"How is it possible!? CHMER can actually do it?" Six years ago, when CHMER Electromechanical developed the first CNC (Computer Numerical Control, numerical) wire cutting machine in China, peers in the industry heard that Xundu jumped up from his chair and shouted that it was impossible.

In the past, Taiwan’s metal cutting machine tools, especially CNC products combined with CNC controllers (which can enhance the degree of mechanical automation and overall performance, and achieve unmanned operations), relied on Switzerland and Japan. While other advanced countries are importing products to make up for the shortcomings of high-end technology, CHMER Electromechanical has changed the ecology of domestic machine tools by relying on its excellent research and development capabilities. Persistence in research and development has allowed CHMER Electromechanical to acquire key technologies, widen the gap with its peers, and create brilliant results with an average after-tax earnings of more than five yuan per share in five years; it has also made Taiwan second only to Switzerland and Japan is the third region to mass-produce CNC wire cutting machines.

"Can you imagine? No matter whether the business is good or bad, CHMER Electromechanical spends money on research and development every year. It keeps buying the most advanced machines from Japan and dismantling them for research. After buying them, Japanese companies start to have Be wary and deliberately pull out key parts." Chen Shunting, the head of Benchmark Technology who has been in business with CHMER Electromechanical for nearly 30 years and has supplied slide rail parts to 40 to 50 machine tool companies, said that CHMER Electromechanical and other largest companies in the industry Competitive divide.

Chen Shunting pointed out that everyone now sees the glorious side of performance, but who would have thought that as early as the 1980s, CHMER Electromechanical spent hundreds of millions of yuan on research and development, focusing on squatting. , the annual investment amount is more than 10% of the company's profit. Even today, CHMER Electromechanical still insists on allocating at least 2% of its revenue every year to invest in the development of new technologies. Compared with some peers who are stingy with spending and only accept OEM (Original Manufacturing) orders, CHMER Electromechanical is very generous. protrude.

"This is not like the pattern that a small company should have." Liang Ruifang, general manager of competitor Lecom Technology, asked reporters and couldn't help but express admiration in his speech. In the early 1980s of the Republic of China, Liang Ruifang served at the Industrial Technology Research Institute and was responsible for supporting the technological upgrading of the domestic machine tool industry. At that time, CHMER Electromechanical's dedication to technology and its emphasis on R&D talents impressed him deeply. CHMER Electromechanical has indeed moved towards technological independence in recent years, and has further become the standard in Taiwan's industry. Liang Ruifang admitted that CHMER Electromechanical is now a "respectable opponent."

Business advantages: market share reaches 90%, gross profit margin exceeds 30%

The soul figure who single-handedly created the R&D advantages of CHMER Electromechanical is Wang Wuxiong, chairman of CHMER Electromechanical. On April Fool's Day in the 64th year of the Republic of China, Wang Wuxiong founded CHMER Electromechanical with a capital of 200,000 yuan. Since its establishment, it has always positioned the company as a leader in technology. Wang Chenhong, the foreign assistant manager of CHMER Electromechanical and Wang Wuxiong’s eldest son, pointed out that his father had instilled in him since he was a child that he should be the technical boss and not the second child, otherwise he would have to follow others’ footsteps. Therefore, Wang Chenhong Hong's first learning position after graduation was in the R&D department.

Wang Wuxiong’s persistence in technology research and development has allowed CHMER Electromechanical’s performance to begin to bear fruit. In the 1980s of the Republic of China, thanks to the fact that CNC wire cutting machines accounted for 90% of the domestic market share, CHMER Electromechanical's gross profit margin jumped to 35%. In the 1990s of the Republic of China, it exceeded 40%. By the time the financial report was released last year, although Competitors are eager to catch up, but CHMER Electromechanical's revenue still exceeds one billion yuan. Not only does its gross profit margin remain at more than 30%, its pre-tax net profit margin is also a brilliant performance of 23%, more than twice that of Dongtai, a major machine tool manufacturer listed on the stock market.

Why focus so much on R&D? This is related to the industrial environment in which CHMER Electromechanical operates. In the past, Taiwan's mold manufacturers (downstream of CHMER Electromechanical) almost relied on imported machine tools from abroad. However, due to their high prices, the external quotations of these molds were often uncompetitive.

Now that CHMER Electromechanical has developed its own core technology, it is like a timely rain for these mold manufacturers. Not only is the price of the machinery cheaper than imported goods, but the subsequent maintenance costs are also saved a lot. For CHMER Mastering this key technology also means mastering another stable source of profit. "We can make money as soon as we launch it, because downstream manufacturers are rushing to get it." Chief Financial Officer Cai Zhi listed out the secret of CHMER Electromechanical's 30-year history of not losing money. .

Although CHMER Electromechanical's technical capabilities are booming, it has also aroused the jealousy of peers and frequent poaching. Ten years ago, CHMER Electromechanical took the lead in launching CNC electric discharge machining machines. However, the R&D and business leaders were poached by high salaries. Then the CNC wire cutting machine came out, and the industry was sharpening its skills again, taking away several key figures one after another.

The key to stability: using employee shares and internal entrepreneurship to retain talents

In order to prevent rivals from easily obtaining the R&D achievements of Qinghong Electromechanical through poaching, Wang Wuxiong learned from the painful experience and separated part of Qinghong Electromechanical's business into related companies such as Shunpeng, Hongyou, and Shuohong. In addition to increasing promotion channels, employees are also allowed to own 20% of the shares. Through internal entrepreneurship, core technical managers have become a close community of destiny.

The key to stability: using employee shares and internal entrepreneurship to retain talents

Although establishing subsidiaries resolved the issue of talent attribution, you can't have your cake and eat it too. Due to frequent interactions between CHMER Electromechanical and various related companies, it has led to consistently high amounts of related party transactions in the financial reports. Based on last year's financial report, the sales ratio of related parties reached as high as 66%, and the purchase ratio was around 32%. This has been the reason why CHMER Electromechanical, since its listing on the Growth Enterprise Market in January 1992, has frequently faced scrutiny from regulatory authorities, preventing it from transitioning to the main board.

"Listing on the stock market is not our operational focus; the pursuit of technological independence is our goal," stated Wang Wuxiong unequivocally. Since CHMER Electromechanical's major shareholders collectively hold nearly 90% of the shares, and the debt ratio has been below 30% in the past five years, the urgency and necessity of fundraising through listing are indeed low. The key for CHMER Electromechanical, cultivated through 30 years of hard work in technology, lies in how to seize the market territory from the original Swiss and Japanese giants in Taiwan, Europe, and the United States, and overcome the threat of China's low-price competition in low-end products. This will determine whether the technological saplings cultivated by CHMER Electromechanical can continue to thrive, bear fruit, and yield profits year after year.

By Zhang Hongchang
Source: Business Week, May 16, 2005