Riding the Tsunami of Success in Asia
Since Phil Carmichael has overseen IPC Asia, the program and its membership have grown substantially, and with good reason. Phil met with Barry Matties at HKPCA to discuss how IPC offerings such as the QML program and helping suppliers become CSR compliant has allowed IPC to become a vital resource for suppliers in Asia.
Barry Matties: Good to see you, Phil.
Carmichael: Welcome to Shenzhen and to the booming country of China.
Matties: It's amazing what I'm seeing here. It's really incredible. Yesterday, John Mitchell told me about some of the success you've had here in China. I think you've been with IPC for about five and a half years now, and at that point there were maybe 300 members. And now I think you've hit 1000 members?
Carmichael: That's right.
Carmichael: I started in fourth quarter of 2012, and we have been successful in adding members every year on a steady basis; we're over 1000 and we continue to grow.
Matties: Where do you see the drive for people who come in? Is it around the education offering?
Carmichael: There's a couple of different value propositions, depends on the company. One of them is that we developed a couple years ago, a process called the QML and QPL. It's the Qualified Manufacturing List, and the objective for that is to have a qualified, highly technical audit of your processes and your plan that will actually reduce the number of audits that your OEM will make. So, we've had success with a couple of major OEMs who have said, "Okay, we like the process," and they have now driven it in to their supply chain, and so the suppliers are being told, "Okay, you want to sell to us, that's great. Go do this QML and get qualified, and then we have to audit you less," so it's a win-win for both sides. Internal audits are always a difficult thing for both the supplier and the OEM, and if you can reduce that and also upgrade your quality, that's in everybody's interest.
So that's one of the drivers; we've had really great success with that program. The QML program has been more successful in China than anywhere in the world. And that's partly because there's more manufacturing here. The other thing that I've mentioned before is that direct engagement makes a big difference. Here in Asia, we talk to people face to face more than we do by sending email blasts, so that we here in China, every member company who is a member of IPC has a person who is a portal into IPC, an actual live person that they talk to. They can pick up the phone and say, "Hey, the new 610 G version's coming out, do you want to schedule training or do you want to get some hard copies for your factory?" We proactively talk directly to our members.
Each of our member relationship staff have probably 50 to 60 companies that they talk to directly. Think about it that way; it means they can devote a week of time to each person. That ought to be very effective. In addition, we have a toll-free number in China that is used for customer service, but we're like the Maytag people—we don't get a lot of customer service calls because we're responsive. So that function also turns around and does direct calling to our members to make sure that they're satisfied, they have issues, and so on, so forth. All those things put together, and a strong team, means that we're going to continue to grow here.
Matties: John said that membership globally is going up as well and this show looks great.
Carmichael: I think the traffic was good yesterday; I'm not sure how strong it'll be today, but it’s had good traffic.
Matties: This show looks great and what's interesting is I'm seeing a lot of first-time Americans here looking at equipment, and some Americans and Europeans who have been coming for many years. One of the comments that really strikes me is that they don't have the options for equipment in their regions like they see here. For example, drills. There's 12-15 different drills to choose from here, maybe more.
Carmichael: And guys who do soldering, there's 10 of those. You can pick everything you want.
Matties: And then the other comment I heard is that the quality of the equipment they're seeing here has gone up substantially; even in the last two years, there's a noticeable increase.
Carmichael: I'd say that's true. I think that as China moves up the knowledge value chain, they're making more sophisticated equipment and just like anywhere else, the fact that they compete regionally with Japan and Korea means that they have to up their game. So that the quality of equipment is very high.
Matties: Now, your responsibility is not just for China, you're all of Asia.
Carmichael: Yes. All of Asia, except for India.
Matties: So, when you look at China, what are the current trends here and what should people be aware of?
Carmichael: One of the things, and I can't be too specific, but we're going to be putting some more resources further west. The reason is because the Chinese government is putting more resources further west. They periodically have talked about this in the past, but they're pretty serious about it now and it's part of the Belt and Road initiative, and there's more resources moving to Szechuan and provinces to the west, and so we will be doing some in that line as well. I do see that government is serious about that, and I had a chance last year, I was at an event in Chongqing, and I decided to take a train back to Qingdao, which is an all-day process, but it is only a single-day process. I left at 6:50 a.m. and got back at 9:00 p.m. I basically saw all of China, and for the first two hours, you're in the mountains going through Szechuan, and the rest of the time you're looking at factories the whole way back. It's amazing.
It's time to move more off of the coast and inland, because the cost of manufacturing is more competitive and so forth. So I see that happening. I see specialization happening, so we run technical seminars across the country. In the past, they’ve been about high reliability or tin whiskers and soldering, this type of thing. What I see coming next is we will have a high-reliability conference that's only focused on automotive, or a high-reliability conference that's focused on aerospace and space technology.
Matties: It's market-driven.
Carmichael: Market-driven, customer-focused, and there are certain elements within industries that are specific to that industry. So, I think that you'll see more targeted and focused technical events across the country. We just finalized our calendar, and I think we've got 24 booked for next year, which is up from, again, talk about growth, when I first came here we had three a year, and now we're up to 24. So, it's a pretty sizeable growth. Each of these conferences usually have between 150 and 200 participants, so it's pretty big.
Matties: There's a strong thirst for this knowledge. When you first started coming to China, it wasn't just a day to get around, you would have to plan by the week it seems, right?
Carmichael: Well, when I first came to China, Barry, it was 1976 and you could not buy a round trip airfare. You had to have an invitation to go visit someone, and you got there and the first thing you wanted to do would be to say, "How long are we going to be here?" Because you don't have a ticket out. That's how difficult it was.
Matties: It seems like there was only one flight a week out as well.
Carmichael: Mondays and Fridays, and it was the same people coming in and going out. It was a challenge in the old days. You look at it today, and I think a couple things have happened. One is, the Chinese government recognized that they could not go landline in this country, they'd use the entire world's copper supply and still be short, so they jumped over to mobile. They looked at saying, "Well, gee, we're going to be buying 50% of the world's airplanes, and we can't afford that, so we'll do two things. We'll build our own, and then we'll also put high-speed rail across the country." Which they did in, I don't know, three years, and it's everywhere. The fact that you can go from Chongqing to Qingdao in 14 hours is amazing. I'd say that the infrastructure here, if you step back and compare within the region, this is one thing that the Chinese are very good at, is building infrastructure. From a business standpoint, what drives business is the ability to move around easily and get to places and to have the support that you need, and China has figured that one out.
Matties: There's also a cultural shift, a generational shift going on in the industry as well. We see the millennials in America, but we also see that here in China. What sort of impact does that have on the manufacturing? Job-hopping is one trend that we've seen.
Carmichael: I have heard people say that there's a strand in Chinese DNA that says every Chinese wants to be an entrepreneur and have their own company, and there are a lot more Chinese people under 40 who are thinking about their own business than anywhere else. Certainly more than in Europe, and maybe more than even in the U.S. We're also going through a shift where somebody's father started a company, grew it to a certain size, and now one of the sons or daughters is ready to step up and take it over, and surprisingly, in this industry at least, that seems to be going fairly smoothly. There are a lot of places where the son goes off to the UK or U.S., gets educated, and says, "Yeah, I'm not going to do this type of thing anymore." I sat with three different people yesterday who are all in that category, second generation taking over a father's business and fully committed and interested in doing this. Maybe it's because this is still a growth industry.
The point that people should remember is that yes, my team has grown IPC in China for sure, but the whole pie has grown as well. Electronics are ubiquitous in everything now, and we just need more of them, whether it's in your refrigerator or your smartphone, or in the control systems that allow high-speed rail to have 20 trains on the same line without touching each other, because they're communicating very carefully through a wireless mobile system.
Matties: When you look at this industry, what metrics are important to you?
Carmichael: One of the metrics that's important is to continue to attract talent and to make sure that you can grow; there should be R&D spend, so I think R&D spend is an important metric. Another important metric, and if you look over time, is that the industry has typically grown a couple of points faster than the general economy. If that continues, I think you'll continue to see people put money in, do R&D, and there will be interest in people who do this. I think those two metrics are quite important.
Matties: The other thing that I've noticed is early on, 15 years ago or so when I first started coming here, it was an emerging industry at that point, really starting to take off, but there was a lot of U.S. partnerships here; I don't see as many partnerships. I see more Chinese brands, if you will, that don't need the global partnerships.
Carmichael: That question comes up occasionally in IPC at our board level meetings, and the fact is that well over 75% of the new IPC members in China are actually Chinese companies. They're not U.S. branches or European branches, they're actual Chinese companies. I see that growing continually. I think it's a maturity factor, and the Chinese companies have grown up. There was a period in the middle '80s where a lot of companies that are big companies today got started, like Lenovo, Huawei, that's even pre-Alibaba, and they've grown to be significant size companies now. They're all in the $40-50 billion USD range. They don't need a partner. They don't need a financial partner because they're financially strong, and the technologies they've developed themselves. So yes, I see more of that happening, and I think that's a good sign, because it means that there'll be more competition, and more competition is healthy for everybody.
Matties: Even in the auto industry, back in the day, 15 years ago, if you had a Buick, you were something special here, and today, Buick is nothing special.
Carmichael: Although, I think General Motors has still got the number one market share overall in China, of all the brands combined. They had a good partner at the beginning, SAIC was a good partner, and they've leveraged that and they built a very strong business here. The one that's interesting now that I'm watching is electric cars. I don't know if you've been in Shanghai recently?
Matties: No, last year.
Carmichael: I'm going along on the highway, and I'm stuck in traffic as you normally are in Shanghai, and I see this funny-looking license plate, and it's partly white, partly blue, and partly green. There's a coding to the license plates; black plate means it's a foreigner, and a blue plate means a local person, and then the first two characters tell you what province it's from. In China, in most places, the license plate cost maybe as much as half of the cost of the car. Shanghai has decided to make a big push on electric vehicles, so if you have an electric car, you get one of these funny-looking license plates, but that license plate is basically free. So you've just saved 150,000 Renminbi versus going out and getting a regular blue plate. You're going to see a lot more people driving electric cars.
Matties: They really incentivized that.
Carmichael: That's a huge incentive. The registration, you don't have to wait, you don't have to do the lottery, and it's cheaper. It's a pretty easy decision to make. A couple of our staff have already bought into this and have electric vehicles.
Matties: There's multiple advantages, moving in to the environmental aspect, that's obviously huge with the pollution issue that's in Shanghai and Beijing in particular. It's crazy how much pollution is still there, but again, 15 years ago, it was mostly bicycles on the road, and now we're seeing electric cars that are privately owned.
Carmichael: I think most of the cities are pretty savvy about this, because they've seen other places around the region that haven't done so well with it. So in most cities now, if you're going to buy a car, you have to demonstrate that you have a parking place. If you don't, then you can't get a car.
Matties: Industrial environmental concerns, how's that? Is there a push to be green in these factories here?
Carmichael: Oh, absolutely. In fact, we may have talked about this last year, but it came out officially this year and I've got a steering committee meeting this afternoon talking about it. There was a CSR standard that started here in China—1401, and it's a green technology standard. The reason it came about was because several major Chinese manufacturers have a big chunk of their business in Europe, and Europe has a new requirement that says not only do you, Huawei or Flextronics, have to show that your manufacturing is green and meets CSR standards for EU, your second and third tier suppliers have to, also. And the second and third tier suppliers had no way to do this.
So, we put together a standards committee specifically for this in China, and it took about a year and a half, and we've published a booklet that says, "You follow these guidelines and you have to file these kinds of forms and collect this kind of information, and you can then validate that you are actually CSR compliant in the EU." And it was driven by Chinese companies to meet a European need, had nothing to do with the U.S., but it's now a global IPC standard, and we'll see more of that coming along.
Matties: I know Alex Stepinski is here at the show as well, and he set up a zero discharge facility and several of the Chinese friends that we have here have come by and are really interested in being zero discharge. There's apparently a lot of advantage here for that as well.
Carmichael: Yeah, one of the things that sometimes people miss from abroad is that the Chinese have a legacy which is a five-year plan that they started to use in the days when they were closely aligned with the former Soviet Union. But the Chinese five-year plan actually has money in it, so when they outline, and it's published, you can find it online in English. It says, "Okay, if you're doing this and you're doing this, you can apply for funding to go help do this zero-emission facility or green manufacturing." There's real teeth to the Chinese five-year plan, which a lot of our Chinese members are participating in, and it's something that I think is a definite positive.
Matties: What lessons do you think that other countries should learn from China?
Carmichael: China has demonstrated that you can run your government and your country the way you want to and still participate in the rest of the world and not have to do it to fit into one particular mold. If you’ve heard the term ‘capitalism with Chinese characteristics’ or ‘socialism with Chinese characteristics,’ that’s people trying to categorize where China is. China is its own system. They have demonstrated that they can run a country the way that they feel is correct, but still also participate in the world.
Chinese have developed a very strong firewall for their own reasons, but they've created a Chinese intranet inside the country to help companies. I think the lesson that other people can learn is that you do what's right for your country. You can still grow and you can still participate in the world. You don't have to do it one way. There's not just one correct way to do things. The correct way to do things is what your population thinks is the correct way to do things, and that's a lesson for some people back in North America to learn as well. The days of a colonial empire and people saying that there's only one way to approach society or culture, I think we're pretty much past that. If you get on from that and say, "Okay, how can I take what I need from a knowledge base from somewhere else and apply it domestically in China?" You don't have to have the same system to be able to do that.
That's the kind of advice I would give to people, and I think one common thread across all the 15 countries that I do business in is that pretty much everybody wants an improved economic environment for themselves and their family and good opportunities for themselves, and that's common everywhere. That theme is common; it's common here in China.
Matties: Back to Maslow's chart, right? We start there. Along the same lines, we have a new administration in America, and it looks like the relationship between America and China is opening some doors to make it a little friendlier or easier, I should say, for American companies to do business in China. Are you getting that sense? What's your take on the view?
Carmichael: I think you're probably correct on that. I would say that the big surprise and the person that every Chinese person I talk to knows about is President Trump's granddaughter who can sing in Mandarin. Everybody knows her. Someday, if she's interested, she could be a brand ambassador for just about any company in China, because everybody knows her already. Her singing in Mandarin has gone viral all over in China. I think that Trump's approach is to try to find ways that are mutually beneficial and ways that help business on both sides. He's a business guy, so that's nice to have a business guy thinking about business issues for a change. The Chinese are quite pragmatic. They like Trump and I think there's lots of people out in the world who like to put a spin on stuff and so forth, but the fact is that the only president in my lifetime who the president of China met at the plane was Donald Trump. Xi Jinping went to meet him personally, and that's never happened since Nixon.
Mao didn't meet Nixon at the plane, I think Zhou Enlai did, so the Chinese are very serious about making this relationship work. I do think that they believe that this is probably the most important bilateral relationship on Earth at the moment, and if we get it right, it could be good for all sides.
Matties: There's obviously a lot of connections between our countries on a lot of different levels, so it's good to see that it's going in the right direction.
Carmichael: I think so. We'll see.
Matties: Well, we covered a lot. Is there anything that you would like to share?
Carmichael: I know your coverage is for China at this show, but I would also point out that IPC is seeing significant growth in other parts of Asia as well. We're seeing an increased interest in Japan. Japan has been following a model where Japanese manufacturers, for example, will move their manufacturing from Japan into China or elsewhere. Their supply chain moves with them, and they only follow Japanese standards approaches. A couple of major Japanese companies have realized that's a barrier for them to do additional business. What they've seen is manufacturing here in China and Chinese companies are having an easier time selling products to North America and to Europe because they're following IPC standards and that's what the OEM was looking for.
So we've got several large Japanese companies, Celestica is one, NSK is one that has basically really embraced the IPC approach. And they've shifted because they realize that if they only sell to Japanese manufacturers wherever they are, that's a very limited niche and they need to broaden their base, and they can be competitive against other people. Japan, a mature market, saw 30% growth in this year in membership at IPC.
Matties: Is some of that tied to the meltdown when the supply lines really got choked?
Carmichael: I don't think so. Because the Japanese have also moved very strongly into Vietnam, so if there's issues in China they've got manufacturing in Vietnam. The northern half of Vietnam has a brand-new airport, brand new highway, and all of it paid for by Japanese infrastructure investments.
Matties: A lot of infrastructure.
Carmichael: I think they really recognize that they need to broaden their targeted market, and this is one way to help it. What's happening now in discussions in Japan is that people are saying, "Okay, yeah, we like the Japanese standards, we're used to them, but we're going to use those for Japanese companies. But at the same time, we're going to have IPC standards for everything else that's non-Japanese, and that'll help us do more business." I see that's a big change. We've had good growth in both Vietnam and Thailand this year; the business in those two regions is up 130%. We're doing okay.
Matties: Congratulations, it sounds like you've made a big impact. Are you still having a lot of fun doing this?
Carmichael: I'm still having fun. I think one of the key things that makes it fun is getting a good team, and I think John has commented on it, too, but certainly on my behalf, the China team, the Southeast Asia team, partner in Japan, it's a great group to work with. I get surprised occasionally, but the surprise is like, "Oh, I think we need to do more out in the west in China, here's what I propose to do," type of surprise, which is great. Or, "I could do another series of training in Vietnam if I had a guy who could speak Vietnamese and was an MIT certified master in IPC training, and I can do this," and then I say, "Okay, fine, here's the guy," and then they go off and do it. That's the kind of stuff that makes life fun.
Matties: You guys are growing, so you have resources to invest back in to the membership, which makes a huge difference to be able to react quickly to that sort of opportunity.
Carmichael: Yeah. And I think the other thing that's true, if you think about it in a way, in 2012, we were managing this region from an office in Chicago, and we were managing our finances from an office in Chicago and we didn't speak the language.
Matties: You have to have boots on the ground.
Carmichael: We have a local presence and we can make decisions that are impactful to our members in the same day.
Matties: Great, congratulations Phil.
Carmichael: Good to see you.