Rising through the ranks

Barry Lin, in his final year of college in 1980, was an office boy in a two-man outfit.

His brother's former colleague had just started an electronics distribution company in Taiwan and needed a helper.

"I did everything - book keeping, inventory management, making deliveries on a Vespa scooter," he recalls.

Fast forward three decades, and the company is now a behemoth known as WPG Holdings, which is listed in Taiwan. It is Asia's top electronics distributor by revenue and the world's third largest, with 2011 sales revenues of NT$338 billion (S$14 billion).

Components that were once tied together with rubber bands and stored in a file cabinet are now in neatly-stacked boxes in giant warehouses in Taiwan, Hong Kong, Singapore and Shanghai.

Mr Lin is now managing director of WPG South Asia - which was listed in Singapore in 2001 as Allcom Technologies, but re-acquired by its parent in 2004 and delisted. Today, WPG South Asia is a WPG Holdings subsidiary with over 40 sales offices in the Asia-Pacific region, 250 product lines and recorded S$1 billion of revenue last year.

Says Mr Lin of his journey: "It has been quite interesting and exciting. Not many people have the chance see a company grow from a two-man firm in 1980 to a company of 6,500 people."

According to Mr Lin, key to the company's growth all these years were the services WPG provided to customers. The company acts as an inventory buffer, offers longer payment terms, and provides design services, he says.

WPG distributes electronics components used to make any device that needs electricity, such as mobile phones, computers, sensors, TVs, and home appliances. It buys components from vendors, or suppliers, such as Intel, Samsung and Texas Instruments.

It then sells them to manufacturers such as Flextronics, Foxconn, Jabil, and Venture GES, as well as to smaller manufacturers whose orders would otherwise be too small for suppliers to accommodate.

It is a one-stop shop, enabling customers to obtain a broad range of components instead of having to source from different suppliers.

Margins tend to be slim, in the range of 5-7 per cent and as low as 2-3 per cent for some products.

Thus, WPG provides additional services to customers, stocking two months worth of components for its customers and providing longer payment terms of 45-75 days compared to suppliers who can demand payment within 30 days.

With an inventory holding period of two months and a receivables collection period of two months, and subtracting a month for accounts payable, WPG needs three months of working capital a year - or $250 million on $1 billion of revenue.

Managing cashflow is critical and part of that involves building good relationships with bankers through regular business reviews with them in good times or bad, Mr Lin says.

"Banks get worried if you use too little credit or too much. The reviews give them the information that they need, so they have the confidence to lend to us."

WPG also makes basic reference designs of electronic products for manufacturers to build on. These can be designs for battery management in computers, keyboards, mobile phones, electricity meters or set-top boxes.

"Manufacturers don't need to do the design from scratch, they can use our design and put additional features, modify it. So our customers save time and money," he says.

"This is one key competitive factor for us. We have over 600 engineers doing designs in Asia."

In the electronics distribution business, economies of scale are paramount. Smaller distributors find it difficult to survive because they cannot provide design services or pull off regional operations, Mr Lin says.

Other than organic growth of 10-15 per cent a year, WPG was able to grow over time by acquiring existing businesses. It tries to disrupt these businesses as little as possible to encourage medium-sized companies to partner up, Mr Lin says.

"In the US, you buy, merge, and integrate to one company. For WPG, we integrate back-end functions like logistics, legal and human resources. But we keep the front-end sales and marketing units intact.

This strategy attracts medium-sized enterprises whose entrepreneur bosses have run the company for 20-30 years. They feel an obligation to the staff. If they sold the company to a foreign entity, the team would be destroyed."

WPG Holdings was formed in 2005, comprising Mr Lin's original company WPI Group, as well as SAC Group and RichPower Group. All three were listed companies in Taiwan. Then came other Taiwanese groups - Pernas, AIT, Yosun, and AECO.

"Our holding structure attracted other listed companies to join us. If they were independent, they could not attract large institutional investors. We also eliminated competition this way," Mr Lin says.

WPG Holdings is always on the lookout for other partners, he adds.

After setting up logistics operations in Hong Kong and the US, Mr Lin was tasked to come to Singapore in 1996 amid a global electronics manufacturing boom. The same year, he set up an office in Penang. The next year, he set up offices in Bangkok and the Philippines.

Malaysia and Thailand were at that time popular places for Taiwanese and Japanese manufacturers. Global electronics manufacturing services companies were also drawn to these low-cost countries, he says.

In 2001, WPG ventured into India. "Like China, India was a potentially huge market and we needed to invest there. Suppliers also asked us to go," Mr Lin says.

But the country posed a whole set of problems of its own, and WPG's distribution business could not take off. Manufacturers avoided setting up operations there due to poor infrastructure and a lack of cost advantages because low import taxes allowed easy inflows of goods, Mr Lin says. "Our business relies on manufacturing, but there was no advantage in manufacturing in India."

WPG's revenue there now comes mostly from selling electronic components such as CPUs, hard drives and motherboards directly to retailers, he says.

Looking ahead, Mr Lin says that India still plays a part in its future growth, together with Indonesia and Vietnam, and WPG is investing in all three. "If these countries encourage manufacturing with incentive programmes to attract foreigners to invest, we'll have big potential.

China is turning more expensive. These South Asian countries have an advantage with low labour costs and operation costs."

WPG thus partnered some businesses in Vietnam and Indonesia to distribute electronic components to manufacturers there. "We will still invest and try to grow the business there.

Hopefully, we will get even small customers, and some day they will get bigger."

Summing up the electronics distribution business that he had been involved with all his life, Mr Lin says that it is not one which he can just "set up and relax".

"Every day, you need to manage inventory, accounts receivables. You need to watch every penny, for every cost matters. Buy too many components and the company will be left with a huge inventory if the customer stops manufacturing. Get a bad customer who does not pay, and bad debts will add to costs.

"This business is tough, exciting, and manpower- intensive. You need to travel and work very hard."