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Oral History
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- Early days of Elec and Eltek (1): product development and establishment of affiliated companies
In 1972, David left Ampex Co. to set up a business with two colleagues. They established Elec Computer Component Limited (Elec). The three of them had worked together for a long time. Moreover, they had a good understanding of each other and divided their responsibilities according to everyone’s specialization. Therefore, once started, their business was running smoothly. In the 1960s, calculators were made with transistors. In the 1970s, integrated circuit (IC) was commonly used, reducing the size of calculator. During the early years, local electronics factories were using parts mostly imported from USA and Japan. An example of them was circuit board for manufacturing calculator. This provided business opportunities for David and his partners. At its early stage, the printed circuit boards used by Elec for manufacturing hand-held calculators had to meet the safety standard of the Underwriter Laboratory (UL) of USA before the products could be exported to USA.
David and his partners then established Eltek Memory Products Limited which manufactured memory for cash register to be exported to Japan. Later they intended to manufacture electronic products. In order to avoid conflict of interests with the clients of circuit boards, they switched to communication equipment business. At the end of the 1970s when the telecommunication market in USA was open, and ATandT could not monopolize the local market, Eltek began to develop household cordless telephone. Their products had obtained certification by the Federation Communications Commission (FCC) for export to USA. In the 1980s, they planned to get Elec and Eltek listed and merged to become Elec and Eltek so as to maintain the approved status of UL and FCC. Finally it was listed in 1984.
- Early days of Elec and Eltek (2): product development and establishment of affiliated companies
Elec and Eltek had adopted the US mode of management which did not encourage employment of staff’s relatives – even relatives of the founders did not get involved in the business either. Talents in the electronics field were recruited to fill the engineering and management positions. During the 1970s, according to different share structures and product lines, David and his partners established three companies: Elec Computer Component Limited, Etco Switching System Company Limited and Eltek Memory Products Limited which manufactured circuit board, calculator keyboard and computer memory system respectively. The first company set up was Elec. Etco and Eltek were established by Elec and its new share-holders. The original plan was for Etco to develop keyboard products. However, as electronic watches soon became popular, production was switched to gold-plated circuit board for manufacturing electronic watch, and later to metal circuit board resulting in deviation from the original plan. Etco and Elec were similar in their product line, manufacturing circuit board. When the three companies were merged to be listed in the 1980s, the new company was called Elec and Eltek.
- Oversea expansion in the 1970s: Collaboration with IBM and establishment of Engineering Department
In the mid 1970s, Elec Computer Component Limited explored the overseas market. At that time, the world’s largest circuit board manufacturer, International Business Machine (IBM) set up an International Procurement Office (IPO) in Taiwan, purchasing electronic parts from the Far East region to lower the production cost at the headquarters. In 1975/76, Elec contacted the IPO of IBM and offered them a few tens of circuit board samples with information on prices and completion dates. After tentatively approving Elec’s products, the IPO sent their department manager to Hong Kong to check out Elec’s factory in To Kwa Wan. The manager said to David approvingly, “I couldn’t believe in such kind of building you can build up that kind of quality.” From then on, IBM had become Elec’s close partner. Whenever David sold his products to IBM, he could directly ask their budgetary price. IBM’s offer would far exceed Elec’s production cost, and they never had to bargain.
Elec was successful in opening the US market, and their clients included HP and Siemens. Their business in circuit board was not run in OEM mode, which was not suitable for the manufacture of parts and components. Both the product design and the production craft were done by Elec. David stressed that technological development of the circuit board followed that of the semi-conductor. Whenever the electronics companies in USA had developed new products, Elec, which was a supplier of circuit board, had to raise their technological level to keep pace with that in the market. In Elec, there was an engineering department, where David was in charge of tests and experiments, and telecommunication products were developed at the end of the 1970s.
David was extremely interested in technologies – he would request for visiting his clients’ plants when he discussed business with them in their companies. For instance, he had seen Lockheed’s infrared-ray tank, which was an eye-opener to him and brought innovative ideas to Elec in their development. David thought that the US companies were open in technology transfers; they welcomed exchanges in technologies with Elec in many areas except secret army technologies or products that were in the process of development. Later when there was fierce competition in electronic technologies between USA and Japan, Japanese visitors were forbidden to take pictures in the factories so as to prevent the Japanese from stealing technologies.
David expressed his appreciation in the way the US companies valued honesty and trust and allowed a Chinese to take on the position of General Manager in the Hong Kong branch. He also strongly agreed with the mode in which US companies run a business. When Elec was established, they were the first manufacturer of printed circuit board in South East Asia. Five to six years later, when some staff left the company to start their own business, Elec began to face local competitors. Since there was rapid development in their early years, Elec became prestigious in just a few years. Therefore, whenever they negotiated with their clients, Elec had the right to choose in terms of prices and products, without being threatened by other competitors. Manufacture of circuit board was tailor-made, and the orders of the PCB with lower value were taken by Elec’s competitors. In the 1970s, Elec’s markets were scattered, with each of USA, Europe and South East Asia comprising one-third of the total in order to keep a balance of risks.
- Comparisons between management philosophies of American and Japanese enterprises, Introduction of...
David compared the management philosophies of American and Japanese electronics enterprises. He thought that Japanese companies regarded discipline and regulation very important, so they demanded obedience from their staff and set up a system for stimulating competition among staff members. In the mainland, there would be notice boards in the workshops of the Japanese-funded factories. On the board, performance of each individual staff was listed so as to encourage them to reach the daily production quota. Moreover, the management staff would instill ideas of efficiency into the staff members, asking them to pay attention to their role in the production line in order to ensure accuracy in every step of the production. Toyota Motor Company is the most typical model of Japanese management. Based on the idea of Kaizen (Japanese meaning “improve”), the company focuses on discipline and sets a reward-and-punishment system.
As for US companies, human rights, freedom and innovation are deemed to be most important. There are fewer demands on the staff; the company cares about the staff’s over-all performance in the production and imposes less restriction on details. David sighed and said that Japanese clients were very picky – they even used magnifying glass to check the products. From the beginning of their establishment, Elec had been run in the American mode of management so that both the production process and the quality could meet the international standard, including International Process Standard set up by US industries. They had imposed a series of measures on industrial safety and worker protection. For example, there was a storage room in the factory for chemicals such as rosin; workers were required to wear protective gears such as eye masks for welding and plating; children workers would not be hired; health-care room and canteen were set up for night-shift workers. During their early years, Elec had already established an internal audit system to oversee the company’s finance, personnel and production safety.
At the end of the 1970s, Elec’s business was making steady progress. David and his partners were getting ambitious. Using large enterprises such as Toyota Motor and IBM as a model, they created their own corporate culture. He thought that his company should not make the pursuit of profit their only mission, nor should they be managed by only a few entrepreneurs. A large enterprise should adopt a management system and philosophy so as to lessen human errors in operation and increase cohesion among staff. In the 1980s, David invited a consultant company to help them implement the modern philosophy of management adopted by large American and Japanese enterprises. David mentioned about their first and second reforms.
The first reform: Elec invited consultant company, Alexander Proudfoot to evaluate the details of work process before making suggestions on how to improve efficiency and quality. Their staff was required to observe the rules. However, some staff complained that such act was leadership by layman. Moreover, as that consultant company had a lot of changes in their personnel, the reform ended without a cause.
The second reform: In 1986, Elec was hit by a financial crisis. Furthermore, with growth in the company’s scale, David considered it necessary to carry out an internal reform. Therefore, a US consultant company was invited to implement Toyota’s “Kaizen” model, which focused on establishing team spirit, on the highest level of management first. David and other directors frankly exchanged their personal ideas such as their feelings towards the staff and the difficulties they encountered in their work. Such action was similar to the campaign of “Hundred Flowers Campaign” in the mainland, for attaining fairness, openness and justice. The top level of managerial staff acted as a role model to mobilize the staff with their credibility. About two years later, “Kaizen” was renamed as “Total Quality Management” (TQM) and was gradually implemented one by one in the lower levels. A workshop was set up in each department, and workers were required to attend a half-hour lesson every day. In Elec, there were many senior staff and a lot of female staff who had worked there for 20 to 30 years. David thought that comprehensive implementation of quality management could help develop team culture. However, the result was not notable as people in Hong Kong were not used to openly expressing themselves.
- Introduction of American style of management in Elec and Eltek (2)
David was born and raised in the mainland. Many years ago he came to Hong Kong and worked in Ampex, a US company. There he was promoted from Production Technician to Engineer. As he was used to the American style of management, he managed Elec Eltek in the same mode, and the issue of conflict in values did not exist. Since David established Elec Eltek, he had had a lot of clients in USA. Therefore, he often went to California to visit his clients’ factories. At that time many founders of electronics factories in Hong Kong had previously worked in US companies. Electronics companies mostly adopted the American style of management and relied on computers more than companies in other fields did. Two to three years after their establishment, Elec and Eltek had already implemented Management Information System (MIS). David stressed that if Elec and Eltek wanted to expand in future, they should use computerized management as soon as possible. Two objectives of Total Quality Management (TQM) were Enterprise Resource Planning (ERP) and Just-In-Time (JIT). The key to putting ERP into practice was using MIS, setting up a central computer to grasp the condition and changes of all the production lines.
In the 1990s, the branches of Elec and Eltek were all over Guangzhou, Thailand and Nanjing. At that time, a few tens of engineers were employed in the Hong Kong headquarters to handle ERP so that the headquarters could understand the condition of the production lines in all the branches in just half an hour. As a result, the work process of every product part could be monitored to realize a zero-error JIT. The key to the success of TQM was openness, justice and fairness – the staff could not hide any information on production.
Implementation of ERP in the mainland branches had faced a lot of obstacles because the partners from the mainland, for their private interests, covered the negative information such as omitting report on the scrap rate of metal, which indirectly caused damage to Elec and Eltek’s profits. Therefore, David enforced implementation of ERP, voluntarily revealed to the mainland partners the purchasing prices of raw materials so that there was more transparency on both sides. The concept of ERP was then gradually accepted in the mainland. TQM helped to decrease the staff’s workload, so their efficiency would not decrease but increase. David emphasized that what TQM did was to “improve”, not to “reform”, and it was gradually carried out according to the expansion of the company. The result of TQM in Hong Kong, the mainland and Thailand was good, especially in Hong Kong as the staff there had had many years of experience so they were more ready to adopt TQM. In 2004, Elec and Eltek as well as all their branches were sold to Kingboard Chemicals Holdings Limited.
- Financial crisis of Elec and Eltek in the mid-1980s
In the 1970s, electronic consumer products underwent rapid changes, so David and his friends planned to take part in both the circuit board and consumer product markets. In order to avoid having conflict in interests with their clients, they decided to take another path which was developing indoor cordless telephone. Once being launched, their products were successful in the US market. In 1984, the telephone band (Mega Hertz) in USA was changed, and the old models of telephone could be sold in the market for only three more years. Elec and Eltek was forced by the US importers to lower the product prices and the quantities of their orders. The Board of Directors did not have an accurate assessment of the changes in the market, causing over-inventory and cash-flow problems in 1986. As a result, Hong Kong and Shanghai Banking Corporation (HSBC), which loaned money to Elec and Eltek, imposed credit control on them.
Later the Board of Directors and HSBC mutually agreed that Elec and Eltek would follow a recovering plan monitored by HSBC. Their financial situation would then be assessed weekly. In order to re-consolidate Elec and Eltek’s finances, the management decided to abolish the department of telephone production and dismiss about 600 to 700 employees. Moreover, the molds, parts and accessories of the production department were sold to obtain cash. David considered the Engineering Department for developing cordless telephone the key asset of Elec and Eltek, so he decided to keep it. The staff of the department had a diverse background. Most of them were in electronic engineering, graduated from tertiary institutions in Hong Kong, Taiwan, Europe and USA. Some had previously worked in American electronics companies such as Ampex, National Semi-Conductor and Texas Instruments. David required the staff to have both academic qualifications and production experiences. The staff of the Engineering Department was originally not happy about the dismissal arrangement. David allowed them to make their own choice about their future. After negotiation with the management, the staffs trusted them and were determined to face the difficult situation with the company. Afterwards they succeeded in developing products such as modem and fax machine.
Some of the staff of the production department left in 1986 to set up their own company making indoor cordless telephones. There was an episode during the period of Elec and Eltek’s recovery. An employee reported to the Independent Commission Against Corruption (ICAC) that a Director of the Board was selling telephone parts at a cheap price for personal gain. The ICAC permitted David to make an internal investigation within two weeks. When the report was done, the ICAC was satisfied and hence the end of the case. At that time there were not any specific guidelines in Elec and Eltek for purchase and resale of raw materials. After dismissing production staff and selling resources for cash, their finances returned to normal, so HSBC relaxed monitoring on their accounts. The crisis in 1986 was smoothly overcome. This model of crisis handling was used by HSBC as a reference case.
- Characteristics of Elec and Eltek’s plants established in Hong Kong
Before establishing a branch in Thailand, Elec and Eltek had already set up a few branches locally in To Kwa Wan, San Po Kong and Tsuen Wan. The earliest factory established was in To Kwa Wan – on 9th floor of an industrial building at 88 Pau Chung Street. It was rented from Sam Kwong Weaving Factory, and at first there were only 30 to 40 workers. This factory in To Kwa Wan manufactured circuit board and was still running even after Elec and Eltek was listed in Singapore in 1993. At the early stage, the factory was on the top floor, so it was necessary to use a crane to move machines up there. Later on, with constant expansion, it had occupied almost the whole building.
In Tsuen Wan, there were two branches. One of them, in Tai Lin Pai Road, manufactured AC adapter and OEM products for supplying to clients such as Wang’s Computer. Another branch was on the 21st floor of an industrial building in which there were also textile factories and machinery factories. On the rooftop of the building, a concrete boom and steel cables were installed for delivering heavy machinery into the building. When foreign clients visited Elec and Eltek’s factory, they were all amazed by that. The factory in San Po Kong was located in Tai Yau Street. Besides manufacturing multi-layer circuit board, it also manufactured communication equipment such as cordless telephone, fax machine and data device. From 1981 to 1982, the number of workers in Elec and Eltek reached a high of a few thousand. David had once treated all his workers to a feast at the Vehicular Ferry Pier (Central Pier). Since there were too many workers, this had to be done on two days. During that time, in order to tackle labour shortage, a coach was arranged to pick up female workers in Yuen Long for going to work in San Po Kong. David thought that his experiences in business ventures from the early years were unforgettable.
- Background and progress of founding a plant in Thailand, Overcoming cultural differences after El...
After the War, USA offered tax reduction to the developing countries through the General System of Preferences (GSP). If 45 percent of a product’s output value was from the local region, it could be imported into USA on a lower tariff rate. Hong Kong was one of the beneficiary countries/regions, and so Elec and Eltek’s circuit boards which were exported to USA were eligible for the GSP benefit. In the mid 1980s, Hong Kong was no longer a beneficiary region, so Elec and Eltek set up factories in other beneficiary regions. David had studied the investment environments of countries such as Malaysia, Singapore and the Philippines. After considering elements such as equity system, power of the labour unions as well as work culture, he did not set up any branches there.
Instead, he focused his development in the mainland and Thailand. In 1988, David had successfully bidden a few tens of acres of land in Nantou, Shenzhen for setting up factories. However, the plan was suspended because of the June-Fourth Incident. In 1988, a factory was established in Thailand in collaboration with the Board of Investment (BOI). The chief of the Board came from Chiu Chow – the same hometown as David did, and their negotiation went on smoothly. Half of the resources in Thailand’s factory were put in the production of circuit boards while another half was for Original Equipment Manufacturing (OEM) including word processor for Wang’s Computer and answering machine for ATandT.
In Thailand, Elec and Eltek encountered problems caused by cultural differences. As the local workers did not want to work overtime, the management had to ask the Thai staff of the personnel department and even the BOI to persuade them. Another incident was related to the old, outdated rules of the Thai customs. The double-side copper foil that Elec and Eltek exported had once been detained by the customs because there was an embargo on copper during the Korean War. Eventually Elec and Eltek had to ask the leaders of BOI to settle it.
David sighed and said that anyone who invested in a foreign country should integrate himself with the local culture, otherwise he would encounter a lot of obstacles. Thai students who came back to Thailand after studying overseas were employed by Elec and Eltek to fill the posts in management and technology departments. The American electronics factories there also wanted to employ students who came back from overseas, so there were fierce competitions in head hunting. When Elec and Eltek set up a factory in Kaiping, the managers of various departments were lured away by high salaries offered by American factories, causing a serious lack of talents. As an incentive for his staff to stay in the company for a long time, a housing scheme was introduced through which the senior staff was assigned a house. After five years of employment, the house would become their property. The staff who had worked there for five years had developed a sense of belonging. Therefore, the housing scheme was effective in keeping good staff.
- Background and progress of plants establishment in Mainland China (1)
Since 1993 Elec and Eltek had started to shift to the north, establishing factories in Kaiping, Guangzhou and Nanjing in collaboration with the mainland government departments including Kaiping Municipal Government, Guangzhou Economic and Technological Development Zone and a branch of a government enterprise in Nanjing. Elec and Eltek possessed most of the shares of the branches, and were responsible for matters concerning technologies, management and markets. The mainland partners mainly took care of customs and government paperwork. Elec and Eltek’s Board of Directors was the one to make the final decision on all matters. The factories in Guangzhou and Kaiping were built by Elec and Eltek whereas the one in Nanjing was modified from an old factory. David thought that the mode of collaboration with the mainland was an ideal one as for many years the mainland and Hong Kong had had good cooperation. Whenever a problem was encountered, both sides worked together to solve it. There was high transparency in Elec and Eltek’s factories in the mainland – the purchasing prices and information on suppliers were open to attain fairness and justice.
- Background and progress of plants establishment in Mainland China (2)
After 1993, Elec and Eltek set up factories in the mainland and they had reached a growing stage. It was inevitable for the production lines to shift to the north. In the 1990s, the production lines of Elec and Eltek were concentrated in Kaiping, Guangzhou and Thailand while those in Hong Kong manufactured only one-fifth of the previous yield. However, the Hong Kong factories focused on high value-added multi-layer circuit board and were able to manufacture sixteen-layer circuit board. In 1995, a factory was established in Nanjing with both production and sales for developing the markets in the Yangzi Jiang Delta. Their clients included the mainland enterprises, Japanese enterprises and foreign-funded enterprises in the mainland. In reminiscence, David sighed about Hong Kong industry’s shift to the north. Since the 1980s, Hong Kong entrepreneurs had been enjoying the benefits of cheap land and labour in the mainland. As for Taiwan and Singapore, they could not shift their industrial production to the mainland because of different national conditions. Later on, with their governments’ encouragement, the entrepreneurs of Taiwan and Singapore were able to improve their industrial technologies to an extent which already exceeded that of Hong Kong.