Disruptive Factories

Just a few minutes ago I was standing in the middle of a sea of cardboard boxes. They include power supplies for your XXXXXXX. Or new laptops made by XXXXXXXX. Or other consumer electronics goodies from brands you know and love. Sorry, the owner of the supply chain (Liam Casey founder of PCH) forced me to never tell what brands I saw being shipped from his warehouse in Shenzhen, China because he’d lose tons of business if he pissed off the companies who were paying him to build stuff for you.

The brands don’t matter, though, they would distract you from the real disruption that’s happening here.

In just the last year or so there is a total revolution in manufacturing here and it’s so significant that I spent three days getting a detailed look at PCH (Liam was named Ernst and Young’s Entrepreneur of the Year back in 2007 and the Atlantic Monthly wrote a great article about Liam a few years ago). I have never spent three days studying a single company since leaving Microsoft. Thanks to Phil Baker, who was a product manager at Polaroid and also on Apple’s Newton and just wrote an excellent book on how to get products built introduced us (my friend Buzz Bruggeman introduced me to Phil). Later Tim O’Reilly himself Twittered that I had to meet Liam when I went to China. His reputation is so large that people call him “Mr. China.” That’s funny because he was born in Cork, Ireland, but you can read about his background in the Atlantic article so I won’t waste time about that here. Thanks to everyone who got me to meet Liam, it was an incredible trip.

Here’s a photo of Liam and Phil hanging out in Shenzhen yesterday:

Liam Casey and Phil Baker

This is Liam, on the phone making yet another deal:

Gadget Builder, aka "Mr. China."

The changes that are happening here have deep impacts on all the computer companies you know and love, but also what we are seeing is the obliteration of the middle-man and distributor. Let’s go back to when I used to sell consumer electronics in the mid-1980s. A product back then would be made in a Chinese factory (or, more likely, a Japanese one). Get shipped over in a pallet to a distributor, who would have to keep huge inventories. Then they would ship out to retail stores using their own shipping companies. Very slow, expensive, and as a retailer I had no visibility into where my order was, or how long it would take to get there.

Go foward to two years ago. You’d buy something from a retailer and they would order it from a supply chain manager and it would be shipped to the retailer, like Amazon, and shipped out to you. You had some visibility into how long that would take, but often not much.

Today? A product goes from factory directly to your front door via FedEx through Liam’s supply chain. How long does that take? Four to five days. All trackable via FedEx and other methods.

What’s different today? The Chinese are now cutting out Amazon and are building Websites that you can buy products from directly and they’ll ship right to your door.

Next? We used Twitter to discuss a new product with people around the world, get feedback on what they want, and the designers, who no longer will be in Europe or America, can work with the customers to build something highly customized and that serves their needs exactly. Then a factory gets fired up and the product gets shipped out — all within days of the Twitter storm.

What?

Yes, you heard me right. You can now Twitter with Liam Casey. He doesn’t quite understand yet how to build a new brand with Twitter, but he’s a quick study and he saw how I was able to talk with people around the world within minutes to come up with a new idea.

Yesterday he showed me a new gadget that will get on blogs like Engadget, Gizmodo, Obsessable, GearLive, Gdgt, CrunchGear. It is mind blowing. The engineering is done all in China. The factories are all in China. The website will be hosted in China, or maybe over on one of the new clouds that Amazon, Microsoft, Google, and Rackspace are now opening up. The brand name will be done in China, via Twitter and FriendFeed. The PR is done in China via Twitter and FriendFeed, or maybe via a blogger tour in San Francisco and New York because that’s where most of the gadget bloggers live (last night CNN’s Rick Sanchez Twittered me, which demonstrates that Twitter has a powerful reach now into mainstream media).

This is total ownership of everything. Total disruption of everyone who used to make money along the supply chain. Retailers? Disrupted. Traders and middlemen and distributors? Disrupted. Web designers and developers? Disrupted.

Are you scared yet?

You should be if you are being disrupted.

Now, get over your fears, because there are tons of new jobs in this new world, too, you just need to see how this changes everything and then take advantage of the new opportunities. Where are the high value bits in this whole process?

Not the manufacturing.

The real value and profit is in two places: R&D and coming up with new businesses and new ideas. Take, for instance, the Chumby which was designed at a Tim O’Reilly Foocamp and who’s company still has less than a handful of people. Chumby is the new post disruptive business model. Want a job? This is how to do it. Hang out at Foocamp. Come up with an interesting business. Get funding. Go see PCH. Profit! Well, yes, there are a few details involved there.

Other jobs that’ll open up? Anything involved in building brands. Marketing, PR, blogging/Twittering/FriendFeeding, building web experiences, videos, going to conferences to show off new products to audiences, etc.

That’s it. That’s where our new economy is going to be. And this process will happen to EVERYTHING. The American car industry? Well, they figured out how to sell Buick’s and Chevy’s to the Chinese, so if I were working at GM right now I’d be trying to figure out how to take advantage of this new manufacturing capability and ability to ship custom cars right to your house.

Bigger than life

So, to wrap it up, what did I learn?

1. The Chinese no longer are just manufacturers.
2. Those who can build new products and market them will do just fine, but they will face new competition from the Chinese who are doing a ton of R&D now, so are going to come up with their own products and they will figure out how to talk to world-wide markets and will figure out how to build brands (Twitter, blogs, FriendFeed, etc will play into that in a huge way).
3. The days of when Chinese were seen as only copiers/cloners are OVER. I’ve seen some mind blowing stuff developed by the Chinese and we’re just seeing their economic engine sputter to life in the past couple of years.
4. Americans are being fed only the negative stories about China and that is lulling them into complacency. The largest book store in the world is in Shenzhen. The largest city hall I’ve ever seen is here. The largest library I’ve ever been in is here. This is an increasingly educated workforce that’s just starting to get going. Americans need to come to China and see what’s going on because it is absolutely stunning in its scale.
5. The Chinese, over the next 10 years, will turn from the worst polluters (there was a show on 60 Minutes just on Sunday about the ewaste and horrific environmental problems here) to being the leading producer of environmentally-friendly factories, infrastructure, and products. Already Liam’s database of 800 factories includes tons of environmental data and products built by his supply chain will be tracked for amount of energy and carbon dioxide that they used in the manufacture of them.
6. The speed at which things get built here is stunning. 12 years ago I was in the TV tower in Shanghai. It was the only building on that side of the river. Now there’s an entire set of skyscrapers that put New York to shame.

We’re working on a video of Liam’s company that should be up in about two weeks on FastCompany.tv where we’ll go much more in depth about some of the changes. More to come as we move tomorrow to Guangzhou to meet with Chinese bloggers from around the country (China now has the most Internet users of any country and is growing so fast that the stats are difficult to understand).

I’ve been putting photos up on Flickr. We’ve had several videos up on Kyte.tv. And everything we’re doing is getting wrapped up on my FriendFeed account where I’ve been interacting a lot with tons of people. Hope you’re enjoying what we’re seeing.

Also in China right now are a group of bloggers who are on a separate tour than the one we’ve been on. You can follow them on Twitter at China 2.0. It’s interesting how they are discovering the same things about China while being thousands of miles away in the north. This weekend I’ll join the China 2.0 bloggers and hopefully we’ll be able to do some live video where we share what we learned with you.

93 thoughts on “Disruptive Factories

  1. This is very interesting. No doubt that the kinks will get worked out to some extent — but for the moment the system is not perfect. I just ordered some iPhone 3g accessories from a store hosted on Yahoo – the goods were shipped directly to me from Hong Kong, and pretty quickly I might add. However, several of them turned out to not be compatible with the iPhone 3g (they were older iPod products, displayed incorrectly on the website). What I am supposed do? Ship them back to Hong Kong for as much shipping cost as the product cost? And with bigger ticket items, how will they be returned / supported etc. In any case though, this is probably the most interesting new item I have read this year.

  2. This is very interesting. No doubt that the kinks will get worked out to some extent — but for the moment the system is not perfect. I just ordered some iPhone 3g accessories from a store hosted on Yahoo – the goods were shipped directly to me from Hong Kong, and pretty quickly I might add. However, several of them turned out to not be compatible with the iPhone 3g (they were older iPod products, displayed incorrectly on the website). What I am supposed do? Ship them back to Hong Kong for as much shipping cost as the product cost? And with bigger ticket items, how will they be returned / supported etc. In any case though, this is probably the most interesting new item I have read this year.

  3. Why the blind hate, tom ?
    How many months have you spent in the Chinese provinces ?
    Nothing is what it seems, neither in the US nor in China.
    Both are far from perfect.
    Almost no country in the world can safely occupy the moral high ground on any subject.
    There are factories in parts of the US that would probably have been closed in China, not to mention the captive sub-contractors one prefers not to look at too closely in Latin America.
    And pollution ? Have you compared per capita garbage production in the US and China ? It’s an enlightening number.
    If China crashes, to where does the US export its goods and financial wizardry ? Certainly not to any oil-producing country – they’re all underwater with oil at $50. And certainly not to Europe where everyone’s hunkering down for a few years of frugal living.
    China and the US are married, for better or for worse. Many countries can invent stuff (Europe, India) or supply resources (Russia, Iran/k, Gulf), but only two can really execute – China and the US.
    The rest of the world can only watch and hope the marriage works.
    Cheers
    Mike

  4. Why the blind hate, tom ?
    How many months have you spent in the Chinese provinces ?
    Nothing is what it seems, neither in the US nor in China.
    Both are far from perfect.
    Almost no country in the world can safely occupy the moral high ground on any subject.
    There are factories in parts of the US that would probably have been closed in China, not to mention the captive sub-contractors one prefers not to look at too closely in Latin America.
    And pollution ? Have you compared per capita garbage production in the US and China ? It’s an enlightening number.
    If China crashes, to where does the US export its goods and financial wizardry ? Certainly not to any oil-producing country – they’re all underwater with oil at $50. And certainly not to Europe where everyone’s hunkering down for a few years of frugal living.
    China and the US are married, for better or for worse. Many countries can invent stuff (Europe, India) or supply resources (Russia, Iran/k, Gulf), but only two can really execute – China and the US.
    The rest of the world can only watch and hope the marriage works.
    Cheers
    Mike

  5. F*ck the Chinese. They “look” cheap because they ignore enevironmental and labor standards. The day our Gov’t levels the playing field is the day China crashes hard.

  6. F*ck the Chinese. They “look” cheap because they ignore enevironmental and labor standards. The day our Gov’t levels the playing field is the day China crashes hard.

  7. China is a race-against-time in progress. You can’t beat autocratic societies when their innovators get efficient access to the right autocrat/mentor stream. The political machine in China, at all levels, is impressive at identifying and fast-tracking clever innovative youths, whatever their field or city. But it needs a payback, which may impose the softening of innovative tendencies over time. Worse, with breakneck growth all around them, many clever youths have greedily sought easier payoffs in low-innovation sectors like real estate, cheapo manufacturing and services.
    Because of this, China today is massively under-performing its innovative capacities which, contrary to some legacy Western clichés, are formidable.
    Are there still enough innovators (10m ?) to feed the remaining (1.5bn ?) population, plus beat the West’s innovators (every day more prolific), plus build China’s long-awaited endogenous growth engine, plus survive the un-consumer societal model the West may launch to overcome the current rape-and-pillage hangover ?
    Probably not, unless there’s some systemic strategic shift. What could move ? Many of China’s bad fundamentals such as distance, water, energy, can be cured but over time.
    So any urgently required change will need to be human-induced. Gulp.
    I often recall a chat with an 80 year old China Space Agency director, at a 1999 banquet in Beijing. His forecast was simple… “If you forget appearances, no two peoples are more similar than Chinese and Americans. But to survive, both desperately need some things the other has. Expect the two to merge.”
    So let’s get on with it.
    Cheers
    @harropmike

  8. China is a race-against-time in progress. You can’t beat autocratic societies when their innovators get efficient access to the right autocrat/mentor stream. The political machine in China, at all levels, is impressive at identifying and fast-tracking clever innovative youths, whatever their field or city. But it needs a payback, which may impose the softening of innovative tendencies over time. Worse, with breakneck growth all around them, many clever youths have greedily sought easier payoffs in low-innovation sectors like real estate, cheapo manufacturing and services.
    Because of this, China today is massively under-performing its innovative capacities which, contrary to some legacy Western clichés, are formidable.
    Are there still enough innovators (10m ?) to feed the remaining (1.5bn ?) population, plus beat the West’s innovators (every day more prolific), plus build China’s long-awaited endogenous growth engine, plus survive the un-consumer societal model the West may launch to overcome the current rape-and-pillage hangover ?
    Probably not, unless there’s some systemic strategic shift. What could move ? Many of China’s bad fundamentals such as distance, water, energy, can be cured but over time.
    So any urgently required change will need to be human-induced. Gulp.
    I often recall a chat with an 80 year old China Space Agency director, at a 1999 banquet in Beijing. His forecast was simple… “If you forget appearances, no two peoples are more similar than Chinese and Americans. But to survive, both desperately need some things the other has. Expect the two to merge.”
    So let’s get on with it.
    Cheers
    @harropmike

  9. Very well written Robert. It’ll be interesting to see where things go from here. I agree, as things begin to get simpler, and the buying public constantly demands knowledge and faster service, that this gives them that. I agree with #31 Adi above, that this will spark a healthy competition and perhaps innovation, in both the products, and the buying experience.

  10. Very well written Robert. It’ll be interesting to see where things go from here. I agree, as things begin to get simpler, and the buying public constantly demands knowledge and faster service, that this gives them that. I agree with #31 Adi above, that this will spark a healthy competition and perhaps innovation, in both the products, and the buying experience.

  11. Consumers don’t CARE about Supply-Chain Hula-Hoop Tricks, just have it here now, good quality and great value, with a company that has a reputation to back that up.

    Playing direct make-believe games with middlemen setup guys, running on VC fumes, who only rely on exorbitant international FedEx rates as a “supply chain solution”, is hardly an answer, esp. in this market where all the big boys at Omnicom, PG S&S and McCann are going serious price-consciousness pitching.

    Direct to Consumer is a farce, and you will need a marketing budget worthy of a Fortune 500 just to get the word out, even then people won’t care. Direct to Store is also a farce, as stores have their own internal quality, contract and procurement needs.

    If China wasn’t such a corrupt godforsaken Communist wasteland, you wouldn’t need an army of consultants like PCH just to get things done and provide for even the simplest of infrastructure. If the “direct model” requires a middle layer of confidencemen to make it work and finagle the supply chain, how exactly is that direct? Treat the root cause, sending in a Mayo Clinics worth of Supply Chain Doctors for any ailment, can get very very expensive.

  12. Consumers don’t CARE about Supply-Chain Hula-Hoop Tricks, just have it here now, good quality and great value, with a company that has a reputation to back that up.

    Playing direct make-believe games with middlemen setup guys, running on VC fumes, who only rely on exorbitant international FedEx rates as a “supply chain solution”, is hardly an answer, esp. in this market where all the big boys at Omnicom, PG S&S and McCann are going serious price-consciousness pitching.

    Direct to Consumer is a farce, and you will need a marketing budget worthy of a Fortune 500 just to get the word out, even then people won’t care. Direct to Store is also a farce, as stores have their own internal quality, contract and procurement needs.

    If China wasn’t such a corrupt godforsaken Communist wasteland, you wouldn’t need an army of consultants like PCH just to get things done and provide for even the simplest of infrastructure. If the “direct model” requires a middle layer of confidencemen to make it work and finagle the supply chain, how exactly is that direct? Treat the root cause, sending in a Mayo Clinics worth of Supply Chain Doctors for any ailment, can get very very expensive.

  13. Never heard of PCH International (and BTW their URL is awful). Not to mention that they don’t even have a Wikipedia entry.

    But the company is interesting, I agree. It provides an even simpler logistics solution – maybe this type of companies will generate the next revolution in logistics (as UPS/Fedex did a while back by allowing corporation to outsource parts of supply chain mgmt to them)

    I am wondering how profitable is this company. Probably not with a huge profit margin as it is piggybacking Fedex …

  14. Never heard of PCH International (and BTW their URL is awful). Not to mention that they don’t even have a Wikipedia entry.

    But the company is interesting, I agree. It provides an even simpler logistics solution – maybe this type of companies will generate the next revolution in logistics (as UPS/Fedex did a while back by allowing corporation to outsource parts of supply chain mgmt to them)

    I am wondering how profitable is this company. Probably not with a huge profit margin as it is piggybacking Fedex …

  15. “What’s different today? The Chinese are now cutting out Amazon and are building Websites that you can buy products from directly and they’ll ship right to your door.”

    As for doing QA and surveys via flickr and blog comments, that’s total incompetence.
    Most people don’t give feedback because it’s too hard for them.

    And you are forgetting tariffs. Governments do not want foreign companies to ship items to their citizens without paying a heavy tax. Especially if they are set on getting rid of the national distributor. The distributors who have power in the local and federal governments are going to use that power to get this manufacturer shut down from importing into the country. Start investigations and cause damage that they will not recover from.

    That’s probably why those companies don’t want their names mentioned.

  16. “What’s different today? The Chinese are now cutting out Amazon and are building Websites that you can buy products from directly and they’ll ship right to your door.”

    As for doing QA and surveys via flickr and blog comments, that’s total incompetence.
    Most people don’t give feedback because it’s too hard for them.

    And you are forgetting tariffs. Governments do not want foreign companies to ship items to their citizens without paying a heavy tax. Especially if they are set on getting rid of the national distributor. The distributors who have power in the local and federal governments are going to use that power to get this manufacturer shut down from importing into the country. Start investigations and cause damage that they will not recover from.

    That’s probably why those companies don’t want their names mentioned.

  17. Excellent article Robert. Reading it reminded me of what a friend(Chairman of a Japanese Conglomerate) said to me 20 years ago which was “If you think Japan disrupted the manufacturing process wait until you see what China does with the knowledge process in about 25 years”

    Ironically we are only five years away from what my friend told me 20 years ago. When I read you article and put what you said into the perspective of all the economic changes we are about to experience globally my mind thought even more disruptive changes will be accelerated by the kind of innovation you witnessed.

    The big difference between China, Japan and the USA is they think lng term and we don’t think past the quarterly return or the next tweet.

    I don’t know about you but I love disruption :)

  18. Excellent article Robert. Reading it reminded me of what a friend(Chairman of a Japanese Conglomerate) said to me 20 years ago which was “If you think Japan disrupted the manufacturing process wait until you see what China does with the knowledge process in about 25 years”

    Ironically we are only five years away from what my friend told me 20 years ago. When I read you article and put what you said into the perspective of all the economic changes we are about to experience globally my mind thought even more disruptive changes will be accelerated by the kind of innovation you witnessed.

    The big difference between China, Japan and the USA is they think lng term and we don’t think past the quarterly return or the next tweet.

    I don’t know about you but I love disruption :)

  19. Great article Robert, I love this sort of stuff – I wish more people in the West could wake-up and see the potential of what’s being done overseas.
    Liam seems to be a visionary with his head screwed-on (yes, the ‘Scobleizer effect’ kicked-in: I’m now following Liam on twitter!)

    Look forward to seeing that video of Liam’s company in due course.

  20. Great article Robert, I love this sort of stuff – I wish more people in the West could wake-up and see the potential of what’s being done overseas.
    Liam seems to be a visionary with his head screwed-on (yes, the ‘Scobleizer effect’ kicked-in: I’m now following Liam on twitter!)

    Look forward to seeing that video of Liam’s company in due course.

  21. Yes, I also predicted that.

    As a student in south east asia(Malaysia), I have a lot of chinese friends in my college. Their parent send their son to study overseas and then back when they are finish.

    Some wealthy families choose Malaysia because its cheap and have a good quality. But some very wealthy families choose australia and US.

  22. Yes, I also predicted that.

    As a student in south east asia(Malaysia), I have a lot of chinese friends in my college. Their parent send their son to study overseas and then back when they are finish.

    Some wealthy families choose Malaysia because its cheap and have a good quality. But some very wealthy families choose australia and US.

  23. Totally agree and so good to have my china insights reaffirmed.

    I have just spent a week in Shanghai on holidays and I have had a complete paradigm shift on China. Ok I understand Shanghai is not China but nonetheless it is an example of what is possible.

    I’m still trying to capture and digest the trip but 3 things stand out:
    1. The Affluence! I had no idea but when you think 20m people in Shanghai – all they need is 10% affluence and that’s my whole town buying premium. So I guess what this really brings home is the impact of millions of people.

    2. The level of aspiration is contagious! Everyone appears motivated to better themselves.

    3. Just do it! Says more about China than perhaps US these days. Driving on the Central Yan highway … we saw 2 guys holding a guy up a 12 foot single ladder fixing the power lines….oh and what made it more interesting was that the ladder was on the top of a truck.

    Like others, I have come away rethinking all my china stereotypes and dreaming the future may be brighter as we seek a “fusion of the east and west”.

    Sounds like the “one to one” future maybe possible with Liam in China

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