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“Old Huang, what do you think a supermarket is? It’s just a small store that is magnified several times. But why are those small stores little profits, but supermarkets can make profits several times more than them?”

“The supermarkets are bigger and are selling more products.”

“You are partially right. The real reason is the core value of the supermarkets. Supermarkets had set the standards for the cost price of their products. To maintain their profits, they will limit the cost of your products. If your cost is too high, it will be hard to survive. A product’s prices may defer in small stores along the same street, but in Tai Hua Supermarket, the same product will cost the same in all their outlets. This is call standard cost.”

Fatty Huang nodded in a daze. “But what has this got to do with being an OEM?”

“The core of being an OEM is the production capacity and labor. This is the same as supermarkets for setting standard cost. If other people can produce 100 products in eight hours and you can produce 120 products at the same time, you will make money. At the same time, other people will have to follow your standards. This is similar to setting the benchmark in the industry.”

“But how much can I make if I can produce 20 more products than others? We will also lose the chance to establish our brand.” Fatty Huang is hesitating. He knew the value of an established brand.

“Old Huang, is our country’s Lenovo Group powerful?”

“Of course. Their sales are the highest in Asia, and I heard they are also the number one PC manufacturer in the world.” Fatty Huang knew Feng Yu has shares in Lenovo, and Lenovo Group is powerful indeed.

“Lenovo Group’s factories’ production is not high. Most of their parts are from OEMs. Even our Aiwa Electronics and Wind and Rain Electronics’ factories were once OEMs, especially producing LCD monitors for Lenovo. If this is not profitable, do you think I will do? I can produce more DVD players and kick the small factories like you all out. This way, I can make more money. The profits from a DVD player is much higher than those patent authorization fees.”

“This is because Lenovo is paying us well for being their OEM. Also, our machine and equipment are running 24 hours, other than during maintenance. This will increase our factories’ profits and also let our production workers make more money. Guangzhou and Shenzhen have lots of factories and is advantageous when it comes to hiring. If you can consolidate all these factories and increase the scale, improve the efficiency, you can definitely make lots of money.” Feng Yu said.

In Feng Yu’s previous life, Foxconn had set the standards for OEMs. They increased their workers’ efficiency and became the industry leader. Their annual profits is not a small amount.

But they encountered some issues later because of their harsh management and rising manpower cost in China. In the end, they shifted most of their production to India and other countries with low labor costs.

Foxconn had entered Fortune Global 500 as an OEM, which is an astonishing achievement.

“Manager Feng, I roughly understand what you are talking about. You are suggesting me to increase my scale and efficiency to lower my cost and profit from there, right?”

Feng Yu nodded. “That’s right, but you missed out on an important point, which is to set the standards. You must make all OEMs follow the standards you set. If they are below your standards, their profits will be much lower, or even not get any orders.”

“I can acquire those factories easily now. Those factories are not big and are not doing well recently. If I tell them I want to acquire them and take over all their workers, they will be glad to sell them. After merging with all those factories, our efficiency is increased and cost lowered, but we don’t have any orders yet.”

No matter how hardworking and skillful you are, it is useless if there’s no job!

“Since I suggested this to you, I will guarantee you will have jobs. Suppose you can really acquire all those factories and reached an economy of scale. In that case, I will let you produce some of our HD DVD players, mobile phones, MP3, Flash drive, and even PC parts or assembling PCs. Once you received our orders, you will have no problems getting other orders.”

Fatty Huang’s eyes brighten up when he heard Feng Yu is going to give him orders. He knew Manager Feng’s orders will be big, and his current small factory will not fulfill the order.

“Manager Feng, can you give me the orders first? I will think of ways to complete it to your requirements.” Fatty Huang suddenly has other ideas.

He wants to be the general contractor and pass the orders to other factories.

Feng Yu rolled his eyes. “What do you think?”

Fatty Huang smiled embarrassedly. “Manager Feng, if you had not lowered the patent authorization fees earlier, I will have no problems taking over those factories. But now, I need to spend a lot more money to buy them. Of course, I still can afford it, but I am still not very confident.”

“You want to sign the contract with us first?”

Fatty Huang nodded furiously. “Can I?”

“Of course not!” There are no free lunches in this world! What if I give you the contract, and you cannot fulfill it? It’s easy to pursue your responsibility, but our sales will be affected.

“Then... Manager Feng, how should I set the standards you mentioned?”

“Have you heard of Foxconn? They are Lenovo and Wind and Rain Mobile phones’ biggest OEM. They are setting the OEM standards for 3C (computer, consumer electronics, and communication) products. If you can work with them, you will be successful.”

“Foxconn? It’s them? Their workers’ management is too harsh. Many of our workers are from Foxconn.” Fatty Huang dislikes Foxconn.

Management must also be humane. Those workers are helping them create value, and how can they ill-treat them? That factory will surely be in trouble. As China’s education level increases, it’s getting harder to find low-wage, unskilled, and uneducated workers.

There should be lots of such workers from the Western region. But after Guangcai Program started there, many of the locals returned home as they can find work in their hometowns.

If the workers can find jobs near to their home, why would they travel across the country to look for work?

Since you think Foxconn is too harsh on their workers, can you think of a way to be more effective than them and set your standards? Although your profits will be much lesser than them initially, your corporate culture will let your company last much longer.

Translator’s Notes:

Foxconn