chsdbacks Chapter 68 OEM Manufacturing
Chapter 68 OEM Manufacturing
We licensed the patent for air fryers to them, and then found them to be our contract manufacturers.
This idea caught everyone's attention. Zhou Minghui immediately added, "These are great terms! This way, we can not only get licensing fees but also secure stable OEM orders—a win-win situation. Moreover, by manufacturing for these large international companies, our production management and quality control levels can also be improved."
"But will those big companies agree to these conditions?" someone questioned. "They have their own production facilities and may not be willing to give us their orders."
"They will agree, after all, our air fryer market is a promising blue ocean market," Lin Zhou said confidently. "Moreover, our production costs are much lower than theirs. Although labor costs in Hong Kong are higher than in other Southeast Asian countries, they are much lower than in Europe and the United States. In addition, our production line is made of brand-new automated equipment, which is efficient and low-cost. For them, outsourcing some of their orders to us can reduce their production costs and increase their profits, which is also beneficial to them."
After the meeting, Lin Zhou immediately began screening potential partners. He rejected companies that were only willing to purchase patents and not have Zhonghua manufacture the products, focusing instead on negotiating with Siemens, Philips, and Cybernaut. These three companies have extensive distribution channels and strong brand influence in the global home appliance market, and they also have a certain degree of acceptance of the OEM model.
The negotiations were not easy. Siemens' representatives initially strongly opposed the contract manufacturing terms, arguing that Siemens products should be manufactured in their own factories to ensure quality. Lin Zhou did not argue much, but instead took them on a tour of Zhonghua's production line, letting them see firsthand the precise operation of the automated equipment, the rigorous quality inspection process, and the workers' skilled operating techniques.
"Our production standards fully comply with international requirements, and our quality testing equipment was imported from their own country; it's even more advanced than some of the equipment in your factories," Lin Zhou said to the Siemens representative, pointing to the instruments on the testing line. "By outsourcing production to us, you can not only reduce costs but also save time and money building new production lines, allowing you to focus more on market promotion. Isn't that a good thing? It's a win-win situation, isn't it?"
To allay their concerns, Lin Zhou suggested that a small-batch trial production could be conducted first, with Siemens' quality engineers supervising the entire process. Only after passing their quality inspection could a formal OEM contract be signed.
After careful consideration and reporting to headquarters, Siemens representatives ultimately agreed to Lin Zhou's conditions. Subsequently, Philips and Cyber also reached cooperation agreements with Zhonghua Home Appliances Factory.
According to the agreement, Zhonghua Appliances will license its non-exclusive patent for air fryers to three companies, each paying a licensing fee of five million US dollars for a five-year term. Simultaneously, each company must place an annual production order for at least 300,000 air fryers with Zhonghua, with the manufacturing price determined based on the product model and quantity, ensuring Zhonghua has a reasonable profit margin.
When signing the agreement, the representatives of the three companies insisted on holding a press conference. Lin Zhou originally planned to keep a low profile and make a fortune quietly, but he couldn't resist their desire to announce it to the world to boost the stock price. Lin Zhou had no choice but to agree and notify local Hong Kong media and foreign media to hold a press conference at Zhonghua Industrial Park.
Following the press conference, media outlets from various countries published detailed reports of the signed agreement. Zhonghua Home Appliances, previously unknown, instantly became a household name worldwide, causing a sensation in Hong Kong's business community. People were surprised that Lin Zhou not only rejected the astronomical price offered for exclusive licensing but also successfully persuaded three international giants to accept OEM terms, thus preserving core technology while securing stable orders. This boldness and wisdom impressed many business leaders.
After receiving the licensing fee, Lin Zhou immediately invested the funds in expanding the factory. He built three new production lines in the industrial park, hired more workers, and introduced more advanced quality testing equipment to meet the demands of OEM orders.
After a month of training, Chen Xiulian and Li Azhen became skilled welding workers, successfully passed their probation period, and became full-time employees. They were assigned to the OEM production line, responsible for producing temperature control circuit boards for Philips air fryers.
"Xiulian, I never imagined we could be manufacturing products for such a large international company!" Li Azhen said excitedly while skillfully soldering components. "I used to work in a textile factory and had never even heard of these companies. Now I can actually produce their products myself—it's incredible!"
Chen Xiulian nodded, a proud smile on her face: "Yes, Mr. Lin is amazing. He can get those big foreign companies to come and cooperate with us. We must work hard, do a good job on quality, and not let our factory down."
Contract manufacturing has higher quality requirements than owning your own brand. All three companies sent quality engineers to supervise the entire production process, from component selection to final product testing, with strict standards at every stage. If any defective product is found, not only will it be reworked, but the corresponding contract manufacturing fees will also be deducted.
To ensure quality, Zhonghua Electronics Factory has implemented stricter production management systems. Each workshop is equipped with a quality supervisor, and each process has detailed operating procedures and quality standards. Workers undergo quality training every day before starting work, learning the latest quality requirements and operating methods.
Chen Xiulian and Li Azhen's work team once had a batch of circuit boards returned for rework by Philips' quality engineers because the solder joints were not uniform enough. The team leader led everyone to work overtime to resolder them until all the products passed inspection. This experience made them deeply aware of the importance of quality, and afterwards they became even more meticulous and careful in their work, striving for perfection in every solder joint.
With the continuous delivery of OEM orders, Zhonghua Electronics' production scale has been expanding. The production lines in the park are operating around the clock, with workers working in three shifts. Monthly output has soared from the initial 80,000 units to 150,000 units. The number of workers in the canteen is increasing, and the dormitory buildings are full of newly recruited employees. The entire park presents a thriving scene.
Lin Zhou was not content with the status quo. He knew that patent licensing and OEM manufacturing were only stopgap measures; to establish a foothold in the global market, he had to build his own brand. He used the licensing fees he received to establish a research and development department, investing in technological upgrades and product innovation. At the same time, he was actively expanding into Southeast Asia and Oceania, planning to establish his own sales network in these regions, allowing Zhonghua brand air fryers to directly enter local consumers' homes.