WKK's Hamed El-Abd on the Current State of China

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In the world of real estate, the key term might be “location,” but in manufacturing today, it’s automation, automation, automation. I had the opportunity to interview WKK’s Hamed El-Abd at the recent HKPCA show, who discussed the company’s entry into the direct imaging market and how certain areas of the Chinese market are being flooded by a staggering amount of Chinese equipment manufacturers.

Barry Matties: Hamed, let’s begin with your impressions of the show.

Hamed El-Abd: To be quite honest, I was expecting less than what we have here because of the state of the economy, but I’m pleasantly surprised. It's not so much that people were here buying or wanting to buy, but people were here looking and seriously considering different technologies. What we've said all along for the last umpteen years is that it's all about automation now. For sure, if you look around this show at all of this equipment, there's a lot of automation. Even at our own booth we have automation. Customers are now saying if the machine is not automated, they don't want it in their factory. That message is loud and clear and it verifies everything that I've been talking about over the last few years.

Of course, there's a lot of concern about the cost of doing business in China and I think that the Chinese government got the message that they can't have everybody leaving the country and going somewhere else. They just can't do that. There are too many jobs at stake. When you look at certain areas, there are pockets of factories where things are dead. Things are really slowed up in a lot of places. I can tell you about a bustling mall in the Champing and Dongguan area but it’s a ghost town now. I was there and all the shops are closed.

Matties: Is part of that driven by the online purchasing that's happening in China?

El-Abd: Not so much. I don't think so. I think in this particular case the factories around it have closed up, and it has had a direct effect on it and the businesses have closed up. But a lot of people do shop online. I am actually surprised by how many Chinese are shopping online.

Matties: In this industry here, automation is the key. What's going to happen to all the employees? They're not all going to keep their jobs. I understand the service sector in China is growing substantially.

El-Abd: That's what I said two years ago, that we need to understand and have a plan for what we're going to do with all of these people. The government has no plan. If you talk to the senior professors at MIT they recognize that as automation improves and gets better, we must answer the question of what are we going to do with the people? It's something we have to talk about today, especially with regard to factory people. Let me tell you, when you've seen the Whelen plant, an entire multilayer factory that can be run with 12 people, what do you do with all these other people? That's two shifts. So what are you going to do?

We need to be thinking about that today. As a businessman, I know that most business people in China don't care about that problem. That's the last thing on their mind. What's on their mind is, "How do I automate the systems, how do I get the most for my clients and customers with good quality products? If I can get good quality production with less people, I'm making more money. I'm happy. I don't care." That's a government problem and the government doesn't even understand that, let alone see it. That's not just a China problem. That's going to be everybody's problem.

Matties: Turnover is a big issue in China as well.

El-Abd: Turnover is a very big issue. One of the subjects we were just talking about is the high turnover at companies like Foxconn. When they go to the Philippines, one of the big reasons is because of stability. There isn’t the turnover that exists in other places. I think, with all due respect to the Filipinos, they realize these are great opportunities for them and they want to stay and work. They don't want to go hopping. They're afraid if they hop, they will lose the job.

Matties: We know what the economy is doing now but what do you see in 2016? What is your feeling?

El-Abd: I think most people are expecting a better year because this year wasn't so good. I don't think we're going to have a great year. What I predict will happen is that first of all, January and February are tied to the holidays, with the Lunar New Year and everything.

In March through June we're going to see a little bit of an uptick where customers are going to be acquiring and purchasing things based on the fact that they haven't done anything in over a year and a half. There's a lot of new technology that they are looking at. I think that they will make some investments. Then you get into the summer months of July and August and I think that it will completely flatten out because of the election cycle for the U.S. People in the U.S. don't want to make any major investments until they know which horse is going to win this race and how they are going to benefit. There are going to be a lot of promises made to get voters to vote for them. Nothing is going to happen until after the election. Then I think 2017 is going to be a very good year.

Matties: 2017 is right around the corner. I understand that you're still expanding at WKK and building a new facility that's nearly complete?

El-Abd: It's nearly complete. We plan to open March 1.

Matties: What will be in that facility? Why did you need the extra space?

El-Abd: The majority of that facility is going to be for manufacture of our machinery equipment. We basically ran out of space so we're moving into this new plant. It will enable us to expand our manufacturing of equipment and there are three or four suppliers of ours who want to produce in China. We just don't have the space to do it.

Matties: That's not a typical distributor model, to be manufacturing as well.

El-Abd: We never intended to go into manufacturing of equipment but we're talking about China and these manufacturers are based in Europe or based in America and they cannot compete with the equipment. If you walk around the show, how much stuff is copies of equipment from other parts of the world? It's actually frightening. I just walked the show this morning and there are 20+ manual exposure machines. That's a shocking number. How much are they making? How much are they selling? Our market is not that big so there is going to have to be consolidation and a lot of people are going to go out of business. Our view is that we're going to offer a service to our suppliers to be able to make the equipment and keep them competitive and keep them in China.



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