Executive Cases: Interviews with Senior Executives of Early-Stage Companies:
PCH International – Ireland and China
Prepared by Ning Jia and George Foster
PCH International was founded by Liam Casey in 1996, with corporate headquarters in Cork, Ireland, operational headquarters in Shenzhen, China, and US headquarters in San Francisco. PCH started as a small sourcing company and now its services span all stages of the consumer product development and supply chain, from concept to delivery, and all critical steps in between. PCH combines end-to-end services with a unique understanding of China and transparent partnerships to deliver absolute peace of mind to clients.
PCH is the behind-the-scenes partner responsible for some of the most successful launches of consumer electronics accessories. PCH is the enabler, turning an idea into a physical product in the hands of a consumer, while optimizing quality, costs, and time-to-market for clients. PCH clients are located all over the world, from the technology giants of Silicon Valley to every corner where promising opportunities arise. To successfully capture these opportunities, PCH has established 10 regional offices across multiple time zones with more than 4,000 employees.
Linus Chung is Head of Corporate Development, New Markets for LinkedIn (NYSE: LNKD), the world’s largest professional network, where he is responsible for corporate and business development for the company’s strategic new markets. Before LinkedIn, Chung was Vice-President of Corporate Development at PCH International, where he led strategic initiatives, capital fundraising and investor relations. Prior to PCH, he was a venture capitalist at Lightspeed Venture Partners. Prior to Lightspeed, he was a management consultant at Bain & Company. Chung received a Bachelor of Science degree in Electrical Engineering from Stanford University.
Christina Zhang is PCH’s Strategic Account Manager focusing on Asian market business development. She joined PCH in January 2000 and has since worked in different functional departments including shipping, product development, project management and executive administration. Zhang holds a Bachelor’s degree from Shenzhen University and an MBA from HEC Paris.
Q1: What was the source of the initial idea, and how did that idea evolve into a viable growing company? How did it change over time?
Casey: “In the early to mid-1990s, many US technology companies opened large European manufacturing headquarters in Ireland. This presented a major opportunity. In addition to having a rapidly growing technology industry in Ireland, many of these big international companies were purchasing components that originated in Asia, in most cases China, which then arrived in Ireland through many different geographical routes. I saw a huge opportunity when I looked at what they were doing. It was often complex and very confusing. That confusion was often the competitive advantage for trading and supply chain companies. The first two years of PCH were all about learning. But we quickly identified an opportunity to simplify the supply chain process and make it much more efficient. This started on a small scale, but we were able to very quickly replicate this successful formula for multiple clients.”
Q2: What were the major growth accelerators for your company in the early years of high growth?
Casey: “PCH’s ability to win new business and quickly demonstrate to clients the need for our expertise has always been a key aspect in our growth. Early on we established partnerships with some of the some of the world’s best brands and continually added new services specifically tailored to meet their individual requirements. By simplifying their supply chain processes and providing peace of mind, we were able to save our clients time and money and let them focus on what they do best. We became a key part of their operations.
Setting up operations in China quickly and being present on the ground was a major factor in our success and gave us a huge competitive advantage. It allowed us access to the facilities and engineers and speeded up the whole process. Very early on we saw the need to become experts on running companies in China – not just having operations there.
Our continuing investment in technology is also a major accelerator. This has helped us increase information transparency with our clients. Transparency of process is a central PCH offering. We have developed a series of online software tools that drive internal PCH activities and provide a portal for clients to oversee and participate in the process. These systems enable PCH, our customers and third-party suppliers to view and share the same data.
PCH has, over time, developed a much broader platform to help our customers. Now, even if our client just asks for product quotes, we put that product through industrial design optimization that yields the best cost for the customer while minimizing potential quality issues. We are a leading exponent of supply chain management with very large benefits that are shared with our clients.”
Boettcher: “One of the key accelerators launching PCH from a company with revenue of around US$ 100 million in 2008 to likely over a billion in 2013 was the closing of its US$ 21 million series A venture funding in September of 2008. Liam had been reluctant to raise venture capital when we first met in January 2006. He had concerns that venture capitalists always tried to oust the founders and take control of many companies. I believe he would now say that his three initial venture investors have been good partners that have provided sound advice and added significant value over the years, contributing to his great success.”
Q3: What role did key aspects of the entrepreneurial ecosystem surrounding your company play in the growth of your company?
Casey: “Why do people manufacture in China? It’s down to the ecosystem of raw materials, and it’s down to the skilled workforce. These are the aspects that have had the most effect on PCH.
Chinese factories can respond to demand incredibly quickly. Anywhere else in the world, you’d have to import different raw materials and components. In China, multiple suppliers are located right on the doorstep and they can provide samples the same day, often within hours. People often have the impression that China is cheap, but really, it’s fast, and that was a key aspect that allowed our business to take off as quickly as it did.
Having a skilled workforce in China is probably one of the greatest assets you can have. China is not about cheap labour – in fact, labour costs on the products we make are typically a very small percentage of the overall amount. It’s down to the skilled workforce. As China has evolved over the last 15 years, so has the workforce. Shenzhen used to be the place to make cheap products. Then it became a cheap place to make products. Now it’s the only place to make the kind of products that we work on. We are moving from ‘Made in Shenzhen’ to ‘Made by Shenzhen’ to ‘Designed by Shenzhen’. Poor quality is now the exception rather than the rule. The new China lies in design, quality, clean tech, innovation and setting new world standards for global business.”
Boettcher: “The human resources side of PCH has been greatly strengthened. With increasing success, PCH has been able to attract more senior, successful managers and given them the decision-making authority needed to scale the business faster. PCH today is truly one of the most caring, employee-centric work environments I have ever seen. One of Liam’s early limitations was to have to be in control of all aspects of sales and the key customer relationships for each account. I have seen this in many private company founders over the years. Liam has adapted and improved greatly in this area as the company has grown. The broader management team at PCH embraces an expansive and strategic approach that is essential to scale the company and bring in multiple new customers.”
Zhang: “PCH was founded at the right time, in the right place and with the right people. In the late 1990s, Chinese PC manufacturers were mostly concentrated in the Pearl River Delta. It was the centre of the logistics chain for computer components. Being based in Shenzhen made it much easier for us to reach out to local factories and very much facilitated the sourcing and purchasing business. Finding the right people was also a key growth accelerator. For example, in the early days of PCH, one of our core team members was very well connected and had extensive knowledge of the PC industry in Taiwan. He was very helpful in expanding the company’s supply base. As more local staff, myself included, joined the company, the operation started to be managed locally instead of remotely from Ireland.”
Q4: What key aspects of the entrepreneurial ecosystem surrounding your company that were absent (or existed only in a weak form) created the greatest challenges for growing your company? Please describe and discuss how you met/were impacted by these gaps in the ecosystem and their resultant challenges?
Casey: “The biggest challenges for PCH were the lack of easily available finance and the limited availability of mentors and advisers.
Funding is always a major challenge for start-ups and entrepreneurs – it’s not always easily available. During the first few years our expansion was often limited by the funds we had available and, at times, we were stretched financially.
Likewise, finding knowledgeable mentors and advisers that are available to help entrepreneurs and start-ups is incredibly difficult. PCH’s path was an unlikely one and we had to find our own way and navigate the complexities of doing business in Asia, Europe and the United States all at the same time. We did that with very few mentors guiding us and it was a real challenge at times. But that has given us the experience we have today and has opened up new opportunities for us.”
Zhang: “Lack of expansion capital was a major challenge in the early days. Our customers are well-known and reputable companies, so there was not much problem in getting the payment. But we didn’t have sufficient capital to expand product/service offerings, make new investments and launch new production lines to meet particular customer requirements.”
Q5: At what stage did you invest significant resources seeking to grow your company internationally/beyond your domestic country or region? What factors were pivotal in deciding when to seek growth internationally and where to seek that growth?
Casey: “From the very beginning, we were a truly international company – that’s where we saw the opportunity. Our business was founded on the international technology market and opportunities to link up and simplify the supply chain, adding value along the way.”
Boettcher: “PCH has always been a truly global company, led by a visionary leader from day one. How many Irishmen from Cork have lived in a hotel room in Shenzhen, China for over 17 years building a company whose revenues went from zero to over US$ 1 billion, naming it after a highway in California…Pacific Coast Highway!”
Q6: What were the biggest challenges in building growth internationally? How did you meet or adapt to those challenges?
Casey: “Having suppliers, customers and our own teams spread across the different time zones in the United States, Asia and Europe has always been one of our biggest challenges, but PCH saw this as an opportunity.
The majority of our workforce is based in Shenzhen, but key elements of our global operations are managed from Cork, Ireland where they are able to communicate, during their working day, with customers in the US and their Chinese operations, giving us a competitive advantage over other supply chain management companies.
You have to be global, you have to think global. In business, geography is history and you have to be able to scale and reach other markets. We now have a team comprised of more than 4,000 people of 16 different nationalities located in 10 offices around the world.”
Chung: “Working with clients from all over the world brings a unique set of challenges in communication and building trust. E-mail and conference calls are no substitute for face-to-face communication. A lot is often lost in translation when a client on the other side of the world can’t see what you’re seeing. They can’t see a factory floor or touch a product prototype. If this continues for too long, clients may lose peace of mind. We’d sometimes have clients drop their plans and get on the first plane from the US to China right before a big production ramp. A week of having them on the ground with us in person would usually assuage any concerns they had. We soon realized that clients shouldn’t have to get on a plane to know that their project was on track. We now make a great effort to recreate the experience of coming to China and bring it closer to our clients. In 2012, PCH acquired Lime Lab, a product design and development firm in San Francisco, within a short drive of many of our clients. PCH is also launching a new centre of operations in San Francisco to act as a bridge to China for clients looking to manage a supply chain across the Pacific Ocean. Being global is a necessity in today’s world, but we’ve learned that a little effort to bridge the international divide with our clients goes a long way.”
Q7: What major role, if any, did key aspects of the ecosystem in the country (or countries) you first sought international growth either promote or impede your ability to grow in those international markets?
Casey: “Chinese people are very ambitious and entrepreneurial, and they want to do business. It was a challenge at first, but once we had built relationships and trust with people they were very helpful. We’re still in touch with, and in some cases still doing business with, people we first met back in the early years.
Trading companies and intermediaries often used confusion as a competitive advantage. At PCH, we refused to accept this and sought to simplify the processes for our clients.”
Chung: “PCH’s headquarters are in Ireland, with major operations in China, but most of our clients are in Silicon Valley. PCH’s growth benefited greatly from the vibrant ecosystem of technology companies in Silicon Valley. Silicon Valley’s sheer density of technology companies with global ambitions is unmatched anywhere else in the world. One of the unique characteristics of Silicon Valley is the culture of collaboration and cross-breeding of ideas. The Silicon Valley ecosystem and culture made it easy for us to make inroads with new client prospects. Many times, new clients came referred to us by existing clients. Or supply chain managers from one of our clients would take a post at a new company, bringing along a strong recommendation and desire to work with PCH again. Our reputation preceded us with increasing frequency. This was, however, a double-edged sword. One bad client experience could hinder opportunities a long way down the road. We understood this and always prioritized creating constructive partnerships above all else.”
Q8: Large companies can play an important role in the scaling up of early-stage companies with high growth aspirations. These roles can include being customers, suppliers, marketing partners, joint venture partners, and so on.
(a) Describe the key areas where interaction with larger companies helped promote your growth path.
Chung: “Large companies demand the best in every partner with whom they work. This is always a challenge, but we saw it as an opportunity. We see every interaction with our large clients as an opportunity to get better as a company, to raise our game to the next level. Our employees started to view working with our largest clients as the best training and experience possible. It was like getting paid to get a PhD in excellence. With a portfolio of large clients also came instant credibility that fuelled our growth. Over time, new clients coming in cold became increasingly rare. New clients came to us because their supply chain managers had heard of us or worked with us before at a different company. The conversation changed from our having to prove to new prospects why we were the right partner for them to our having to decide whether we had the bandwidth to take on a new client’s business.”
Zhang: “Large companies (our customers) have helped us in many ways, and we have truly learned a lot from doing business with them, ranging from product design, to manufacturing, to quality control, which enabled us to build up our knowledge base substantially over a short period of time. Working with large companies also allowed us to examine and observe our limitations, whether it’s human resources, or soft or hard infrastructures, and forced us to improve continuously.”
(b) Describe the challenges and potential problems that larger companies may have played in limiting the growth path of your company.
Chung: “A key potential problem with working with large companies can be the complacency that comes from steady revenue streams. The bar for bringing on a new client became increasingly high. With a handful of clients generating hundreds of millions in sales, our team began questioning why we would bother bringing on new clients if they didn’t bring revenue of at least double-digit millions in the first year. We began to miss opportunities. Our CEO was visionary enough to know that the industries we play in move incredibly fast. The next multinational giant could be just a few guys in a basement tinkering on ideas right now. If we didn’t change our mindset, we could miss out on the next big thing. We responded by creating a new programme to work exclusively with innovative start-ups. We put some of our best employees on servicing these small clients that demonstrated true growth potential. We applied our experience of working with Fortune 500 clients in an effort to give these start-ups the best service possible.”
Zhang: “Every large company that we work with has a different culture and structure. Some companies tend to be aggressive and are highly efficient in business decisions, while others may have a more established and fixed business model, so decision-making may be relatively slow. Sometimes, even if the top management want to make a change inside the firm, it may be difficult to push it through the entire organization. So we need to learn to work with companies of different ‘styles’.”
Q9: Seeking international growth often has both high moments and dark (low) moments. Briefly describe one high moment and one dark (low) moment in seeking international growth.
Casey: “In May 2001, I decided to bring the entire company together for our first ever company-wide in-person meeting in Cork, Ireland. Although we were then only a company of 14 people, that meeting included staff from many parts of Ireland, Shenzhen, Taipei, San Francisco and Austin, Texas. It was a pivotal moment in recognizing how far we had come and what we had achieved. It also made us realize the possibilities of what PCH could go on to achieve. Many of the people involved in that meeting are still with the company today and have played a big part in our success.
We’re an entrepreneurial and opportunistic company – we don’t see challenges as low moments. But one of the more challenging moments happened back in 1997 and involved a US customer based in the UK, a Taipei trading company, a Shenzhen factory and a Hong Kong shipping company, with an Irish bank financing the order.
At the time, there was in excess of US$ 100,000-worth of products sitting at a Shenzhen factory, ready to leave for Europe, when a paperwork mix-up meant the bank refused to pay the factory. There would be a large fine if the product wasn’t delivered, as the factory would have had workers standing around doing nothing. The factory owner refused a request for 60 days’ credit. In desperation, I handed over my passport to the factory as collateral. The factory owner placed the passport in a safe where it stayed for two months, leaving me stranded in China for two months, other than a day crossing the border to Hong Kong closely accompanied by the factory owner who wouldn’t let me out of his sight! However, it was time well spent in China, mostly travelling round the Pearl River Delta, to two or three factories a day, seven days a week.”
Chung: “In 2010, a huge portion of our staff was working tirelessly on a top-secret product for one of our biggest clients. It was one of the most inspiring displays of dedication to delivering great work I’ve ever seen out of a team. Finally, after over eight months of building in secret, the product was finally unveiled as part of a big announcement by our client. The product we worked on was meant to complement a much bigger product our client was releasing at the same time. The huge surprise for us was when many consumers and journalists were praising the product we helped bring to life, some going so far as to say it stole the show and was more impressive than the main product. It was almost like the back-up singers were finally brought front and centre. Over the next few months, it was a powerful thing to see consumers around the world using the products that we had played a huge part in making possible. Our client was happy, consumers were delighted, and we were reminded why we work so tirelessly to deliver excellent products and services.”