Liam Casey's Chinese factories make products for Apple and Beats. But he has a bigger plan: to let anyone with an idea take hardware to the world
[Quote##"If I could make that product in London, I would. The barrier to entry is not the cost, it's the expertise and knowledge.
We pay a premium for that. And humans are quicker, cheaper and more adaptable to set up than robots."##Liam Casey##Id¬1l6zma]
The first thing you notice about the production line is how many pernickety, pedantic steps the factory has added to the apparently straightforward process of making a mass-market consumer-electronics accessory. You'll recognise the finished product -- you've doubtless stroked it, folded it, felt it satisfyingly snap into place, lifted its tactile form before flicking it thoughtlessly aside for the more urgent task of assaulting clans, curating playlists, enhancing selfies. So pause a moment to celebrate the ornately overthought workmanship being built this dusty December afternoon into one under-appreciated premium accessory in a buzzing, yet strangely voice-free, Shenzhen factory floor: the young woman whose sole task is to place masking tape temporarily over a metal joint in the one-in-a-thousand event of a glue drop spilling; the twentysomething man wearing glasses who hand-aligns components inside custom die-cut moulds more tenderly than any industrial robot; the woman responsible simply for ensuring that the manufacturer's slogan is laser-etched at just the right depth on a seam hidden underneath the finished product.
Wired can't identify the product, let alone the manufacturer: factory access in this industry-dense corner of Shenzhen is rigorously restricted, subject to intense surveillance and Homeland Security levels of pre- and post-access metal-detector searches, and certainly not open to journalists. The workers here, about 800 in a six-storey building, are mostly young Chinese migrants to the metastatising metropolis who sleep in dormitories just across the street when they are not making accessories and products for a range of big-brand clients. Their supervisors, jarringly, include disproportionate numbers of jovial Irishmen, who in turn are nodding greetings to a cheery 48-year-old former fashion buyer from Cork named Liam Casey. It's Casey's 18-year-old business, PCH International, that indirectly employs these and 25,000 other industrial workers in China -- as well as 4,100 directly employed staff in Shenzhen -- to make high-spec consumer electronics, computer, medical, telecom and other technology products for companies such as Apple, Beats by Dre and a well-known payments company. And today, as he bounds up the stairs in this, one of his six contracted and managed Shenzhen factories, Casey is explaining how PCH International is leading a global hardware revolution that will democratise the manufacture of physical products no less than the App Store opened up software. Casey, a hyperactive, frenetic bundle of boyish enthusiasm packed into a 1.70m body, is explaining that his teams move ten million components a day in other people's manufacturing plants such as this -- while PCH insistently remains "asset-light", owning none of its own. "If I could make that product in London, I would," he says. "The barrier to entry is not the cost, it's the expertise and knowledge -- access to the skilled workforce and machines, the ability to make tooling as we need to.
We pay a premium for that. And humans are quicker, cheaper and more adaptable to set up than robots."
He tells his local driver, in English, that the next stop is Shenzhen's Futian free-trade zone, where PCH does indeed own two facilities, amounting to about 90,000m<sup>2</sup>: they belong to a packaging subsidiary called China Turnkey Solutions (CTS) where, as he puts it, "we manage the whole out-of-the-box experience for brands." Up to 3,700 workers in two buildings pack up to a million units a week, making CTS Futian's largest employer. "The moment of truth in e-commerce is when you click 'Buy now', and then also when you open the box," Casey says as he bounces into the building. "When you sit with industrial design people, they talk about the act of taking the beautiful product out of the box -- that's huge."
On an upper floor of a nondescript CTS warehouse, security officers wave Casey through a closed door into an Oompa-Loompa orchestration of animated industrial packaging. Amid a dominant smell of cardboard, forklift trucks move pallets of boxes past long production lines where workers, most female, pack headphones, cables, keyboards, trackpads and other accessories. Again, seemingly superfluous extra stages have been built in to the production line to optimise quality: small lint cloths are temporarily inserted below the cellophane wrapping of major-brand headphones, to protect the box from scratching, before other workers subsequently remove them; another pair of workers hand-cuts the corners from the cellophane wrapping, so that it will heat-shrink to a cleaner seal. "Dixons wouldn't do that," Casey says with evident pride. Boxes here can be regionalised and even personalised.
A higher floor deals with fulfilment, operating from midnight to 8am, when most US purchasers are online. Their orders on major western retailers' websites appear instantaneously on monitors here in Shenzhen.PCH's warehouse inventory software, PackFlo, generates an ID number for each customer's cardboard box, prints an address sticker with local return address and a packing note, and sends that box to a wall built of numbered containers each containing a distinct product or component. The operator scans the box ID number, and a light flashes on the relevant container indicating the quantity to be hand-picked. Once the operator has picked up and scanned that item's UPC code and then placed it in the customer's box, the box is bulked out with more cardboard to stop movement in transit, and then sealed. "We don't use airbags to stop movement,"
Casey says. "We want the item visible as soon as they open the box." Individual boxes are gathered on pallets according to destination: the room has a UPS station and a FedEx station, with burgundy-jacketed women inspecting towering pallets heading for Mexico; Georgia; Elk Grove; Louisiana; Markham, Ontario. A team of customs officials based permanently near the front desk minimises the risk of delay before items are driven to nearby Hong Kong airport. "We can hit 100,000 units a day here -- though usually it's 2-3,000," Casey says, walking towards a gift-wrapping station for littleBits modular electronics kits. "We do personal engraving in this room, too. And anything received by 7am is on a same-day flight to the US. You know [New York Times columnist and author] Tom Friedman? We say the world's flat, but full of details. Data is the heartbeat of our business. I can put a cheap tag on these items; I can trace where every one of them is in the world. Think of the impact on the supply chain if you have all that data. "Geography's history," he continues. "What's changed is visibility and transparency. Now I have a production line, I have a consumer, I have a product, and I can track everything. You just need to connect them. It's the access to data that lets you shorten the product's journey. The less time after the product is made to when it's used, the less capital required, and the more liquidity in the supply chain."
But Casey has bigger ambitions than making, packing and shipping. He wants to help hardware entrepreneurs originate products -- and then help develop, finance, make, box, distribute, promote and sell them. "We're not interested in owning the manufacturing process, where there's an oversupply -- we want to stay asset-light. We want to be the platform and the merchant for hardware. I want to enable entrepreneurs to create companies," he says. "In our world, Kickstarter is foreplay. So much other stuff has to happen to create a successful hardware businesses. And if we're successful, for hardware companies the only barrier to entry will be their passion."
Fresh snake is for sale among pavement-stacked crates of live crab, cuttlefish and shrimp outside a restaurant next to PCH International's Chinese HQ. Nearby are Armani and Louis Vuitton stores. It's a sunny Tuesday morning in central Shenzhen, and inside PCH's office -- home to engineers, product designers, toolmakers, packaging designers, procurement experts, project managers -- Lynne Mulholland, corporate communications director, is unlocking the door of a private room that's a gallery of current and historic tech products and accessories that PCH helped produce.
There is a Chumby open-source web-streaming device and a Flip video camera; a credit card reader and Nook e-reader; a lark alarm clock and a GHD hairdryer; and products bearing the logos of Nokia, Kobo and others you'd recognise. "We're doing $10bn (£6bn) of merchandise, with $1bn of revenue,"
Casey says at his desk, surrounded by his framed 2007 Ernst &
Young Entrepreneur of the Year certificate, low-cost Chinese mass-produced modern paintings and a heavily annotated copy of
The Wired World in 2014. "But there's a dilemma -- we can't talk about what we do." The world's most successful hardware company, at least, has acknowledged working with PCH: "Apple disclosed their components supplier list last year, which we're on; this year they had seven suppliers on their list of final-assembly companies and we're the only non-Taiwanese one. We don't talk about what we do for them. Beats by Dre also disclosed at the Web Summit in Dublin that they work with us -- more on the packaging and logistics, a little manufacturing. Mostly brands ask us not to disclose." The Chinese handset company Xiaomi is known to be working with PCH. Casey acknowledges that Foxconn "is a customer, a supplier and a competitor".
At his office desk, he pulls apart a GHD AIR10 hairdryer and explains the importance of modelling airflow and thermal analysis, and simulating the impact of a heavy drop. "We bring our experience working in the past on products like this for clients. We'll identify the supplier with the core capability and work closely with them." He has three iPhones on his desk, all with leather cases, testament to the global nature of his business: the red phone is his China number, blue his US number, and the green is for Ireland, where the business is still based. From its birth in Cork in 1996, it has grown to ten offices around the world, including Seoul and Sydney, and 1,189 factories in its supplier network.
Revenues have risen from $152m in 2009 to $413m in 2010, to $710m in 2011 and $815m in 2012, before heading towards $1bn last year.
PCH -- named after California's Pacific Coast Highway, which Casey remembers fondly from a sojourn in his twenties -- wants to be a full-service company for hardware partners. Its product development team helps with anything from electro-mechanical design to packaging; its ChinaFlo database connects clients to suppliers best suited to the delivery of their project; PCH Enterprise Solutions offers fulfilment and e-commerce; its TNS Group distributes products directly to retailers (including the Apple Store). "And I'm CEO," Casey says. "Chief entrepreneurial officer."
ChinaFlo is "Alibaba with brains", in Casey's words: its dashboard on his Sony laptop lists 1,189 specialised factories, 488 products made by PCH, and detailed maps and order histories. Its TrackFlo software monitors web orders in real time. "This is big data -- I can see real-time trends. I can spot the move from desktop to mobile just on power-supply sales."
And yet he has built his business speaking no Mandarin, having no Chinese work papers, and with no home here beyond a year-round suite at the Sheraton Four Points Hotel in Shenzhen. "It's been like being in a silent movie for 18 years, but there's a huge advantage in not speaking Chinese," he says. "You sit in a meeting here, you watch behaviour, you listen, you think, yeah yeah, this is bullshit. Your other senses become extra strong if you don't speak the language. It's also got me access to the more senior people -- they're the ones who speak English, either the assistant to the boss or the boss."
Westerners have three misconceptions about doing business in China, he says. "Number one, you have to speak the language. I don't. Number two, you need guanxi [a Chinese business term for 'connections']. We don't have guanxi. And three, you need to throw big banquets with them. And I don't drink.
Chinese people just want to do business."
The San Francisco Bay Guardian, the city's 48-year-old radical news weekly, persistently raised hell from 135 Mississippi Street until Union Property Capital, a key player in the gentrification wave that the paper so despised, paid just $6.5m for the 2,500m<sup>2</sup> HQ in April 2012. Today, the Potrero Hill building -- PCH's new American headquarters -- hosts what Liam Casey calls "the engine for creating innovation": an incubator for early-stage hardware startups known as Highway1.
When Wired visits in May 2013, Casey is passing through San Francisco en route to Hong Kong, then Beijing, then London, Monaco and Cork. The site, stripped to its shell, is being re-engineered for classes, workstations, a rapid-prototyping facility, a demonstration stage and a development and engineering area. By October, when the building opens, an inaugural class of 11 incubator companies will move in for a four-month educational programme, with access to prototyping tools, engineering and designing mentors, PCH's wider network of contacts, a talks series, and a two-week intensive tour of Shenzhen. As Brady Forrest, who runs Highway1, puts it: "Hardware is hard. Our goal is to de-risk hardware. We want hardware to be as easy as software."
Startups apply via AngelList for two annual intakes; PCH takes three to six per cent equity in exchange for injecting up to $20,000 in seed capital. Casey expects that most graduating companies will subsequently join the PCH Accelerator to bring their products to market. "The equity is not the big play for us," he says. "The play is to create the understanding of what's possible and to make sure we are the go-to platform the talent comes to. We know we will create hardware startups of the future here.
Geography's history, but Silicon Valley is still the best place to get the right kind of investor for tech startups. I've been asked to set up incubators in Saudi, Cairo, Singapore, even Shenzhen, but there will always be a margin in San Francisco."
PCH has been busy acquiring companies that can help create what Casey calls "the App Store for hardware". In June 2012, it bought Kurt Dammermann and Andre Yousefi's San Francisco product design company Lime Lab to work with the talent; in January 2014 it added Toronto-based e-commerce platform ShopLocket to sell their products directly. "I'm inspired by Netflix," Casey says. "We want to build that platform for hardware, outsourcing the innovation to startups.
We have a huge advantage over the Samsungs and Sonys: they have fixed processes to make things. They think like factory owners. We don't want to be tied to the big factory -- but to use the best factory when we need it. Think cloud manufacturing, Amazon Web Services for hardware. We do all the manufacturing, packing, distribution, logistics. We guarantee you a sales channel. We're working on a programme where we can give you the first order for maybe 10,000 units, so you're not waiting for your Kickstarter. And TNS becomes your global distributor. It's a one-stop solution."
For Ayah Bdeir, founder of littleBits, a partnership with PCH let her company scale when demand for its modular-electronics kits flew off the charts. "I'd launched the company in 2011, had found a factory, made a prototype, raised money," she says. "We had a product by December. At CES in January 2012, Aymerik [Renard, who was running the PCH Accelerator] said he'd help us scale. But I was totally arrogant -- I thought we'd solved it ourselves." she says.
And then, in February, littleBits won Best of Toy Fair 2012; and in March her five-minute TED talk went online. "Suddenly demand shot up 1,000 per cent. We were barely staying afloat, and kept running out of stock. I faced a choice -- stop everything else and build up an international operations team to boost the supply chain; or find an external partner. I reached out to Liam."
They partnered just as littleBits was closing its Series A funding round. By November, PCH was making the product -- which so far has sold hundreds of thousands of units in 70-plus countries. "They're excellent at identifying top-of-the-line manufacturers, at designing for manufacture, at fulfilment," she says. "They fulfilled 5,000 orders in 24 hours. What doesn't work as well is introducing new products -- doing it in China with PCH adds overheads, but that's why they launched the incubator." PCH's track record has also proved useful in raising finance, Bdeir says. "Investors are afraid of hardware. One I pitched to said, 'I love it, but it's too much of a real business for us.' We have shipping times, taxes, boats -- reality sets in. You don't just add servers to scale -- you need to throw a lot of money at it. And PCH has scaled with so many companies."
Julie Uhrman faced a higher-profile challenge after 63,416 Kickstarter backers pledged $8,596,474, nine times the goal, for her hackable OUYA gaming console in August 2012. Delivery was initially estimated at March 2013; by June, Uhrman was apologising to backers: "I am pissed," she wrote. "We are working to resolve this." As backers took to online forums to vent their anger, Ken Stephens, OUYA's head of operations, blamed delays on a Hong Kong shipping partner.
But OUYA was facing numerous challenges. "As a startup, you don't have the history or order volume to excite, or even interest, some of the larger original design manufacturers," Uhrman tells Wired. So she partnered with PCH to rethink the supply chain from manufacture to delivery. "PCH International allows you to bring your idea to market quickly, without over-investing in inventory," she says. "They care about what you care about -- building a great product for less and getting it into your customers' hands as quickly as possible."
The greatest barrier for many hardware startups can be the upfront cash demanded by factories. "Working capital has been the biggest challenge, and the support they offer has been the most valuable thing," says Emily Brooke, who launched her laser-enhanced Blaze bike light on Kickstarter in November 2012. "I don't have to pay them for stock until it's shipped." With 782 backers, Brooke attracted £55,000 in pledges, more than twice her target. She was introduced to Casey in March 2013; she has just returned from her fifth visit to Shenzhen in a year, to oversee the second batch of 2,000 lights that PCH has helped manufacture. "We could have done it ourselves, found a small factory -- but it would have been a bloody nightmare," Brooke tells Wired from Shenzhen. "I've never done this before. PCH is not perfect -- they mostly work with large clients, and are very process driven, so you've got to change their mindset. But the engineering expertise is really underestimated. I've just been with ten guys in a meeting, and it felt like they were part of Blaze -- and we're just a five-person startup in Shoreditch. I adore them. They're changing the nature of starting a hardware business."
During a lunchbreak at the F.ounders conference in New York last March, Casey -- just off a plane from Hong Kong -- is explaining that a disruptive entrepreneur's greatest asset is curiosity, plus a refusal to accept the status quo. "Growing up on a farm in Donoughmore, in County Cork, two of my greatest attributes were being dyslexic and having ADD," he says. "John Chambers of Cisco is dyslexic, Branson is dyslexic... It means you see the end game, then you think, 'What do I need to do to achieve that?' And the ADD means I don't get into the detail, but I understand the bigger picture."
He left school at 18 and spent a decade in the garment trade with companies such as Tricot Marine and Alan Best Menswear. But it was after his short-lived move to California that, in 1996, he decided there might be opportunities in helping western companies get stuff -- from computer cords to phone covers -- made in China.
So he took a flight and lived off his wits. "I worked alone for the first two years -- if I'd had staff I'd have gone out of business ten times. You just have to believe in something, that's the real test."
He began by swapping business cards at a Taipei computer trade fair. Then he'd visit the village factories and meet whoever he could, ideally finding the raw materials suppliers -- because they sold to everybody and could map out the supply chain. "From the factory doing assembly you'd find the guy making the PCBs, and from him you'd get to the salespeople; then you'd ask the salespeople which is the best assembly company. There'd be one person who spoke English there -- who we usually hired."
A big early order with a Taiwanese-owned factory in Shenzhen almost collapsed after the bank pulled financing over a paperwork discrepancy. "I was in Ireland and needed $100,000 to pay the factory," Casey says. "So I flew over, spent two days negotiating with the factory to release the shipment. I needed 30 days' credit.
I got them to release the shipment by giving them my passport and staying in China for two months. The factory owner thought it was crazy -- no Taiwanese would ever hand over their ID. But for me, the dyslexia, the ADD -- I just saw the bigger picture."
Three things got Casey through. "I had no money, so I had nothing to lose. I had no experience, so there was no fear. And third, I had a shitload of luck." A decade ago, as he saw knowledge about factories becoming more accessible through portals such as globalsources.com and madeinchina.com, he took the risk of opening PCH's own engineering, manufacturing and packaging facilities.
Success was by no means assured. "We spent a million dollars that we barely had on our first factory in 2003. We got a licence for the business, and for the building -- but couldn't get a licence for the product as we weren't adding enough value." It was a million-dollar mistake. "The guy we'd outsourced our finance to called me in June 2008 and said, 'You're going to have to pull the plug, you're losing $1m a month.' I said no, we now had the story. I said, 'Seamus, there's a Bond movie with Pierce Brosnan which opens with him going off a cliff on a motorbike while chasing an aeroplane. In the aeroplane there was no pilot, yet he managed to get in the plane halfway down, and he landed the plane.' Seamus said, 'Yeah, yeah, Die Another Day*, so what?' I said, 'Seamus, we left the cliff in January.' There was silence, and then he said, 'I get it.' Then on September 12 2008, we raised $21m from three Silicon Valley VCs.
Seamus called me in the morning and said, 'I think we landed it.'
You have to believe in something. You can't get that at Stanford." "Guys in the Valley want to make app-cessories. Guys in Europe want to make accessories. Guys in China want to make phones. Guys who make phones want to make cars. Guys who make cars want to make rockets. China is far more aggressive, far more entrepreneurial, far less restricted by their distribution channels."
Casey is racing through Shenzhen's International Industrial Design Fair with Christina Zhang, Chinese employee #1, on the hunt for hardware talent. Among the me-too 3D printers, open-source buggies from the OSVehicle car company and a few medical devices, not much gets his attention -- until he spots a poster showing a man strapped to a rocket. "That's the Chinese approach."
Shenzhen has much to teach western tech companies, he says. "Like the model [phone-maker] Xiaomi developed -- controlled supply, limited editions. Sold out is great. It creates an aftermarket. All you need to do is get TechCrunch to write about your accelerator companies when they're about to launch with just 10,000 pieces."
The tour continues with Shenzhen's vast new airport and oversized public library, the seven-storey SEG Electronics Market, an artist-themed development called OCT Loft. "Martin Sorrell said chaos is the right theme for today -- be comfortable with it,"
Casey says as we walk. "The rules have changed: there are no rules.
Look at Nokia, HP, Dell -- they get over-processed, innovation gets stifled. You have to keep entrepreneurship alive -- that's why I mix with the founders. "More and more, every corporate will need an incubator or an accelerator. You don't hear what's going on in the market. With our accelerator business, we have eight CEOs that call us all the time, that shout at us, tell us we're crazy, useless. I tell our guys, just listen. The accelerator is our gym: it challenges us, it hurts, it forces us to think different, but it's making us far more nimble as an organisation. We're comfortable being uncomfortable.
We'd pay McKinsey an awful lot of money to get all that feedback.
And it wouldn't be as accurate."
For a man valued by the Irish Independent's recent rich list at
€200m (£165m), Casey shows no interest in owning a home or a car.
He is unmarried and professes to having no hobbies -- well, apart from the 600,000km he says he flew in 2013. "I've done 2.5 million
[miles] with Cathay, and I only started using them in 2000." So how does he switch off? "Golf doesn't do it for me. Work is what it's all about. If I need a break, I might hop on a flight on Friday to go to Koh Samui in Thailand. Travel is the greatest educator of all. You see trends."
When Wired runs into Casey in Dublin, at the F.ounders conference in November, in his hand are two airline tickets for the following day: one to Hong Kong, the other to San Francisco. He has yet to decide which he will take. "The cabin crew on Cathay's Hong Kong flight must know you by your first name," Wired suggests. "Of course not," Casey says with an impish grin. "How would they? They're not on that flight nearly as often as me."
It's January 28, 2014, and Highway1 has invited 200 venture capitalists, investors, mentors and guests to its first demo day in San Francisco. Those pitching include Ringly, whose connected jewellery includes a women's ring with built-in sensors; Birdi Smart Air, which monitors air quality; Wearhaus, making socially enabled headphones; and Emily Brooke's Blaze bike light. "You're looking for the next Tony Fadell, Hosain [Rahman] from Jawbone, Jimmy Iovine from Beats," Casey says. And his ambition is for PCH to be their "end-to-end platform", solving the distribution problem -- so much so that retail stores serve simply as demonstration spaces for hardware you'll buy through his commerce platform.
Doesn't he worry about being an outsider relying on China to leave alone his ever-more-influential business? "We grew up inside the country," he says. "We didn't come to China with a big brand, with lots of cash. Last week we were in the local newspaper as a great success story for Shenzhen. We're almost a protected species there." Besides, China still has the experienced, skilled workforce that gets things done. He picks up his lunch cutlery. "In London it will take you ten days to get a factory tooled up to make this knife and fork. I can do it in Shenzhen in a day. It will take me ten days in China to get the packaging right, but London will do it in a day. [Using London and China,] PCH can get both done in a day."
So there's no downside to doing business in China? "We do business," he interjects sharply. "We don't categorise it as China.
We make."
David Rowan is the editor of Wired magazine. He wrote about WhatsApp in 04.14
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This article was taken from the June 2014 issue of Wired magazine. Be the first to read Wired's articles in print before they're posted online, and get your hands on loads of additional content by subscribing online.
This article was originally published by WIRED UK
