“We are the biggest company in the New Southbound Policy arena,” says Shen during an interview at the company’s factory in the Philippines.

With no end to the trade war in sight, Taiwan’s “Big Five” electronics contract manufacturers (Compal Electronics, Quanta Computer, Inventec, Pegatron, and Wistron) are looking for production bases outside of China to divert risk from U.S. tariffs on products made and exported from China. With annual revenue of more than NT$130 billion, Kinpo is still not even half as big as Compal Electronics, the other subgroup belonging to parent Kinpo Group, yet it effortlessly snaps up orders in Southeast Asia.

                               

“I would be very disappointed in myself if our revenue in 2020 did not grow 50% year-on-year,” remarks Shen.

Kinpo’s network of manufacturing plants in Southeast Asia spans Malaysia, the Philippines and Thailand. They churn out a wide range of products including high-end household appliances, printers and calculators. Of these, orders from a British brand known as “the Apple of the household appliances world” get the most attention.

Shen says that Kinpo secured these high-profile orders because, with a staff of nearly 40,000 people and 212 SMT (surface mount technology) production lines in plants covering a floor space of 600,000 square meters, it is the largest electronics manufacturing services provider in Southeast Asia.

Compared to the Big Five, which heavily rely on China-based production, Kinpo’s Southeast Asian plants contribute more than 60 percent to the company’s total revenue. Therefore, international brands looking to find a manufacturer in Southeast Asia can hardly overlook Kinpo.

Shen, the “Southeast Asian king of Taiwan’s tech industry”, spends more than 200 days per year outside of Taiwan, flying back and forth between factories in Southeast Asia. As the trade war dragged on, Shen’s schedule filled up with appointments to take client delegations to inspect production bases in Thailand and the Philippines. In the past, these clients weren’t interested in going to Southeast Asia regardless of how much Shen implored them to take a look. It could be said that the trade war has created business opportunities for Kinpo had never seen in the thirty years before.

“It’s because the times are changing so much that a ‘small guy’ like us can get an opportunity like this,” says Shen, describing how Kinpo got its chance to overcome its underdog status in relation to the industry’s Big Five.

Becoming more serious, Shen points out that it also takes determination to grab an opportunity when it presents itself. “If you want to be active in Southeast Asia, it takes three years to just lay the foundations in a single country,” he says.

Kinpo Founder’s Son-in-law Ditches China for ASEAN

Shen is married to the oldest daughter of Kinpo Group founder and Chairman Rock Hsu. In Taiwan’s corporate world, he represents a rare example of a son-in-law instead of a son taking the helm from the founder of a family business. Since 2008, Shen has served as chief executive officer of the New Kinpo Group, a Kinpo Group subgroup whose subsidiaries include four listed companies - consumer electronics maker Kinpo Electronics, contract manufacturer Cal-Comp Electronics (Thailand) PCL, power supply maker AcBel Polytech Inc. and cable modem maker Castlenet Technology Inc. Shen also serves as president of Kinpo Electronics and several other group companies.

When Hsu was asked back then why he anointed Shen as his successor and not his son Hsu Chieh-li, he responded that it wasn’t he who made the decision, but that Shen had been recommended by Chiang Hsiao-chin, then president of Kinpo Electronics, when he retired due to health reasons in 2008.

Photo by Elaine Huang/CW

New Kinpo Group CEO Simon Shen decided a decade ago to focus on Southeast Asia. “It’s because the times are changing so much that a ‘small guy’ like us could get an opportunity like this,” says Shen, describing why underdog Kinpo was able to snatch orders from the industry’s Big Five.

In 2010, two years after Shen took over, most other electronics contract manufacturers followed the lead of American IT brand Hewlett-Packard (HP) relocating production further inland in China to Chongqing and Chengdu. But Shen told Hsu he wanted to deepen the company’s presence in Southeast Asia.

Hsu knew that Kinpo wouldn’t have to start from scratch in Southeast Asia. He had already laid a foundation in the region 30 years ago when Kinpo Electronics, facing rising wages in Taiwan, established Cal-Comp Electronics (Thailand) PCL as an affiliate of Kinpo Electronics, with its first manufacturing plant in Thailand. Although Hsu had acted much earlier than most other tech companies, the investment in Thailand was not substantial at the time, and the plant only played a minor role for the group company.

“After Shen became president, he expanded Kinpo’s production capacity in Southeast Asia. He was also the driving force behind the expansion into Thailand and the Philippines,” observes a tech industry executive who does not wish to be named. 

What made Shen embrace Southeast Asia at a time when everyone else was looking to China?

“If I had remained in China ten years ago, I would not have been able to beat them. In China I am not a ‘me too’ [in the top ranks] but a ‘me among a dozen others’,” notes Shen, emphasizing the need to stick out from the crowd.

Battle No. 1: Relocate to Thailand to Wrest Back HP Printer Orders

Shen fought his most formidable battle in 2010. At the time, printers accounted for half of the company’s annual revenue, but HP began to gradually shift orders to China-based Foxconn, the world’s top contract electronics assembler. Shen reminded the HP management that, in order to gain Chinese state subsidies, production needed to be shifted to another location in China every five years. He convinced them that this was not a viable long-term solution. 

He moved to expand the production plants in Thailand while gradually reducing the Chinese production lines. Eventually, Shen managed to wrest the HP printer orders back from Foxconn.

Now, ten years later, Shen oversees nine manufacturing plants in Thailand, most belonging to Cal-Comp Electronics, with annual revenue exceeding NT$100 billion. A Kinpo veteran reveals that “more than half of the factories in Thailand were built after 2010.”

Battle No. 2: Moving into the Philippines to Secure Orders for High-end Home Appliances

After winning the battle for HP printer orders, Shen did not rest on his laurels. Instead he continued his expansion into Southeast Asia. Three years ago, Shen started his Philippine offensive, aiming to win orders from a British household appliances brand with a reputation comparable to that of Apple in the IT sector.

The Kinpo Electronics manufacturing plant is located at Manila Bay in Batangas Province, in the Philippines’ electronics manufacturing cluster about an hour by car from downtown Manila.

As the car turns into what is known as the First Philippine Industrial Park, developed by the government, a large factory building with the sign Cal-Comp Technology comes into sight alongside a clean and tidy street.

Various media have reported that the New Kinpo Group has received OEM orders for hairdryers and vacuum cleaners from UK-based Dyson and is shipping them from this factory in the Philippines. Pointing to confidentiality agreements, however, the company spokesman refuses to comment on these reports.

In the beginning, Dyson and Japanese household appliance brand Panasonic used to focus on five manufacturers in Malaysia, including Singaporean Flex Ltd., the third largest electronics contract maker in the world and number one in Malaysia.

In 2014, Malaysia was graduated out of the Generalized System of Preferences (GSP) offered by the European Union and Turkey. Searching for alternative production bases, the chief operating officer of the British home appliances brand went to inspect factories in Vietnam. But after visiting the Philippines, the company’s chief technology officer, who formerly worked for Canadian multinational Blackberry and Flex, decided to gradually relocate production from Malaysia to the Philippines.

Anyone trying to find a contract manufacturer in Malaysia and the Philippines comparable in size and capability to Flex cannot get around Kinpo. So when the British household appliances brand decided to place orders in the Philippines, it did not have much of a choice.

First Building Factories, then Clinching Deals

According to rumor, Shen gambled high with a steely determination to win these orders. Before even having signed a contract, he decided to build a new factory. He eventually struck a deal with the British brand 18 months later.

Kinpo Electronics manager Gary Huang was dispatched to the Philippines from Taipei three years ago to oversee the plant construction. He recalls how the factory foundation had just been excavated on Christmas Eve when a typhoon hit, flooding the construction pit. “As soon as the typhoon made landfall, the entire site was flooded,” recalls Huang. Unfazed by the adverse circumstances, Shen stuck with his decision and went ahead with the project.

Photo by Elaine Huang/CW

Today, the plant houses Southeast Asia’s largest automatic spray painting line and injection molding machines. And in order to meet the British brand customer’s strict requirements, cleanroom standards apply to half of it.

“During spray painting, the requirement is that there cannot be a single particle [in the air],” explains Kinpo Electronics Deputy General Manager Wang Er-le, who has been posted in the Philippines. The standards set by “the home appliance company who must not be named” are quite high.

“It’s not us looking for orders now, it’s the customers knocking on our door,” says Wang laughing. Tellingly, the unnamed high-end customer has already become the New Kinpo Group’s biggest single customer in the Philippines in 2019.

“The smart appliances segment is growing very strongly. This year we shipped about 5-7 million units, and next year we expect to grow 50 percent,” predicts Shen. The production capacity of the plant that currently produces exclusively for said VIP customer can no longer meet demand, but Shen has already prepared additional space to ramp up production.

China Plants Account for Less than 10% of Revenue

“When everyone was going to China while you went to Southeast Asia, customers would question you in the early days because they were not able to see your value,” says Shen, recalling the reactions regarding his decision ten years ago. However, he points out, “You just need to stick it out.”

If you wait long enough, your turn will come. Presently, the New Kinpo Group is expanding factories in Thailand as order books are full and plants are running at full capacity thanks to the ongoing trade war. A steady stream of customers ask to be shown around the factories, a situation unheard of during the past decade.

The company expects to expand the number of its factories in Thailand from nine to 13 to accommodate the relocation of subsidiary Castlenet’s China-based production of networking products to Thailand.

The current two factories in the Philippines with more than 10,000 employees are working at full capacity as well. Shen is also preparing for further factory expansion there, expecting to hire another 5,000 people in 2020.

In contrast, the more than 30,000 employees who worked in factories in Suzhou’s Wujiang District and Dongguan in the Pearl River Delta during peak times have been reduced to less than 5,000 people. The China-based plants now account for less than 10 percent of group revenue.

“In 2020, the trend to shift orders will become more pronounced, customers will perhaps call the shots. Orders will be moved during the first half of next year,” predicts Shen. Compared to the Big Five, who have only just begun to plan production bases in Southeast Asia, Shen can look into the future with confidence. “If you are only just now preparing to relocate, it will be too late,” he notes.

Another 10 Years to Penetrate the Domestic Market

Shen, who turned 53 this year, is not planning to slow down anytime soon. While the factories in Southeast Asia mainly produce for export, Shen is frank about his ambition to crack the domestic markets too. “Revenue contribution depends on our export business, but in the long run we need to cultivate our local presence. We still need to establish locations to tap domestic demand,” he says.

A product on display in the showroom at the Lima Technology Center in Lipa City reveals that Shen’s plans are already well underway.

Photo by Elaine Huang/CW

As we enter the room, a showroom employee speaks with a smart speaker in Tagalog, the national language of the Philippines. Within a few seconds, the smart speaker responds.

This smart speaker uses a semantic platform that was developed over a period of two to three years based on voice samples provided by the factory’s more than 10,000 Philippine employees. It currently reaches an accuracy of 97 percent.

The New Kinpo Group started out as a hardware maker, so churning out hardware is not an issue. Shen’s biggest goal is to get The SM Store, the largest online retailer in the Philippines, and convenience store chain 7-Eleven to collaborate by hooking their systems up to the smart speakers in customers’ homes.

“Next year we will prepare to go online; the hardware is very cheap. The main thing is that we are rolling it out in consumers’ homes. They can shop from home using voice control directly, going online to these collaborating platforms to select their purchases and connect to logistics,” explains Shen. He does not plan to make money from selling the speakers but will instead profit from call forwarding fees.

Asked how long it will take for this new business to become profitable, Shen admits that conquering the domestic market might take a while, saying: “It will take 10 years to fight this next battle.”

Shen has never had any regrets about his 10-year-long struggle in Southeast Asia far away from the hotly contested main battlefield in China. And since he never retreated, his efforts are now bearing fruit.

“I spent 10 years in Southeast Asia waiting for others to come. Now I am the local king,” he says beaming with confidence.

Have you read?
♦ Southeast Asia Replaces Longtime Favorite China
♦ Eye on Vietnam, The New Electronics Manufacturing Hub
♦ How Can the World’s Biggest Luxury Bag Maker Win the Trade War?
♦ Why Are Hong Kong Startups Setting Up Shop In Taiwan?

Translated by Susanne Ganz
Edited by TC Lin, Sharon Tseng