While Korea's automotive industry is rapidly expanding its international reach, the supplier of transmission cages and housings is paving the way overseas.
South Korea metallic fitting companies tends to be sandwich between large Japanese companies who have established good reputations, high quality and high capacities, and Chinese ones that benefits from low labor cost. In your situation, what challenges do you face, and how did you overcome the competition from both domestic and international rivals?
We first gained confidence in our quality and production management, which was our priority when dealing with our major global clients. To enhance our skills, we sent our partners to Japan for training and education, allowing us to learn from and benchmark their advanced systems. This initiative was part of our efforts to foster innovation and bolster our quality and production management.
Unlike other companies, we maintained close ties with technological development research institutes. Since innovation didn't generate immediate profit, many were hesitant to invest deeply in new technologies. With limited capital and manpower, we undertook the challenging tasks that these research institutes were reluctant to address. This approach helped us build a strong reputation within the research community, creating a more conducive environment for our employees to work and innovate. Gradually, we gained the confidence of our partners. Initially, we only handled partial production for our partners, but now we are capable of full-scale production. Since some U.S.-based companies often outsource production and assembly to Asian firms, this connection led to our transactions with our American clients.
Today, more than ever, close collaboration with research institutes is crucial because the automotive field is undergoing a once-in-a-lifetime transformation. We are gradually seeing the industry move towards full electrification of vehicles. With this new infrastructure for plug-in hybrids and full electric vehicles, the number of parts inside cars is said to be drastically reduced. Full EVs are expected to have over 60% fewer parts than a normal internal combustion engine vehicle (ICEV). How is your company adjusting to this period of transformation, moving from hybrids to EVs? Secondly, how do you foresee the evolution of your products in an electric world?
In terms of quantity, there will be differences between ICEVs, hybrids, and full EVs, but I believe these three types will be compatible with one another. Full EVs won't necessarily replace ICEVs entirely. The trend will vary depending on the market, whether it leans towards EVs or hybrids. For instance, Toyota has just begun developing EVs. Since Korea has the capability to handle hybrids, ICEVs, and full EVs, I am confident we have the potential to compete successfully.
If we remain adaptable as partners, the parts we've been manufacturing for 37 years can be utilized across ICEVs, hybrids, and full EVs. The methods might differ, but commercializing them altogether might take some time due to durability issues. However, I am optimistic that we can meet the evolving demands of the automotive industry.
Whether manufacturers are making ICEVs, hybrids, or EVs, there is a clear shift towards lighter weight vehicles to meet various environmental regulations and standards. Consequently, the use of heavy ferrous metals like iron is decreasing, while the use of lightweight materials such as aluminum and certain types of resins, including CFRP, is increasing. How is your company responding to this trend towards lightweight parts and vehicles?
It may sound counterintuitive, but EVs actually require more materials and more structural support. This is because the instant power output of EVs is so strong that they need stronger and more solid materials. When EVs were first introduced, people thought we might need fewer cars or lighter materials. However, instead of miniaturized or lightweight components, we need stronger and more robust parts to prevent breakage. The metal joints need to be more durable yet thinner.
Until 2011, we specialized solely in cages, but after establishing our new headquarters and plant, we became more ambitious and aimed to diversify beyond just cage specialization. We were confident in our ability to assemble products and aspired to become a primary manufacturer.
We invested in large size grinding machines for cages earlier than our competitors. Most competitors only had grinders for standard-size cages. Thanks to our investment in larger grinders, we had the opportunity to develop various products ahead of others. This strategic move allowed us to stay ahead in the market and meet the growing demands for lightweight yet durable components.
Could you run through a brief overview of the history of the company?
In 2001, we conducted transactions exclusively with one company. During the 2007-2008 subprime mortgage crisis, they went bankrupt. As a result, partners went their separate ways to stay afloat. To gain more flexibility in our dealings with Korean car OEMs, and U.S.-based companies, we invested in our own machinery. This marked the beginning of our company's global expansion. We secured numerous orders from overseas. Additionally, a U.S. agency played a crucial role in connecting us with the local market, facilitating our first transactions on the U.S. mainland.
Your two plants are around 21,000 square meters equipped with various machines, allowing you to produce both smaller parts for classic vehicles and larger parts. You specialize in cages, shafts, housings, etc. What is the next step based on your current production capabilities?
Our next step is to assemble all the components into finished goods. By finished goods, I mean assembling the parts we manufacture into complete products. While specializing in manufacturing cages has allowed us to establish large factory sites and enhance our capacity, we also produce shafts. However, to achieve our next step and fully integrate assembly into our operations, we will need more capital.
Cage
Finished good production is quite complicated because it requires having the base technologies to produce all these parts and assemble them. Additionally, it requires moving up the automotive pyramid and facing different types of competitors. Finally, it necessitates significant investments in machinery and possibly human resources. Could you walk us through your strategy to achieve the creation of more finished products? How do you plan to address each of these three specific challenges?
Of course, these challenges cannot be addressed overnight, especially if you're not a Korean MNC, because you also need to invest in inspection equipment. There is a Korean saying that goes, "I thought it was a rabbit that I grew, but it turned out to be a tiger." In English, this is similar to the proverb, "nourish a viper in one’s bosom." This means that Korean MNCs, who used to be our partners, might not be pleased with us assembling all these components ourselves. This will be the first challenge we encounter.
Expanding our business to assembly remains a long-term goal. I’m unsure whether our next-generation entrepreneur will take on this challenge or if it will be addressed within my tenure because bringing these products to the commercial market will take time. For example, fabs in Taiwan started as an OEM partner for semiconductor companies but eventually became a large fab player. I believe we can take a similar route, even though it will take some time.
The company's finances have shown continuous and impressive growth, reaching USD 57 million in 2023, with further growth expected in 2024. Could you elaborate on the future objectives and milestones for the next three to five years to reach a full assembly line?
Over the next five years, while revenue is important, I believe it is more crucial to enhance our practicality and live up to our name. Since we have diversified into various businesses, I think we are now unstoppable. I expect a compound annual growth rate (CAGR) of 3-5% over the next five years as a minimum expectation. Over the past 20 years, we have averaged a 13% CAGR, doubling our revenue every five years.
In 2015, you had around $20 million in revenue, which jumped to $55 million last year, and you now project to surpass $60 million this year. Could you tell us what you believe are the main reasons for the growth you've experienced over the past eight years?
Each client has its own demanding specifications and requirements, but our employees have been very proactive in responding to their needs. We have cultivated candid and honest relationships with our clients, which has helped build confidence and trust.
In recent years, throughout the COVID-19 pandemic, Korean automotive market has seen exponential growth. As Korean-made cars continue to penetrate the U.S. mainland market, we anticipate our biggest revenue growth will come from supplying products that target this market.
Headquarter
What are your expectations for the U.S. market as of today? Do you have any expectations regarding local partners in the U.S.? What is your strategy to grow your client base there?
I'm certain that our strategies for overseas expansion will take some time to be realized. Even India is currently seeking our partnership. We are eager to enter the U.S. mainland, but we need to address some blind spots first, such as manpower and capital shortages.
In the next four to five years, after we have invested in manpower and equipment to enhance our operations, I am confident we will be able to enter the U.S. market. You mentioned our exponential growth over the past several years, but I believe this growth needs to stabilize at some point to allow us to invest in manpower and equipment internally. Once we have optimized our internal processes, we will be more confident in penetrating the overseas market.
Major companies have inquired about doing business together in Mexico. However, we have not been able to achieve this yet due to shortages in capital and human resources.
2027 will mark a very important year for the company, as it will be your 40th anniversary. Let's envision that we come back to have an interview with you in 2027. What goals, ambitions, or objectives would you like to have achieved by then?
By 2027, the biggest milestone for our company will likely be the successful and comprehensive expansion into the overseas market.
0 COMMENTS