In-house or No House
From maligned OEM manufacturer to name brand, Posiflex Technologies’ all-or-nothing approach is driving the company toward a dream: becoming the Mercedes of Retail Displays.
In-house or No HouseBy Elaine Huang
From CommonWealth Magazine (vol. 367 )
Ten years ago, when Owen Chen, president and CEO of Posiflex Technologies, flew to the US to visit one of his big clients, he had no inkling of the insults and attacks he was about to encounter.
First, Chen was startled to discover that the point of sale (POS) system his own company manufactured, which should have had a yellow “made in Taiwan” sticker on it, instead had a long white sticker reading “Product of USA.”
“Your products are pretty good, but they don't sell well when you write ‘Made in Taiwan' on them,” said the client, unceremoniously brushing Chen's questioning aside.
Chen was so depressed he was unable to get any sleep on the plane ride home. Back in Taiwan, still seething from the experience, he etched the letters “Made in Taiwan” right into the production molds to thwart any attempts by customers to change the origin of manufacture. This provoked an intense backlash from his clients, who pulled back their orders and caused Posiflex sales to tumble by 40%. Adding further salt to the company's wounds, contractual terms prevented the company from exporting the same product to the US market for the next three years.
Owen Chen's refusal to compromise put Posiflex in a sink-or-swim position. With its back against the wall, the company launched an all-out campaign to build its own brand.
Original Brand Hits US Market
Founded in 1984 as a computer maker, Posiflex went into contract manufacturing (OEM) of POS systems six years later, subsequently breaking into the world's largest POS market in the US, long dominated by such international giants as IBM and NCR. Today, end customers include Universal Studios, Resource System (the largest American data system maintenance supplier), and Club Corp., America's largest golf club. Last year, Posiflex turned heads by successfully applying its POS system to voter registration systems. That system was adopted in Florida, the site of controversial vote counting in the 2000 US presidential election.
Posiflex sales grew from NT$460 million to NT$1.723 billion between 2002 and 2006, with earnings per share climbing accordingly from NT$2.3 to NT$9.4 by 2005. And largely due to emphasis on the brand, margins have stayed higher than 35% over the past three years.
Yuanta Securities analyst Eddy Tseng relates that POS is a link in the industrial computer chain, and that diverse customized designs in small quantities offer a window of opportunity for Taiwanese vendors, with their cost-down advantage. With the increased prosperity of retail and department stores in recent years and the attendant diversity of commercial exchanges, a demand emerged for point of sales management. Meanwhile, fields of application broadened, and with profit margins hovering between 20 and 30 percent, the POS sector became the El Dorado of the electronics industry. “Posiflex is like Asustek in that it not only has its own brand, but it has control over core technology in key parts as well,” notes Tseng.
From POS boards (equivalent to computer mother boards) to such key components as touch-sensitive chips, Owen Chen insists on doing it all in-house. In fact, with an in-house production rate of nearly 100%, no one in the industry comes close to Posiflex.
A graduate of the electrical engineering program at National Cheng Kung University, Chen began his career as a factory manager for a company producing car stereos for Mercedes-Benz. He departed that position in 1984 to start his own business in personal computers, but five years later, he was taken by surprise when the PC industry was broadsided by a price-gouging war, dropping monthly profits by 30% and causing extreme cost consciousness across the board. This was just around the time that the conventional cash register was becoming a dinosaur and major companies such as IBM were getting into PC-based POS systems. At the suggestion of a customer, Owen Chen used his background in computers as a springboard for entry into the POS system field, beginning with such peripherals as cash boxes, credit card machines, and keyboards.
When Mercedes-Benz brought him to be trained in Germany for six months, Owen Chen discovered that a used Mercedes could fetch the same price as a new car, due to its quality and durability. “That experience was back in the 1970s, but it had a huge impact on my thinking,” he relates. Although new to the POS field, his engineering background and vicarious German experience helped make Chen a stickler for product design and construction. “I want to be the Mercedes of POS,” he proclaims.
Lacking name recognition, Posiflex started out doing OEM business, until Owen Chen encountered the most severe growing pains of his entrepreneurial career in 1996, when his US customer cut him out of the market. Strong willed, Chen turned that resistance into a propulsive force taking him forward. The next year, just one and one-half months after IBM introduced its PC-based POS system, Posiflex rolled out the first one-piece POS system made in Taiwan.
Not having a high hardware threshold, the challenge in POS instead lies in integration and design, entailing compatibility between institutions and software/hardware systems. However, none of this poses difficulty for Posiflex with its firm command over such core technologies as basic circuitry, firmware, and boards. When one client experienced hardware and software integration issues, Owen Chen immediately dispatched engineers to speedily revise the software and resolve the problem free of charge. “Quality is designed in, not achieved through production management,” offers Chen.
Beginning with raw material delivery, Owen Chen requires combined oversight of procurement and production management, and whenever the R&D department gets behind schedule, the frank-talking Chen stays behind to supervise, working through the deep of the night to get the job done. “The president prefers to get the front-end design right, rather than working backwards after a problem comes up,” relates executive vice president Henry Leu.
It was just such exacting concentration on engineering that attracted the attention of Hitachi back in 1997. For Japanese manufacturers, quality is paramount, especially when it comes to POS systems lasting five to seven years. For such products, which are used in all kinds of ways every single day throughout their whole lifespan, durability and stability are critical attributes.
Hitachi asked Owen Chen to conduct tests simulating various usage environments and conditions. Using the Japanese insistence on quality to address weaknesses and make improvements, Chen states emphatically, “Quality is basic. The Japanese are looking five years down the road at the machine's condition.”
Posiflex applies the artfully titled “chimpanzee standard” to its production flow. Explaining, CEO Chen relates that durability testing simulates rough handling by a powerful animal like a chimpanzee, which could conceivably do anything to it. “A machine must be able to handle irrational operation by others for it to be considered as robust as a Mercedes.”
A little over three years ago, Universal Studios of California came to Posiflex. Starting with a relatively small order of 600, the client offered powerful financial muscle, and Universal, never one to use anything but top-of-the-line merchandise, passed over such leading international brands as IBM in favor of Posiflex, giving the company needed leverage in the US market. This in turn helped win the favor of Scan Source and Blue Star, the top two US sales channel firms. Last year, the voting registration machines Posiflex spent six months designing, incorporating multiple functions including electronic signature verification, were certified in both Florida and North Carolina. “Once we passed in Florida, which had its problems in the past, the other states were easy,” relates Chen, who is looking ahead to the opportunities at hand in the 2008 US presidential election. “Posiflex stands out in the North American market,” says Siao Li-jun, special assistant to the president at Firich Enterprises, a leading POS vendor that established a branch company in the US last year.
An antique NCR cash register, a century old, stands on display at Posiflex's plant next to the company's latest fan-less POS model. Purchased in Europe by Owen Chen for 5000 euros, its precision structure continues to delight this student of mechanical engineering, who marvels at the timelessness and durability of fine machinery.
Despite the high profit margins generated by the combination of high quality and high in-house production, doing nearly everything itself also makes Posiflex's costs higher than those of its competitors. “I know my fatal flaw, so maintaining cost competitiveness on top of a high ratio of in-house production is my main challenge,” admits Chen.
Nevertheless, Owen Chen is willing to keep bearing the burden of this “original sin.” “It's not easy for me to compromise. For us engineers in the computer world, it's either ones or zeroes, not 0.5s,” he quips, appearing less like a business executive than the hard-nosed engineer standing up to affronts and assaults that he was a decade ago.
Translated from the Chinese by David Toman
Chinese Version: 振樺 要做「賓士級」的POS