Game of Phones

It is difficult to start a mobile phone company in the United States.

The first difficulty is purely political. Few suppliers and manufacturers in the mobile phone industry will even give you the time of day if you are manufacturing fewer than 100,000 units per year. Our plan was to sell 1K units in 2017, 10K in 2018, and 100K in 2019. From the start we had a struggle obtaining the CPUs we wanted and had to fight tooth and nail to even get radio modules. For the CPUs we could buy the MediaTek chips we wanted to use affordably in Shenzhen but couldn’t obtain the datasheet. Or we could get the datasheet for Qualcomm CPUs we wanted, but their radio module would be disabled in accordance with licensing requirements. So after going through a few weeks of that heartache we decided to use a CPU and an external radio module. But the specifications we were asking for in the radio module were so new at that time that we did not finally obtain radio modules samples until May 2017. Then we found the mother of all solutions in September 2017 and that changed everything for us (and of course I can’t talk about that part).

The next challenge you have to deal with is deciding where you want to manufacture. In 2016 this was a no-brainer as most would have gone straight to Shenzhen. However, we had a set of experiences that put us on a different path to manufacture locally.

1. Customs Delays. In 2016 we experienced some of our supplies getting caught in customs, and we quickly realized that helpless feeling when your product is trapped and you have to carry the weight of salaries for your business for each day, week, month or more that the shipment is delayed. Fortunately we did not have customers waiting at that time, but it was a serious wake-up call for us.
2. Wage Gap Diminishing. Also in 2016 I started reading articles about how the wage gap between Shenzhen and the United States was starting to decrease, and I wondered if the trend would continue to the point where it would no longer be less expensive to manufacture our phone in China.
3. Automation Increasing. Products which require a lot of work by hand can suffer more in price from wage gaps than our product. However, automation is becoming more prevalent in smartphone technology. One advisor pointed out to me early on that the machines cost the same in China as they do in the United States, and if the work by hand is reduced, then the cost savings to go to China may not be that significant.
4. Fear of Infringement? Lots of people tried hard to scare us with stories of being copied in China, but we loved and trusted our partners in Shenzhen who got us through our first product release, so honestly this was not a worry for us and I only mention it because it is brought up so frequently. I think taking the time to build good relationships with solid partners can help avoid this situation for most companies.
5. Shipping. Back in 2015 I saw a presentation at the Seattle Mini Maker Faire about the advantages of manufacturing in Mexico which pointed out that the price per unit may be less than when manufactured in China, but the shipping cost is usually found on a different sheet, and can frequently bring the price per unit up to where it is comparable to what you would pay to manufacture it in North America.
6. Same Time Zone. As much as we love working with global partners, sometimes I feel that it can take longer to move the needle while we wait for everyone to sync up. Being in the same time zone as our manufacturers is absolutely luxurious.
7. One Mile Away. Our main manufacturing unit is one mile away from our office, our backup manufacturing unit is one hour away, and between the two they can manufacture about 200K units a year. If anything comes up we can be there on site in a jiffy to sort things out. If you were a young hardware company trying out innovative designs (that might cause unanticipated problems) wouldn’t you want to be nearby as well? In fact, at what point in your company’s growth would you be willing to be farther away from your beloved manufacturers and families? Probably never.
8. International Politics. As Trump threatens additional $100 billion in tariffs against China just in the last few months, this becomes a growing worry for all United States companies manufacturing in China. What will this do to the bottom line for all of these products?
9. Saving Time = Saving Money = Saving Stress. If you take a big step back and look at the entire picture, you can save enormous amounts of time and energy by producing locally, which means that your customer gets their product faster (bonus – happy customers!), and your company receives (and your investors receive) money sooner. However, if you produce far away, you have to maintain company salaries for the weeks or months you are waiting for the product to be developed over different time zones, manufactured (hopefully) to your specifications, and shipped to the customer. I have not done any analytical chart, but my gut sense is that manufacturing abroad can potentially end up burning more money in the long run and creating more stress.

Currently we are manufacturing our phones in Washington State for all of these reasons and more. However, when we begin to deliver high volumes to China and India, it makes sense to manufacture where the customers are located, so we will probably reach out to our partners in China at that point.

I’m just grateful for the opportunity to be working on unique phones every day. I can’t imagine doing anything else.