The lessons to learn from ACW's fate?

After two difficult years of shrinking orders and high overheads, the company had to make a decision. What was it that went wrong for ACW? Evertiq talked to Chris Woods, Chairman and founder of ACW International.

With contract manufacturing you have a lot of fixed costs and expenses, and we had already invested in advancing in China and the US. Eventually the costs just became intolerable

The company grew very successfully over a period of years to reach GBP 50 million in sales, and took on a lot of respectable companies – eventually all but one customer, were large listed companies. However, their business involving ACW has taken a big downturn. “We started to see orders diminishing over a period of months during the end of 2011, we were already forecasting 2012 would be a more difficult year. Eventually, we decided to adjust our facilities and staffing accordingly, but then the sales went down again and again. This descent continued throughout the year – with substantial customers who previously had been selling large volumes of product having a significant downturn. In some cases the requirements dropped to zero” This could possibly be due to the recession, but it just seems by unlucky coincidence to have hit all of ACW costumers together, with the exception of civil aerospace, where the company saw some increase. “With contract manufacturing you have a lot of fixed costs and expenses, and we had already invested in advancing in China and the US. Eventually the costs just became intolerable – and our losses too great to sustain, so we started seeking buyers for the business.” Is China still a possibility for European companies? “In China we were set up to operate to the same high standard and quality requirements that we had at our UK operations. In fact, for all of our sites we have the same systems, the same set up, the same quality measures and standards. However, in China security or confidentiality concerns precluded some of the work that we carried out in Europe.” China might come with some lower costs, but it also comes with some additional requirements in relation to customs declarations and issues and control requirements in terms of our high tech machinery imports. There are local customs and wrinkles to know and acceptance of different ways, for example, you need to get accustomed to laws affecting your business being implemented without warning, or notice that they will apply from a date that has passed. “Other than that there is not a lot of difference, it’s just that it’s very difficult and very time consuming to set up in China and get to a point where you well- established and in control enough to make a profit. It takes a long time. There are differences in operating there – and one of the big differences - is the management culture. There is an expectation that everything will be driven or dictated from the top, rather than participation by and initiatives from all employees.” However, Mr. Woods does believe that the door is still open for foreign entities to invest in China, and that they would obtain significant benefits from being there. But as of now, ACW's 48,000 sq.ft facility in Zhuhai, Southern China, is up for sale together with the complementary Asian sourcing company in Shenzhen nearby. The majority of ACW’s UK business and assets were acquired by TT electronics, which also entailed a transfer of production from ACW's factory in Zhuhai to TTs’ facility in Suzhou, China. To start up business in China, you need – he believes – approval from 14 different authorities. “To add to that there is a lot of paperwork and time involved in Chinese banking. In fact, there's a lot of paperwork in China, but people are used to it being that way.”

If you look at it from the outside; it can be done – but it’s not very easy and it costs a lot of time and money to get there.

He also believes that China will continue to be a major manufacturing powerhouse for 1. the world – and 2. for itself for the foreseeable future. “One of the things that people should appreciate about China is, that there is a fantastic work ethic. If they are tasked accordingly, they are very, very good. Their work ethic is very strong. And that is a significant advantage of China." "On top of that, for any electronics manufacturing company the support infrastructure in an area like the Pearl River Delta where we are, is good. A visit to a place like Shenzhen’s “Electronics City” is a trip that would amaze most people in electronics. You can buy just about anything you would need to make a prototype off the shelf today. Not only that the concentration of mainstream electronics suppliers there is staggering. Shenzhen has around 8-10 million people most of whom came in the last 30 years to work in electronics supply and the like. This concentrated capability makes it a truly valuable location for our type of business.” Some of the very high volume products may migrate to lower cost countries, maybe Vietnam, maybe Cambodia. “If you have a consistent demand and a consistently known product and requirement, you might choose to make it there and the required support infrastructure will follow you”, he continues, “but for small or medium size businesses you cannot beat having all that support on your doorstep, with people prepared to work through the night to meet your needs for parts, tooling, maintenance … you name it.” “If you look at it from the outside; it can be done – but it’s not very easy and it costs a lot of time and money to get there. You will find out – as you go through a long process of bureaucracy, banking, customs and other requirements, as well as government regulations and requirements –there are many lessons to be learned – then you need to find out all there is to be known about operating in a different culture, otherwise you will not get ahead. That’s why an opportunity to acquire a facility like ours is so compelling – it could save a buyer at least three years in establishing operations of such complexity.”