Disruptive Factories

Just a few minutes ago I was standing in the middle of a sea of cardboard boxes. They include power supplies for your XXXXXXX. Or new laptops made by XXXXXXXX. Or other consumer electronics goodies from brands you know and love. Sorry, the owner of the supply chain (Liam Casey founder of PCH) forced me to never tell what brands I saw being shipped from his warehouse in Shenzhen, China because he’d lose tons of business if he pissed off the companies who were paying him to build stuff for you.

The brands don’t matter, though, they would distract you from the real disruption that’s happening here.

In just the last year or so there is a total revolution in manufacturing here and it’s so significant that I spent three days getting a detailed look at PCH (Liam was named Ernst and Young’s Entrepreneur of the Year back in 2007 and the Atlantic Monthly wrote a great article about Liam a few years ago). I have never spent three days studying a single company since leaving Microsoft. Thanks to Phil Baker, who was a product manager at Polaroid and also on Apple’s Newton and just wrote an excellent book on how to get products built introduced us (my friend Buzz Bruggeman introduced me to Phil). Later Tim O’Reilly himself Twittered that I had to meet Liam when I went to China. His reputation is so large that people call him “Mr. China.” That’s funny because he was born in Cork, Ireland, but you can read about his background in the Atlantic article so I won’t waste time about that here. Thanks to everyone who got me to meet Liam, it was an incredible trip.

Here’s a photo of Liam and Phil hanging out in Shenzhen yesterday:

Liam Casey and Phil Baker

This is Liam, on the phone making yet another deal:

Gadget Builder, aka "Mr. China."

The changes that are happening here have deep impacts on all the computer companies you know and love, but also what we are seeing is the obliteration of the middle-man and distributor. Let’s go back to when I used to sell consumer electronics in the mid-1980s. A product back then would be made in a Chinese factory (or, more likely, a Japanese one). Get shipped over in a pallet to a distributor, who would have to keep huge inventories. Then they would ship out to retail stores using their own shipping companies. Very slow, expensive, and as a retailer I had no visibility into where my order was, or how long it would take to get there.

Go foward to two years ago. You’d buy something from a retailer and they would order it from a supply chain manager and it would be shipped to the retailer, like Amazon, and shipped out to you. You had some visibility into how long that would take, but often not much.

Today? A product goes from factory directly to your front door via FedEx through Liam’s supply chain. How long does that take? Four to five days. All trackable via FedEx and other methods.

What’s different today? The Chinese are now cutting out Amazon and are building Websites that you can buy products from directly and they’ll ship right to your door.

Next? We used Twitter to discuss a new product with people around the world, get feedback on what they want, and the designers, who no longer will be in Europe or America, can work with the customers to build something highly customized and that serves their needs exactly. Then a factory gets fired up and the product gets shipped out — all within days of the Twitter storm.


Yes, you heard me right. You can now Twitter with Liam Casey. He doesn’t quite understand yet how to build a new brand with Twitter, but he’s a quick study and he saw how I was able to talk with people around the world within minutes to come up with a new idea.

Yesterday he showed me a new gadget that will get on blogs like Engadget, Gizmodo, Obsessable, GearLive, Gdgt, CrunchGear. It is mind blowing. The engineering is done all in China. The factories are all in China. The website will be hosted in China, or maybe over on one of the new clouds that Amazon, Microsoft, Google, and Rackspace are now opening up. The brand name will be done in China, via Twitter and FriendFeed. The PR is done in China via Twitter and FriendFeed, or maybe via a blogger tour in San Francisco and New York because that’s where most of the gadget bloggers live (last night CNN’s Rick Sanchez Twittered me, which demonstrates that Twitter has a powerful reach now into mainstream media).

This is total ownership of everything. Total disruption of everyone who used to make money along the supply chain. Retailers? Disrupted. Traders and middlemen and distributors? Disrupted. Web designers and developers? Disrupted.

Are you scared yet?

You should be if you are being disrupted.

Now, get over your fears, because there are tons of new jobs in this new world, too, you just need to see how this changes everything and then take advantage of the new opportunities. Where are the high value bits in this whole process?

Not the manufacturing.

The real value and profit is in two places: R&D and coming up with new businesses and new ideas. Take, for instance, the Chumby which was designed at a Tim O’Reilly Foocamp and who’s company still has less than a handful of people. Chumby is the new post disruptive business model. Want a job? This is how to do it. Hang out at Foocamp. Come up with an interesting business. Get funding. Go see PCH. Profit! Well, yes, there are a few details involved there.

Other jobs that’ll open up? Anything involved in building brands. Marketing, PR, blogging/Twittering/FriendFeeding, building web experiences, videos, going to conferences to show off new products to audiences, etc.

That’s it. That’s where our new economy is going to be. And this process will happen to EVERYTHING. The American car industry? Well, they figured out how to sell Buick’s and Chevy’s to the Chinese, so if I were working at GM right now I’d be trying to figure out how to take advantage of this new manufacturing capability and ability to ship custom cars right to your house.

Bigger than life

So, to wrap it up, what did I learn?

1. The Chinese no longer are just manufacturers.
2. Those who can build new products and market them will do just fine, but they will face new competition from the Chinese who are doing a ton of R&D now, so are going to come up with their own products and they will figure out how to talk to world-wide markets and will figure out how to build brands (Twitter, blogs, FriendFeed, etc will play into that in a huge way).
3. The days of when Chinese were seen as only copiers/cloners are OVER. I’ve seen some mind blowing stuff developed by the Chinese and we’re just seeing their economic engine sputter to life in the past couple of years.
4. Americans are being fed only the negative stories about China and that is lulling them into complacency. The largest book store in the world is in Shenzhen. The largest city hall I’ve ever seen is here. The largest library I’ve ever been in is here. This is an increasingly educated workforce that’s just starting to get going. Americans need to come to China and see what’s going on because it is absolutely stunning in its scale.
5. The Chinese, over the next 10 years, will turn from the worst polluters (there was a show on 60 Minutes just on Sunday about the ewaste and horrific environmental problems here) to being the leading producer of environmentally-friendly factories, infrastructure, and products. Already Liam’s database of 800 factories includes tons of environmental data and products built by his supply chain will be tracked for amount of energy and carbon dioxide that they used in the manufacture of them.
6. The speed at which things get built here is stunning. 12 years ago I was in the TV tower in Shanghai. It was the only building on that side of the river. Now there’s an entire set of skyscrapers that put New York to shame.

We’re working on a video of Liam’s company that should be up in about two weeks on FastCompany.tv where we’ll go much more in depth about some of the changes. More to come as we move tomorrow to Guangzhou to meet with Chinese bloggers from around the country (China now has the most Internet users of any country and is growing so fast that the stats are difficult to understand).

I’ve been putting photos up on Flickr. We’ve had several videos up on Kyte.tv. And everything we’re doing is getting wrapped up on my FriendFeed account where I’ve been interacting a lot with tons of people. Hope you’re enjoying what we’re seeing.

Also in China right now are a group of bloggers who are on a separate tour than the one we’ve been on. You can follow them on Twitter at China 2.0. It’s interesting how they are discovering the same things about China while being thousands of miles away in the north. This weekend I’ll join the China 2.0 bloggers and hopefully we’ll be able to do some live video where we share what we learned with you.