Like a fisherman casting a wide net, Ngit Liong Wong is looking for acquisitions to build Venture Manufacturing Ltd., which some analysts say is essential if the EMS provider is to continue to grow.
But companies that are deemed too big, too expensive, or don't offer the advanced design/engineering capabilities that Wong is seeking will not be hauled in. As president and chief executive of Venture, Wong knows the 18-year-old Singapore EMS company, which reported 2001 sales of $1.5 billion, must navigate carefully through recession-filled waters. Bigger players, primarily North American EMS companies, have stumbled in their quest to use acquisitions as means to enhance revenue during the economic downturn.
"It's not about having a [manufacturing] site in every country in the world," Wong said. "You have to make sure that whatever you buy is an asset to you and not just equipment. The facilities should contribute to your strength."
Within the next 12 months, Wong hopes to snare a significant "technological acquisition" somewhere in Asia, Europe, or the United States that will strengthen Venture's global presence.
Venture -- with its business mix as an EMS company, original design manufacturer (ODM), and e-fulfillment services provider --numbers among its customers major OEMs such as Cisco, Hewlett-Packard, IBM, NEC, and Motorola.
The company runs all three business operations under one roof at its plants in Asia, Mexico, and the United States. Customers seeking design expertise for new-product introductions can simultaneously have their EMS volume production needs met, according to Wong.
And through the company's e-fulfillment services-including aftersales support, distribution, and logistics-Venture helps OEMs reduce supply chain costs, he added.
"To be a successful company, you need three sides of the triangle," Wong said. "A triangle with one side is not stable."
EMS companies are traditionally known for making products. As an ODM, however, Venture also designs products that are subsequently manufactured at one of its low-cost fabs.
But unlike a typical ODM, Venture doesn't create its own product line from the designs it creates, because it doesn't want to compete with its customers.
"We complement our customers' skills and requirements," Wong said. "Everyone has limited design resources. There's lots of room for collaboration."
The company uses its design prowess as a lure to keep volume manufacturing for communications/networking customers-along with imaging and printer products-coming through its doors.
The EMS provider also focuses on keeping costs down for its customers. "Venture is powerful because 95% of our facilities are located in low-cost regions of the world," Wong said. "Many of our competitors probably only have [between] 20% and 30% in low-cost areas. If they continue to acquire facilities in the wrong places, they're moving in the wrong direction."
Singapore at one time was known as a low-cost manufacturing site. But labor rates have increased steadily over the past several years, forcing EMS providers like Flextronics International and Manufacturers' Services to move production to lower-cost Asian countries such as China, Indonesia, and Malaysia.
Wong believes Venture can continue to serve its Singapore customers while also tapping into those lower-cost countries.
Venture started out in 1984 as just another contract manufacturer in Singapore, along with several hundred similar companies. Wong, a former HP executive who headed its Malaysian operations, joined Venture in 1989 when a venture capital group restructured the company. Wong, who owns 5.7% of Venture, brought in several HP colleagues to help run the company.
"We did the simple assembly, the testing, and printed-circuit-board subassemblies when we started out," said Wong, a former Fulbright scholar from the University of California, Berkeley, with an M.B.A. from McGill University in Montreal.
In the 1980s, the disk drive industry moved aggressively into Southeast Asia, especially Singapore, which helped Venture to expand.
"The value chain [in the EMS industry] was growing," Wong said. "We started doing new-product-introduction and prototype services."
Noting the success of Taiwanese ODMs in the PC and notebook business, Venture executives decided in 1992 to adopt the ODM model. Venture acquired a company with design capabilities and hired groups of R&D staff from multinational companies to round out its new service offering. A short time later, Venture brought its e-fulfillment strategy to life.
"Everyone has their own way of running their business," Wong said. "But to make sure you have an opportunity to manufacture, you must get into design. The barrier to entry is high. Manufacturing is much easier. You buy some equipment and you hire some engineers and set up shop."
Venture makes Palo Alto, Calif.-based HP's printers, networking cards, and scanners, and provides Motorola Inc. with basestation modules and handset PC-board assemblies. Cisco Systems Inc. tapped the EMS provider to make cable modems and for Venture's product-fulfillment services. About 70% of Venture's output is sold directly into the U.S. market; Europe represents 5% and the remaining 25% belongs to Asian subsidiaries of major companies.
Venture's EMS business is expected to generate sales this year of $767.3 million and $886.5 million in 2003. The company's ODM operation could tally sales of $118.4 million at year's end and $154 million in 2003, according to Paul Cheong, a Singapore-based analyst at Merrill Lynch & Co. Inc.
"About 10 years ago, no one knew Venture," Cheong said. "Now everyone does. Venture was built from scratch and quickly became a niche player."
But it was Venture's conservative approach to acquisitions that held the company back, according to Cheong.
"Over the last five years, North American EMS providers had an average earnings growth of 50% because of their aggressive capacity expansions," he said. "In comparison, Venture's earnings grew at about 30% during the boom years because it relied on organic growth and didn't participate in aggressive expansions."
But Venture seems to have gotten the message. Earlier this year, the company agreed to acquire Univac Precision Engineering Pte. Ltd., a Singapore global design company that specializes in complex plastic electronic components and tool-and-die-making projects for major OEMs. Venture added 18 engineers to its roster of 150 through the deal.
The company has also entered into a joint venture with Japanese OEM Sumitomo Electric Industries Ltd. that calls for the two companies to collaborate on IC design and designs for portable data-terminal products.