What Can We Learn from a Major OEM MP3 Manufacturer in China?

Dr. Neale O'Connor Interview with MP3 Manufacturer in China

What Can We Learn from a Major OEM MP3 Manufacturer in China?

A Factory Visit to Hongfutai E-Tech Co., Ltd.

By Dr. Neale G O’Connor FCPA (Aust)
www.Chinasourcingacademy.com/ Join Now as Free Member!

Introduction

HOTT founded in 1999, professionally manufactures and markets cutting-edge and high-quality personal audio and video products as well as providing reliable quality products along with value-added services.

Our profit margin is around 5 percent, and annual sales are 200 million USD, only about one-third of the sales of last year. Our golden period is during the year 2007, we can just sit in the office and wait for the customers to come and say we want how many of this products and how many of this one, then send money to us, but back in the year 2012, the whole market started shrinkage down, not only affect our factory but also we can hear some of the companies producing similar products with us close down every day.
Alex, Account Manager

Product

They manufacture digital entertainment products, like MP3/MP4 players, Bluetooth speakers, tablets. And they started manufacturer car DVR from March 2015. Their main product now is MP3/MP4 players. The selling price of the player varies from 7USD to 25 USD.

Mp3 Mp4 Manufacturer China

Factory

They have an 8,000 square meters’ factory in Shenzhen China. Their 12 production lines can have a monthly capacity of 400,000 units. The minimum order quantity is 1,000 units, because as for tablet, even though the order number is 20,000, the profit margin is still very low.
Referring to the payment terms, they also apply the 30/70 rules. But more interesting is they prefer the Telegraphic Transfer (TT), as for most of their old OEM customers, they prefer using the Letter of Credit (LoC). Due to the long-term relationship with them, HOTT also made some commitment to the payment agreements. It is very hard to do business with domestic customers, because they always want to use some other payment method, which may take more than 120 days or even half a year for HOTT to collect the money back, but factory needs cash to buy the raw material, so that is why they normally do not do business with local customers.

Quality Control

Assembly Line Inspection Mp3 Manufacturer ChinaAll the receiving materials are on the 2nd floor and have a separate IQC room for the testing of the incoming materials. And only the goods passed IQC can process to the assembly line, and the defect goods will return to the suppliers.

They have the finished goods inspection on the 3rd floor, at the end of the assembly line, and for different products they have a different testing room. For instance, they have an anechoic room for speakers and a dust-free testing room for tablets inspection. They also have the aging process for all finished products.

In our lab, there are salt spray tester, high-temperature tester, low-temperature tester, and equipment for operating system testing from Windows 97 to Win 7, and electric performance testing, static electricity testing. Our products passed ISO9001:2008 test, and are CE FCC, RoHS, REACH, and C-tick certified.
Alex, Account Manager

Assembly Line Inspection Mp3 Players Manufacturer ChinaAssembly Line Of Mp3 Players Manufacturer China

MP3 Player Manufacurers ChinaFactory Audit Of Mp3 Players Manufacturer China

Human Resources

Assembly Line Of Mp3 Players In ChinaThey have 280 employees, including 200 workers and 80 sales people. In the packaging product line, they have 25 people in charge of the putting the finished products into the plastic casing with the product instructions. Moreover, all the workers who will touch the electronic components need to wear the anti-static bracelet, and the soldering workstations will have the exhaust outlets.

Customer

Nearly 98 percentages of their customers are international. Among the overseas market, Europe is their largest market, occupied 60 percent among the overseas sales. Unlike other companies, they do not focus on the South East Asia and Africa, the reason is the customers from that area always want the cheapest products, and the profit margin is pretty low, so they mainly deal with customers from Europe and Mexico.

They have 20 percent of the overseas customers are new customers. And the remaining is returning customers. Most of the new customers, approximately 60 to 70 percent, come to the tradeshow and are interested in their products with come to visit the factory.
Competitive Advantage

Since our company established in 1999, so we have a long history in this field, especially for the MP3 players, which allows us to build up the good supply chain and good reputation. Therefore, it will take less time for the new customers to trust us and build a relationship with us.
Alex, Account Manager

Even though the trend of the whole market becomes harder and harder, they still have a chance to compete with other companies in the market. In other words, the demand for the MP3 players is about 30 million units, but only 5 or 6 of the companies can have this capacity match the needs of the customers, which also provides the competitive advantage for HOTT.
No.1 Challenge and Response

Our biggest challenge, for now, is innovation. “What is new and how to create new product” are the most asked question for the companies in this field, not only for HOTT but also for other companies.
Alex, Account Manager

So their response is first, keep the factory alive, which is very important because every day they hear of companies shutting down. Second, speed up the development of the new product, but they are mainly focused on the design instead of the utility of the product. Alex also mentioned about the new MP3 player named Hi-Fi, which will launch on the market next month.

Positives

Foam Cover For Electronic ComponentsWhen they finished the products, they will put them separately in the foamed plastic grids, which will prevent the electronic component from scratching each other, and also use the containers to transfer the component from 2nd floor to 3rd floor.

Negatives

Electronic Components From ChinaThey place some of the receiving products in the walkway, which latent the fire hazards. And when the manager wants to show us something about their component, he picked up the chip without wearing an anti-static bracelet, and the static from human body will damage the components.

Surprises

They produce a lot of products, and their main production lines for MP3/MP4 players, Bluetooth speakers, tablets and the car DVR. And they already have a 16 years’ experience in this market, which provides them the chance to compete with other competitors, and they are looking for the new opportunity while producing the audio players. And they believe the MP3/MP4 player still shows the potential to grow in the future, and they are now focusing on producing the high-quality players.

 

Dr. Neale O'Connor

Cofounder of the China Sourcing Academy, founder and director of the China Supplier 1000 Project. Founder Ricebox.com (Hong Kong). Currently teaching at the Monash University Malaysia.