4. Transformation and upgrading of Huaqiangbei companies

As aforesaid, opportunities and challenges co-exist in Huaqiangbei. Challenges include the arrival of the "Lewis Turning-Point" of Chinese population; the room for using the generation gap of Western technology management to earn profit is narrowing; the economic development from China’s southeast coast to the northwest China is approaching the Hu Line (Heihe-Tengchong Line); trading Internet platforms are squeezing the survival space for Huaqiangbei companies; and customers reduce due to the fourth international industry chain migration. Huaqiangbei has resources, opportunities and big economic scale, but there are more than 100,000 small companies with serious homogenization and dispersion of resources, there is no leading companies and comprehensive competitiveness. Huaqiangbei must properly deal with these weaknesses before it has the opportunity to usher in a second wave of growth. Huaqiangbei need to develop theoretical research, promote entrepreneurship, carry out organizational and management innovation, business model iteration and technological innovation to make breakthrough. Huaqiangbei companies also need to integrate resources and expand their scales to expand in the upstream and downstream for strategic vertical development.

             Slkor and Kinghelm advertisements in Huaqiangbei

4.1 New tools and new trends

To develop, Huaqiangbei must study new theories and master new tools to adapt to new trends. The Internet is a very efficient new tool. The underlying logic of Internet marketing is attracting viewers on Internet platforms first, developing tailored products according to their characteristics (user profiling) and selling them. Slkor’s strategy is promoting its development with new products, new technologies and new material R&D. Slkor also found out a set of methods suitable for Internet marketing. For example, "Slkor" brand promotion and penetration, and new Slkor products IGBT modules and power management chips sample delivery and small-volume sales are more efficient!

Selling products according to Internet theories is also an efficient way. Tom Xu, whom I got acquainted with in Huaqiangbei, published a book "Private Domain Traffic", teaching fans to get traffic to sell products. He is now an influencer, reaching his pinnacle of life at a young age, often driving a Maserati sports car to invite me to dinner. Douyin account "Tom Zhang Selling Chips" was quite hot. It is said that Tom Zhang, dubbed as "Huaqiangbei Flashy Tycoon", showing off his Bentley and Rolex Submariner Green, could earn RMB 50,000 yuan per hour in his live streaming. I heard that he stopped live streaming and began to invest in a media company. He becomes a beautiful legend in Huaqiangbei IC circle. I finally found a phenomenon that men with the English name TOM are quite powerful. So I want to let the male colleagues of Slkor and Kinghelm be renamed TOM so that they can get rich quickly and I will also get rich!

4.2 Promoting entrepreneurship

Huaqiangbei’s success is mainly because of mainland China's reform and opening up, the third international industrial transfer, and the convergence of resources from Hong Kong, Macao and Southeast Asia to the Pearl River Delta, as well as the entrepreneurs in Huaqiangbei who are brave and bold. Huaqiangbei culture and entrepreneurship are characterized by braveness and boldness. First of all, the bosses in Huaqiangbei need to transform from the self-employed to entrepreneur before they can continue to develop, pursuing the "entrepreneurial spirit" advocated by the economist Friedrich von Hayek. Mr. Xiao Zhixing, a famous scholar, believes that entrepreneurs are a group of passionate people who are not satisfied with the status quo, they are even paranoia, they are innovative, adventurous, aggressive, resilient, tenacious, perseverant, and never say die. Their passion is driven by three factors: first, they work hard for a better life for themselves and their families; second, they want to be more successful than others; third, they are pursuing their own initial beliefs and lofty ideals. A few business tycoons I know from Chaozhou-Shantou region are actively helping students and repairing their ancestral temple to reflect the value of life. It seems that these three drivers match with Maslow need-hierarchy theory, which are in line with human nature.

These are the cases of the bosses around me, and the spirit is also the core of the long boom of Shenzhen Huaqiangbei.

4.3 Organizational and management innovation

Vendors and electronic components distributors in Huaqiangbei are family-based, usually operated by less than 5 people, even only one person, typically husband and wife with the help of a sister-in-law, the larger ones are operated with the help of sisters-in-law, brothers-in-law and young nephews. The business model is simple, the organization and management are not complicated, and many bosses are not good at management. What is urgently needed now is to improve the bosses’ thoughts and perspectives, break the old business model and expand company scale to gain competitiveness.

Zhang Junjun (right) on behalf of Slkor Awarding License to Agent

To achieve these goals, what is necessary is systematic learning at work, rather than learning coaching techniques or feeding employees on illusions or stirring up them. Ma Yingfeng, dubbed as "Huaqiangbei Ma", after obtained the dealership of Royalohm capacitors from Shenzhen Kingsource, seriously improve his company's internal management and team building, even able to provide customers with technical support and other services. A business will grow if it can provide more value. One of my friends Lao Huang trapped in Huaqiangbei model. Last year, he became an agent of Slkor. With the guide and systematic support of Slkor, he has a valuable brand, a stable supply chain, guaranteed quality and a stable customer base, and his team have hope. Now the monthly sales of his company are nearly RMB 1 million, and repeat order rate is 90%. Lao Huang grins from ear to ear every day.

4.4 Business model iteration

There is indeed someone in Huaqiangbei who got rich by speculation. However, a well-operated business must have steady profitability, instead of windfall. It is scientific development planning, reasonable product matrix, resilience and risk resistance that Huaqiangbei entrepreneurs need to think about and gradually achieve.

Charlie Munger said that to make more money, you need to delay gratification, research thoroughly an industry and stick to it in a long run. Huaqiangbei bosses want to make quick money, business model design and "money-making" method has evolved accordingly, and now the evil consequences occur. According to statistics, 20,000 new trading companies were established in Huaqiangbei in 2019-2022, while the prices of capacitors, resistors, MCUs, MOS tubes, digital and analogue devices increased consecutively in Huaqiangbei. The owners of these companies all are speculators who saw others making money by speculation and run into the market. The employees of these new companies are composed of former employees of other companies, former owners of fast food restaurants in Huaqiangbei, nurses and restaurant receptionists who have various relationships in Huaqiangbei. After hoarding speculation was over, they unfortunately became scapegoats with a pile of goods unsold. The final winners are the veterans who do the business for more than a decade and know the industry cycle. They have emptied their inventories at high prices and played in golf course.

Arising from Huaqiangbei, Kinghelm and Slkor have been marching towards the core of the value chain. We focused on product R&D for more than a decade, promoted the development of the companies with new materials, new technologies and new products. The two companies have become high-tech companies having their own R & D centers, production bases, and competitive products. Branding, promotion and marketing, organizational systems, supply chain management, customer service, legal and risk control, knowledge engineering, standardization and process management, training and development of talent, corporate culture and ethics contributed to our achievements.

To be continued...