When Japanese electronics firm Toshiba celebrated the 10th anniversary of its semiconductor factory in China in 2007, its major customers from around the globe were invited.

Toshiba made it a point to invite Arthur Wang, founder and CEO of Keen High, seating him beside Toshiba president Atsutoshi Nishida during the festivities. Sitting at the same table were top executives of the world's most famous consumer electronic brands such as Nokia, Motorola, Philips, Apple, SanDisk, Samsung, and Sony.

While the industry heavyweights had no need to introduce their companies, the little-known Wang, who hails from Taiwan, had a bit of explaining to do as to what his Shenzhen-based company was about. But once filled in on the company's background, the other guests began to treat Wang, a quite proficient speaker of the English language, as one of their peers.

Toshiba's VIP guest Keen High is a Hong Kong-listed company. Yet the company is relatively unknown even in high-tech circles, let alone among consumers, who hardly ever hear its name. While it does not manufacture Apple's iPod ?V that privilege belongs to Taiwan's largest enterprise, Hon Hai Precision Industry Co. Ltd. ?V Keen High stands as the world's leading contract designer and manufacturer of MP3 players.

Upgrade Strategy 1: Focusing on Local Hit Products

Particularly in Europe, where not everyone buys into the iPod craze, virtually every country has its own popular MP3 player brand. These local iPod competitors, which stand out for their eye-catching designs and manifold functions, are mostly manufactured in the Shenzhen factory of Keen High.

Germany's top-selling portable MP3 player brand 'TrekStor,' for example, is designed in Britain and France, but is manufactured in China by Keen High. Taking a TrekStor MP3 player out of a drawer during the interview, Wang demonstrates its striking features. The gadget, which has a nicely curved aluminum-magnesium shell, also convinces with its minimalist touchpad design.

In a product review the German technology magazine Computer Bild ranked the TrekStor i-Beat organix superior to the iPod across the board ?V for functions, shape, sound quality, user friendliness, and battery capacity. Presently this TrekStor MP3 player is selling like hotcakes in both Europe and the United States.

In his office on the 26th floor of a sleek new skyscraper on Shenzhen's bustling Shenlan Avenue, Wang explains his main business strategy: 'Hon Hai is the Global King, but we're focusing on being the Local King.'

Thanks to a clearly defined focus, Keen High was able to carve out its niche within a short time. Wang proudly reveals that Keen High boasted a turnover of US$74.9 million in 2006 and expects to hit US$130 million in 2007. 'In the beginning I would not have imagined you could expand a business like making MP3 players to such a size,' Wang frankly admits.

In 2004 Keen High posted a turnover of just US$8 million. But in the following year turnover soared to US$18 million, and subsequently skyrocketed to US$70 million.

Upgrade Strategy 2: Linking Upstream and Downstream

Prodded by its customers, Keen High has meanwhile begun to develop MP4, GPS and other products. But Wang insists that Keen High will stick to its contract manufacturing business.He concedes that companies need to upgrade to cope with constantly rising manufacturing costs in China, but for Wang this does not mean abandoning contract manufacturing. 'You shouldn't throw out your core business model for the sake of upgrading,' he says, citing the example of Taiwan Semiconductor Manufacturing Company (TSMC), the world's No. 1 dedicated chip foundry, which did not stray from its core manufacturing business, but instead elevated it into a service industry.

'We are actually a service industry,' Wang explains. 'Good service means that when your costs rise, you will face these difficulties together with your customers. For instance, next year when China's Law on Employment Contracts goes into effect, it's common knowledge that costs are bound to go up. The point is whether you are able to make the upstream and downstream of the industry chain team up to jointly shoulder this burden,' Wang says with confidence.

Upgrade Strategy 3: Embracing a Service-industry Spirit

Wang's concept of upgrading by making contract manufacturing 'a good service industry' is reflected in his forthright attitude toward customers and suppliers alike.

For instance, memory chips are a key component in the making of MP3-related products. Therefore, it is crucial for Keen High to keep a tab on often wildly fluctuating flash memory prices.

As a result the company deals with memory suppliers only on a fixed-price contract basis. Each quarter the company signs new contracts with its suppliers after negotiating prices. If subsequently flash memory prices go up or down within a certain range, Keen High still pays its suppliers according to the contracted price. Should prices fluctuate much more than originally anticipated, both sides carry out minor price adjustments within a reasonable range.

Samsung and Toshiba are the world's largest suppliers of flash memory. Keen High has been doing business with Toshiba for many years and has become the Japanese electronics firm's largest buyer in China. When flash memory prices hit rock bottom in September 2007, Keen High lost US$600,000, but Wang accepted the setback without a word.

Upgrade Strategy 4: Honoring Pledges

Earlier, in 2006, Keen High had lost more than US$400,000 when flash memory prices plummeted, and Toshiba was keenly aware of the difficulties they had suffered. When it happened again in 2007, Wang honored the contract and accepted the loss once more. While the top management at Toshiba admired Wang for his faithfulness, they did not want to see their longtime customer run up huge losses. Consequently, Toshiba sent a special representative from Japan to discuss the contract with Wang, saying it was willing to make up about US$100,000 of Keen High's losses, even though it faced the prospect of losing money on each flash memory chip it made.

However, Wang's readiness to stand by his word and accept the losses paid off in the longer run. Thanks to Toshiba's helping hand, Wang sat at the same table with the industry's major player during the anniversary celebrations. As a result he was able to land a contract manufacturing deal for MP3 players with Dutch consumer electronics firm Philips.

Wang reveals that the deal with Philips is a major milestone for Keen High, because it will add the fifth major MP3 player brand outside the Apple Empire (Philips, Creative, Sony, Samsung, SanDisk) to its OEM customer list.

Jian Hong Management Company general manager Robert Chang, who was Wang's schoolmate at the Tunghai University department of business administration, asserts that even as a young student Wang held loyalty in high regard, but also had a nose for business. Chang recalls that he used to laugh at Wang back then, because he was not able to reconcile his sense of loyalty with the realities of doing business. But now it seems that Wang has found his own unique way to success, he concedes.

Upgrade Strategy 5: True Localization

In his youth Wang served in an electronics firm under the Kunnan Enterprises Group, which allowed him to get to know many entrepreneurs in Taiwan's electronics industry. After he left Kunnan, Wang set up a trading company in Hong Kong, which acted as a sales agent for China-made electronic goods. Back then Wang noticed that a factory run by a local Chinese named Ye Bin was doing well and had good credit. So he decided to buy up the factory.

Many Taiwanese investors in China warned Wang to be cautious, but Wang had his own ideas. 'If you cooperate with someone, you should not have any prejudices. It doesn't matter where someone hails from,' says Wang in explaining where he differs from other Taiwanese investors. 'Blending in' and 'respect' are the two things that Wang learned in particular after starting to do business in China.

Wang's approach should be proven right. Presently, Ye Bin, now vice chairman of Keen High, has opened another factory that produces for the local market. 'Exports are my domain, while local sales are his. When it comes to entering the global market, our competitive strengths by far exceed the scope of rising costs,' Wang says animatedly.

Upgrade Strategy 6: Making Friends Everywhere

Wang not only has good relations with the locals in China, but also is well connected in Taiwan, so it has been easy to strengthen his major shareholder group. Wang humbly reveals that Keen High has enjoyed the support of many friends in Taiwan's business community. Citing an example, Wang explains that when his company suffers supply bottlenecks, he can rely on a Taiwanese who holds a key position in a foreign company in the Asia-Pacific region to get him the needed goods. And when Taiwanese investors travel in China, Wang will ask them to make suggestions as to how the production process at his Chinese factories could be improved.

Upgrade Strategy 7: Treating Customers Honestly

Wang is also on impeccable terms with his customers. In 2006 Wang's mother died and he rushed to his native town of Hualian to attend the funeral. When he watched the funeral video later on, he discovered that not only many bosses of Taiwanese high-tech companies had been present, but that even a foreigner had offered incense and knelt down to pay homage to his deceased mother. When he took a closer look, he saw that the foreign guest was Mr. Shimon Szmigiel , the chairman of TrekStor, Keen High's major customer from Germany.

He had taken an exhausting intercontinental flight to attend the funeral of Wang's mother, without making any special announcement, and he even took to the podium to give a short speech. 'I didn't know Mama Wang, but being friends with Arthur and seeing his character, I know that Mama Wang was a remarkable woman,' the German executive said with emotion.

That's the story of Wang and Keen High. It tells how a low-key and obscure Taiwanese businessman was able to build a truly competitive company in the fiercely competitive electronics industry, despite steadily rising production costs in China. Wang and Keen High have scored another global success for Taiwan.

Who says that Taiwanese businesses in China don't upgrade?

Translated from the Chinese by Susanne Ganz

---

Chinese Version: 義氣＋真情　打造MP3王國