Rex Rozario, Part 3: The Future Beckons
In Part 3 of our multi-part interview with industry veteran Rex Rozario, we begin with the future. Having achieved success in China, could Rex and the Graphic team have their sights trained on the U.S.? Also in this installment, Rex weighs in on China’s future, and we discuss the value of automation. Is it for everyone?
Click here for Part 1 and Part 2.
Barry: Rex, what can you tell me about what’s on the horizon for Graphic?
Rozario: We have a lot of possible plans in mind of where to go, so we are still looking around. We feel our next journey is to the U.S., because it's a huge marketplace. With our expertise and once they get to know what we do, we’ll be successful and it will open doors for us. I think the proof will be in the pudding once they try out our services. Also, we're the first company in the UK to offer application engineering as a free service. If somebody is designing something, we will go in there, provided we get the prototypes and the order to follow up on. And that gives them confidence. We can technically design it to manufacture and we can manufacture it much faster, more economically and at a cost saving. Now if someone is designing something really special, very high tech, we would send their favorite engineers and they could be there for two weeks with them to discuss it.
Matties: That was a big advantage in the early days for you.
Rozario: It certainly was.
Matties: Now other companies have followed suit.
Rozario: Anything you start, everybody will follow. It goes without saying that everybody claims all sorts of things and people only find out that it's not true when someone asks a question. But like I mentioned before, we have always worked on approvals. If there is one available we have to get it. Then they follow up like the managing director of BAE did in 1994, when he said our product had the best performance and all of his sites are open for our product and so forth. That's only one supplier. There are so many others at that level who are talking to us.
The only challenge is if for some reason they feel they want to split the order for security reasons, then somebody else gets it. Now we have so much choice here [UK], we can spread it out between UK, China, Italy and the U.S. It’s a safety net; if a factory burns down it doesn't make any difference to the customer.
We’re not putting all the eggs in one basket. That was a fear that most people had in the past, but they can come to us now for a one-off for any quantity they want. Obviously, we are competitive, otherwise customers wouldn't stay with us.
Matties: When you talk about the future and your strategies and looking to America, what is left to do there? In terms of strategy, what do you see?
Rozario: We start with the marketplace. We know rigid-flex could take off there. At Graphics USA, we would obviously think about putting a real facility in there at Santa Fe Springs, or we could look at combining it with someone else, like we do in China, at the DSG facility. We have the room there to expand.
Matties: Are you looking to do volume production in the U.S.? With automation it seems like volume production can be done anywhere in the world these days considering your expertise with automation.
Rozario: When you talk about automation, the volume is unlimited. In China, if you want half a dozen boards, it's not good to do it here in the UK and ship it over there. They can do it. China is geared up for large, consistent volume, so that's available, whereas other companies in the UK, and Italy, are medium-sized. We're talking about thousands, but not the full run of tens of thousands boards. Fortunately, I think when global customers realize that there is a company that with one phone call, text, or e-mail can look after all their needs of any type of board they would want, it’s hard to turn down.
Some people specialize in flex, rigid-flex or PTH and so forth. Not many people have the experience to do everything. We have worked on carbon fibre and have lots of experience with it because we feel it’s the material of the future. People will be looking for tougher materials in heating systems and so forth. It's a bit expensive for people to actually change over from epoxy glass now. At some stage there could be requisites that people would need. All the body work for planes is now done with carbon fibre, and some of the top cars. That's something on which we are in close liaison with Exeter University. We're constantly developing and experimenting and looking at what else is there, so that we can offer it to the customer, hopefully better than anybody else
Matties: What I hear you saying is, wherever you're at, it's never good enough, because the future is constantly changing.
Rozario: It's changing overnight, really. Whatever you have today is different on the following day.
Matties: You could easily sit back as a company and just enjoy the success that you've already achieved and ride off into the sunset so to speak.
Rozario: Easily, for myself personally, but for the company itself you have to compare us to the large companies who were competing with us when we first started—BAE, Marconi, IBM, Motorola—all these companies had their own PCB manufacturing. There came a time when they had to decide to just stay put or keep developing, and they decided, “Why should we spend money on R&D? Let those guys do it. Let's go to someone who has the facility and the experience. It’s cheaper than employing people and buying the raw material up front and all that hassle.”
Matties: Then the environmental impact came along, too.
Rozario: Yeah, I remember so many board shops being closed in the early days. I also remember people moving from one state to another to save cash, because the laws were different in the other state.
Fortunately, like most of the guys who started together back then, there are names that we still relate to, although they might not have been PCBs. Those were the pioneer days. You had to go looking for things and make things happen. It's a bit easier now, because you can go and buy a machine that will do the job. With the availability of all the facilities for manufacture now, you don’t have to reinvent the wheel. When somebody realized they wanted a double-sided board connected, nobody thought about through-hole plating. You just put an eyelet in there and that did the job. Someone said, "Gosh you have to put it in a mechanical device, why couldn't we do it in the plating?" Those things have all been done, but there are areas like buried capacitance where we are still doing that now. There will come a time for the future materials, like graphene. I think that's the way things will go, but hopefully we will be there and constantly be aware that these things are happening.
Again, fortunately with my connections to all the federations like IPC, I’ve been very much involved. We are fully aware of what's going on and also are constantly talking to suppliers and so forth. As long as that continues, I think we should be okay. We're always aware that there comes a saturation point, and then how do you carry on? The only way is technology. I feel the only way we can survive and make a profit is by constantly developing new technology, because customers will always pay for something that's going to save them cash, and probably pay a little bit more. We did a conference with IPC many years ago and called it “Circuits on the Cheap.” The hall was packed because people came in there looking for a cheap solution.
We were saying that what we manufactured 25 years ago, the same thing can be had cheaper than before. That was the idea, but they got the wrong impression with Circuits on the Cheap. Things are getting cheaper and cheaper due to the competition and if there's a recession, people are just cutting prices. Even now, to my knowledge, several small companies are struggling and some of them sadly might disappear.
Matties: There's no doubt some are going to disappear.
Rozario: Also, the new trend is amalgamation, and obviously if you look at the large companies like TTM, Viasystems and DDi, they are one company now, because that's another way of sustaining and keeping the levels going and keeping the marketplace. Obviously, the bigger you are, the more service you have. You don't want to stay where you are. You must look at the next stage. That's another thing that one can look at, and we've got a very good partner we are working with now. Those are other areas we might look at very closely as we develop.
Matties: Let's just come back to the China question about the marketplace and the economy over there. Obviously it's down, with a lot of capacity there. What do you see? Are you optimistic?
Rozario: I think I'm a born optimist. I've been expanding factories in the worst recessions. You have to believe in what you are doing. In electronics and especially when you're manufacturing a PCB, there's always a requirement. If you can make it better and more sophisticated, then of course you survive. Obviously, the growth we saw very quickly has stabilized a little bit now. Having said that, they are now developing the local market and selling the products they're not selling abroad. Before that point they were very cautious not to make the locals get too used to their expensive goods.
From that point we have not seen a big difference. Certainly it has slowed down a bit, but not to the extent that we have to be concerned. We are still looking at our next expansion program. When you visited the last time, we said we were ready, waiting to go, but we are waiting to see signs of a slight changeover and then we'll do that.
Matties: Do you have an estimate of time as to when you think that change is going to happen and we'll start seeing the strength coming back to China?
Rozario: It's a difficult question for anyone to answer, because even China is looking for low-cost production areas. Recently they have been looking at India and the Indian government has made a big changeover. They have visited Japan and groups of people over there and they're trying to do what the Chinese did—probably at a cost saving, because I know the labor cost of manufacturing is much cheaper there than China.
If you look at labor in China now, compared to when we first went there, you wouldn't believe it, Barry. Our engineers there are getting more than what we pay in Europe for the top guys.
When we looked at China initially, everything was starting in the East, and any Chinese person would say that you could go on for 50 years and when it becomes expensive you move on to the next stage and you keep going to the West.
Matties: Into Russia, yes.
Rozario: That, in practice, hasn't really happened, because some of these people, once they get a bit of money, don't live in China anymore. They move, and if you go around the world you'll find that most countries have a Chinese population. If you look at Exeter in the inner city, 25% of the foreign students are Chinese. They have about 850 Chinese living over here.
Then there's a shortage and people don't move to the next area because everyone has moved elsewhere. That’s slowed down, but people are still moving slowly. There is an area that you can move for cheaper labor and whatever, but if you can automate, then it doesn't matter. That's the story we should be selling to everybody else in manufacturing. It doesn't matter if it's PCBs or something else.
Matties: I see automation as very key in China and mass volume production, but in these high mix/low volume shops, I question the value of automation, because if you go after automation then you're of the mentality to just mechanize what you already have in place. For many in America, for example, doing $12 million in sales, they have to think carefully as any smart business does, where they're going to invest their money.
Shouldn't we be looking at removing process steps? That supplants the need for a lot of automation in between the steps to begin with. Like when we talk about LDI, as a simple example, because how many steps did that remove from the manufacturing process?
Rozario: Oh gosh, not to mention the accuracy and the stability.
Matties: The accuracy, and then also the cycle time and the real estate required. No matter how automated the traditional process is, you may still have 10 or 11 steps versus one or two with new technology. My thinking is the alternative and perhaps wiser strategy is focusing on eliminating the steps in manufacturing rather than automating the steps that are in place. What do you think of that concept?
Rozario: Yes, everybody can't just say they're going to automate. A smaller company will find it very difficult. You can cut the staff down, but I've been to a setup where they were going to automate prototypes and I could see a guy feeding a machine, and then he had to run around to wait for it to come to the other side. That company doesn't need that automation. They could do it in a smaller way, but if you're doing volume then you have to.
Automation means that you don't even feed the machine, like you see our feeder does all that. It just picks it up. If you tried to use labor in between automation, that process is not that easy to maintain. So I think it's a combination of things, and I think this was a problem with the small board shops.
Matties: Where do you think the priority should be? Do you think the priority should be in reducing process steps? If I have a process that's working and I'm getting acceptable yields and all I want to do is automate it, that's easy to do. In fact, I don't know why many companies haven't already done that.
Rozario: Sometimes that’s driven by a customer who has required us to get something because he's read somewhere that this is what he needs. Then we rush out and get one and tell the customer, “Yes we got one, now what about the ordering.” The small guy who doesn’t have the finances cannot do that. I've been to companies around the world and even now some are still doing the same process they had 20 years ago with the same equipment and they're using their skill to produce the job, but that is short-lived, because eventually they find that because they haven't got the test equipment to test the finished product. Those companies are now gradually disappearing.
It's like here in England, they say something like 30 pubs close every month, more or less, and it's a sign of the times. The larger ones who can buy in, like Weatherspoon’s, who has more than a thousand pubs, can purchase any stocks from any supplier and with a week’s life duration can dispense of it and make a lot of profit, but a small guy cannot afford that.
Matties: They don't have the economy of scale.
Rozario: That's the difference. Sometimes it all depends on your resources.
Matties: When you look at an LDI system today, it costs hundreds of thousands of dollars.
Rozario: Yeah, we're still looking at ink jet and that could eventually take over LDI completely, which makes it much cheaper to acquire and so forth, but that's still in the development stages.
Matties: For a shop that's doing $12 million a year, buying a million dollar piece of equipment might be their entire budget.
Rozario: I'm sure if you did the survey, you'll still find that only a limited number of shops even have one LDI.
Matties: That's right. When I look at the million dollars versus all the automation I would have to have in the traditional process, that million dollars would be a smart bet, I think.
Rozario: Yep, that's it, but you won’t make that return for a very long time as a small company.
Matties: That's the problem.
In the final installment, Rozario walks us through a couple of other personal incarnations, including that of successful restaurateur, marina owner, and more.