Universal Scientific Industrial

(Golden Bridge 2015-03) We are not manufacturing according to the specifications of direct customers, but those of customers' customers of customers instead, that is, doing so from the perspective of the ultimate users. Our terminal customer is brand, then how to design proper products during the manufacturing, and point to and match the most ultimate brand commodities that are good for sale? Though we are the supplier of intermediate products, we insist on in-depth research of ultimate consumers' behaviors and expectations.   

Universal Scientific Industrial (Shanghai) Co., Ltd. (hereinafter referred to as "USI") successfully came into the A-share market in mainland China on February 20, 2012, which lightened the sluggish manufacturing industry. As the first large-scale Taiwan-funded electronics design and manufacturing service enterprise listed on the A-share market of mainland China, the successful experience of USI attracts wide attention.

Emphasis on R&D of science and technology, with technology oriented
"The Company's annual investment in R&D accounts for approximately 3% of its operation revenues. Take the year 2011 as an example, its revenue was $2 billion, with the fees in R&D &60 million," said Mr. CY Wei, President of USI, "Thanks to the continuous investment in R&D that the Company can closely follow the most advanced technology in this industry, respond rapidly to the changes of market demands, and conduct forward-looking planning and advanced R&D in a timely manner.”

Since its founding in 2003, USI has established its own R&D team in ZJ INNOPARK in Shanghai. It organizes patent technology competitions every year and sets a patent reward system to encourage the initiatives of employees. It's understood that USI currently has a full-time R&D team consisting of over 1,300 persons, with 457 patents, 7 software copyrights and 67 scientific achievements in recently years.  

Good at subtraction, and concentration on predominant projects
It's well known that Taiwan-funded enterprises occupy a decisive position in electronic manufacturing service industry. According to the data of MMI (Manufacturing Market Insider), among the top 25 electronic manufacturing service companies in the world, 13 are Taiwan-funded, occupying half of the total. It also shows that USI ranked 17th in the global electronics manufacturing service industry in 2011, and the gross profit levels in the past three years all remained above 11%, far head of those of the peers. 

How does USI stand out when some OEMs engaging in electronics manufacturing are struggling to survive with the mere gross profit of 3%-4%? During its development, USI doesn’t blindly expand its scale of production, but mainly aims at the growth of profit instead. On the basis of taking account of certain scales at the same time, it does a good job of subtraction, focusing on segmentation fields with high scientific and technological contents that represent the rapid growth potential of the industry, thus obtaining relatively high gross margin.  

However, such strategy doesn't come easily. According to Mr. CY Wei, like most of the OEMs, USI originally lived by means of quantity. "During 1990-2000, these 10 years were the golden age of electronics industry. The outsourcing of electronics became a trend and the orders of OEMs soar quickly. Though profits decreased, the rapid increase of operating revenues could offset concerns about profits. By the year of 2000, with the appearance of internet bubble, the quantity of orders dropped rapidly, factories scrambled for orders, the whole electronics industry were caught in the cut-throat competition of price fight. What's worse, the problem of decreased profits behind the number of orders began to become prominent that the gross margin was lowered continuously to one digit."

After a painful experience, USI decides to transform to do subtraction. "We should grow steadily on the premise of insisting on reasonable profits. Give up the competitive products that have been Red Sea, but choose projects that have edge over others. This is just like taking part in sports games: We can choose all sports events if we have enough strength; or select the more advantageous ones." Mr. CY Wei says.

After long time optimization of the product structure, USI has now formed a pattern based on computers and consumption electronics, with telecommunication products, storage products, industry-class electronic products and automotive electronics as the core products (4C+ 1I, namely Communication, Computer, Consumer, Car Electronics + Industrial Products), among which, wireless communication products account for 35%, computer storage for 25%, industrial products and consumption electronics for 15% respectively, and automotive electronics for 10%. 

According to Liu Danyang, Chief Financial Officer of USI, these industries generally have higher barriers to entry and technical barriers. For wireless module products, there are only 2 wireless module suppliers globally that provide goods for Apple, USI is one of them. Take automotive electronic products as an example, it takes about 3 to 5 years for them to crack this market. These unique edges are the mighty guarantee of the ideal gross profit rates. 

Mr. CY Wei adds, "USI will continue focusing on 4C+1I product structure, based on which the global layout will expand and grow by means of merger and acquisition."

Manufacturing in spirit of service
In Smile Curve Theory, at both ends of the curve, the profits of brand and R&D technology are the highest, while manufacturing process is at the lowest of the curve. He analyses that, "Though the gross profit of creating brand is high, it's not that lucrative. Many brand companies have done very hard, yet they are finally bought by others." Some companies engaging in R&D technology can earn money, while more IC ones reduce to close down. The gross margin of manufacture industry is so low that some OEM giants have fallen to 4%-5%, but they still can make money. So the most important thing is you should know in which process of the supply chain you are, and you should do better than others in that process. USI is in manufacture process, so we make design and products to the best to add our own additional values.

"They are all bottled milk with price difference of several yuan or more, but someone is still willing to pay for the difference. Why? It's because they trust this brand. Though USI doesn’t engage in terminal products, we have our own enterprise reputation, that is, the brand credit of OEMs. Brand reputation is accumulated on long term credits, then how to build up such trust and reliability?" Mr. CY Wei points out that the first thing is a company should determine its own advantages and manufacture competitive products that are highly accepted by the market. With 30-year-long basis of its parent company USI-TW, USI continues to promote the development of smaller, lighter and thinner products. In the future, the Company will combine the IC packaging and testing capabilities of its higher-level parent company - ASE Group - to further accelerate the miniaturization of products. 

Besides of excellent technology, professional service can more reflect the value of manufacturing enterprises. The stage of extensive development of manufacturing industry has come and gone. The forthcoming competition is not only about technology, it's more about service quality. Then where is the service conception of manufacturing field?

"Regard customers as babies who cannot speak and perceive their needs in advance. We are not manufacturing according to the specifications of direct customers, but those of customers' customers of customers instead, that is, doing so from the perspective of the ultimate users. Our terminal customer is brand, then how to design proper products during manufacturing, and point to and match the most end brand commodities that are good for sale? Though we are the supplier of intermediate products, we insist on in-depth research of ultimate consumers' behaviors and expectations.”

Meanwhile, the service philosophy can be reflected in unconditionally meeting customers' needs in quality, lead time, price, technology, service and other processes. For example, in the product structure of 4C+1I, USI provides overall solutions, and is never fastidious about the orders of customers. No matter the product quantity combination is small amount but diverse or large amount and diverse, USI will stick to manufacture products for them. Mr. CY Wei holds that, “We do what others cannot do, which exactly reflects our values." In addition, USI also creates a customer-oriented operation system and rapid response mechanism based on IT system, i.e. B2B mode, which not only saves manpower, but also improves efficiency. 

Undoubtedly, "Manufacturing in spirit of service” —— the conception uphold by USI will help them continue to move forward in the competitive electronics manufacturing field, and achieve the development prospects of “Being a leader in electronic design and manufacturing service".