Hiwin President Eric Y.T. Chuo
Forging a Global R&D Alliance
In an exclusive interview, the chief executive of precision machinery maker Hiwin Corp. shares the strategy that led to an R&D empire spanning Germany, Britain, Russia, Israel and Japan.
Forging a Global R&D AllianceBy Sara Wu, Hsiao-Wen Wang, Yuan Chou
From CommonWealth Magazine (vol. 495 )
Q: Why do you put so much emphasis on R&D?
A: I feel that it is my life's mission. I feel that Taiwan – Oh, I can't talk about it. As soon as I talk about my mother, I start to cry. When my mother passed away, she was penniless. She didn't get medical treatment on time, because we were very poor, and there was no money for seeing the doctor when you fell ill. My mother and I were very close. I was born the last of ten siblings and had not been weaned. At the age of seven or eight, I was still nursing.
My mother really suffered a lot of hardship throughout her entire life.
During World War II my eldest brother was drafted into the military by the Japanese and sent to the Philippines. He never returned from the war, so my mother would well up in tears whenever she saw children. I felt that being poor was really very saddening.
From junior high school to my first semester at university, all my registration fees were paid for with borrowed money.
That's why I feel it's our mission to see to it that each generation has a better life than the previous one.
I already have enough money, so now I am doing this for society.
Q: How is Hiwin, as a medium-sized enterprise, able to be a global technology leader?
A: Our products are the result of many years of painstaking dedication. About ten years before I started making money, I was laying the strategic groundwork for business expansion.
Not a Single Day without Reading
If you want to take that road, you need to watch and learn all the time. You need to know what the next-generation technologies are. You have to read every day! Over the past decades, I haven't spent a single day without reading.
Linear motors are one example. I participated in symposiums on this technology very early on. I knew it would partially replace ball screws. So I went to Germany at an early stage and looked for this technology all over the place, but my efforts weren't successful. Later on, Mr. Holzer met a Russian researcher. (Editor's note: Mr. Franz Holzer is the founder of Holzer GmbH, a ball screw manufacturer in Offenburg, Germany, which Hiwin acquired in 1993.) And we started to discuss things from there, asking him to do technology transfer. That's when we entered the field of linear motors.
Back then I got the dimensional drawings for the linear motors from the national laboratories in Minsk, Belarus. Later on I found out that the original technology came from a laboratory in Moscow, that they were its forefathers. That's when it dawned on me: All linear motor patents worldwide were Russian.
Samsung had a laboratory in Russia, but subsequently they decided that they would not make back-end equipment and that the laboratory would be closed down. At the time I had been doing business with Samsung for many years, so they asked me whether I wanted the lab. We took it over without spending a single cent! That was ten years ago. That lab is our R&D base.
Worldwide not a single ball screw manufacturer is truly making linear motors. And among the linear motor manufacturers around the globe, there is not one that also makes ball screws and linear guides. But now many technologies require the integration of linear motors and ball screws. If you don't have these, you won't be competitive anymore.
That's where our competitive edge is. Of all those active in this industry worldwide, we offer the most complete production line.
Our biggest rival is THK (of Japan). They also sell linear motors, but these are made by someone else under OEM contracts. With such an arrangement, bringing down costs is very difficult.
Q: How do you build up R&D capabilities? How do you go about upstream and downstream integration?
A: We've expanded at a very fast rate, because we have Matrix. (Editor's note: In 2010 Hiwin acquired Matrix Corp., Britain's largest manufacturer of thread grinding machines for ball screws). That has allowed us to achieve upstream integration.
In terms of downstream integration, we began to make linear robots about seven or eight years ago. We make them completely by ourselves, but we're doing it at a bigger and bigger scale. We also make articulated robots and surgical robots.
Two years ago we acquired Mega-Fabs (of Israel). This solved our supply problems for motion controllers and drivers.
Now we want to make single-axis robots, and we're going straight ahead and developing our own angular bearings. When we sell ball screws in combination with angular bearings in the future, our competitiveness will improve too. That's what we call vertical integration. We have no competitors.
Dead Set against R&D in Taiwan
Q: What synergies have you achieved by expanding R&D and technological capacity through acquisitions? Could you give some concrete examples?
A: Let's take the acquisition of Mega-Fabs as an example. Mega-Fabs is a supplier for Applied Materials. The year of the financial meltdown, they were very hard-hit. Siemens wanted to buy them, but they didn't want to be bought by Siemens, because Siemens only wanted to use a part of the company, and their team would have been disbanded. But I wanted the whole company; we saw eye to eye on that.
We give them a lot of business. We let them make all our drivers. They've also developed many things we wanted. We previously had to buy drivers from the United States or Japan, but now we are entirely using our own supply, which has boosted our competitiveness. Mega-Fabs sells our mass-produced products, which increases their revenue and allows them to make money.
Q: Managing foreign staff is not easy. Employees in Israel, for instance, are more technology-savvy than their Taiwanese counterparts – why should they listen to a Taiwanese boss?
A: You need to communicate. Now that we have managed to make drivers, we want to make magnetic levitation motors. Our Israeli employees consider magnetic levitation motors to be grade-school stuff. They didn't want to do it and suggested that I send Taiwanese staff over to learn from them.
We cannot dispatch staff to Israel. Once they return from training there, the competition will poach them with salaries five or ten times higher than ours. It's not that we don't want to develop talent. The problem is that we will come up empty-handed and other companies will get them. That's why I'm dead set against doing that kind of R&D in Taiwan.
I spent half a year talking to our Israeli employees. I wanted to hear many different opinions, read many books on innovation and R&D, and understand what their experts were thinking. You have to really understand what makes them tick, and find a common language. It takes a big effort. People won't necessarily listen to you just because you throw around your financial clout. They all have strong personalities, and Nobel Prize-level abilities.
Burning the Midnight Oil
Q: How do you manage your R&D assets? How do you protect business secrets and technology patents?
A: Our various R&D locations – Offenbach in Germany, Haifa in Israel, Moscow in Russia and in the future Suzhou in China – all position themselves differently. Ultimately, I integrated them all in a completely new way. No single location puts out a final product.
We have a vice president for R&D, but I am personally in control and take part in decision-making.
I scout for talent and use it. We're hungry for talent. I want to find out the strong suits of each researcher. If what I can find on the Internet is not clear enough, I search the website of the National Science Council to find out what kind of research a certain academic is doing and whether it's what I want. We also participate in industry-academia cooperation. We sponsor doctoral students, who research our topics, with a monthly stipend of NT$45,000 all the way until they graduate. The scholarship is unrelated to whether they come to work for us upon graduation.
In the past I used to work until 2 a.m., but nowadays I've made progress and work only until midnight. I've been going on like this for the past two or three decades! In the evening I do some thinking, read, and deal with paperwork, because I am in meetings all day. I don't return home until Saturday, and only spend Sundays with my family.
I work at least until midnight every day. That hasn't changed in decades. What makes a factory run on blood, sweat and tears? It's a heart beating with passion. It's polishing the image of "Made in Taiwan" with your own sweat. That's what my life is about.
Q: How do you design an R&D organization? How do you evaluate its performance?
A: Serial production and R&D do not have the same organizational setup. Our current product development departments, departments one and two, have a pyramid organizational structure. But the special projects development department, which is in charge of future R&D, is a flat organization.
Usually large, cutting-edge products are handed to the special projects development department. There are numerous teams, and each group has a team leader who does not necessarily hold a top position, but is able to break down borders and bring together different talent. The team is spun off to found a formal organization only after they have more or less completed their project.
Performance indicators also differ. The special projects development department is independent, and its performance is measured against its R&D results. The various special projects don't need to compete with each other; they are independent from each other. Performance is judged based on each project's own tailored plan. The team leader and I discuss the goals, and then we list the milestones.
Never Lost More than a Dime
Q: How do you help your R&D groups to select topics and set goals?
A: We look at future technology trends and also look at the current cost structure. Our order of priority is technology with high production costs, long lead times, or patent bottlenecks.
Direct-drive motors, for instance, have crossed roller bearings. In the past these were imported from Europe. They had a lead time of six months and accounted for 40 percent of the motor's overall cost. Since we wanted to bring down cost, we decided to do R&D on this component and eventually we successfully developed it! As long as a component is crucial, we'll invest in it.
Q: During the past 13 years Hiwin has always been in danger of incurring losses. Why do you still keep investing in R&D?
A: We've never lost money. In the second year of manufacturing ball screws, we made money. In our whole history, we never lost more than a dime. We've always invested in R&D. The money we made, we channeled back into investments. When ball screws eventually started generating quite decent profit, we decided to invest in linear guides, and we lost money again. But no matter how high our losses were, they were never more than 20 cents.
After our paid-in capital reached NT$1.2 billion, I stopped taking money from our shareholders. Now paid-in capital stands at NT$2.3 billion. We have been making money for the past decade. Our two main products have matured, so profit margins have gone up. That's how it is. You need to always cultivate your products.
In the past, when I had some money, I bought land, which I sold when we didn't have money. I have more or less sold all my land. There are just a few plots left. Land in front of Liou Jia Elementary School (in Hsinchu County) now sells at NT$600,000 per ping. Back when I bought it, a ping cost just NT$500.
After satisfying our shareholders and employees, I definitely need to ensure long-term development and do R&D. Shareholders may sell their shares, and employees will jump ship. Doing R&D, however, means investing in the future.
Translated from the Chinese by Susanne Ganz