Chapter 7: “Integration of the global organizations”: Terry outlines the methods to develop a flexible and powerful organization structure – 1) Attracting talents – create start-up environments for the best talents to create new companies, 2) Developing new IP-rich precision technologies, 3) Execution with precision, 4) Bring out the unique creativity of individuals. “People in the world are all similar; there are only people with brain and without brain, responsible or irresponsible.” Terry has the plan to pass on the Foxconn leadership around 2008 (now) and he is looking for the candidates.
In the 2003 interview as appendix of the book, Terry Gou was asked about what advises he would give to the young people professionally. He said, “no matter doing what work, one must be responsible, facing difficulties, setback and challenges, and walk your talk.” “To learn, one must face new challenges especially when you’re young because that’s how you can learn and grow.” “All my life, I love to take on new challenges. Without them, life would not be as exciting,” Terry Gou said.
Here are my observations:
Terry Gou likes to use simple words to outline his strategy. For example, he started out with 1st C (components) and then 3 C’s (Computer, Communication, and Consumer Electronics) as his target market for contract manufacturing because that’s where the growths are. Eventually, he’s been tauting 6 C’s (the original 3 C’s plus the 3 more C’s – contents, channel, and car). Also, he’s leadership and company philosophy in Chinese also use simple easy-to-remember words. Keeping it simple is probably the essence of his growth strategy and leadership skill.
Foxconn is a quintessential Walmart in the contract manufacturing industry. The drive to drop costs down the food chain is almost obsessive. The ability to plan the logistics such that all the costs at the bare bone is the one of the key core competencies of the company.
Terry Gou is not only a great businessman but also a great leader. Foxconn is the way it is today by accident. His vision, strategy, execution, and ability to develop leaders are what Foxconn is formidable world-class competitor. Whether his legacy can be carried on could be his next and biggest challenge. Like he said, “The Honhai Industry without Terry Gou is the real Honhai.”
The question I ask myself is whether I’m willing to work for a company like Foxconn. The answer is probably yes if the next leadership is willing to take Foxconn to the next level of higher value add. Then Foxconn can truly become an industrial empire.
Some of the notable good quotes from Terry Gou are:
– “With difficulties comes opportunities. With challenges comes innovations”
– “A developing economy faces new thinkings, new technologies, and new ecosystems”
– “Successful people find ways, defeated people find excuses.”
– “An investor shouldn’t ask which is the next hottest industry; he should ask who will be the next winner”
– “High Tech, Low Tech, Make Money is Tech!”
– “Work hard, work hard and work harder! Don’t be materialistic! Don’t be vain! Enjoy your work and embrace challenges!”
– “Being a turtle, you must not wake up the hare.”
– “Learn from work, work after learning. Work is more important then talk. Practice is more effective than learning.”
– “Quality means that the customers are willing to pay a premium for it and gladly.”
– “Execution = Speed + Accuracy + Precision or E = SAP.”
– “To be successful, one must have a strong will, focus and patience.”
– “Many people don’t have a good impression of me, perhaps I spoke only the truths. ”
– “A company can face difficulties for the two major reasons: staying far away from its customers, and its employees.”