Contract Manufacturing and Re-Manufacturing

To really understand the "e-waste" export market and "manufacturer takeback", we need to understand that the highest value in any load is the reuse value.   Reuse represents "added value", and trumps copper, plastic and even gold.  The recycling happens to the leftovers and to the exhausted reuse units.  Non-working units (pentium 4 laptops) are vastly more valuable than working units (pentium 1 laptops) if they are more modern;  that's because the reuse value occurs at retail (after repairs).  And reuse is the gateway for manufacturing in the "white box" market.  White Box PC sales were a the biggest buzz at the start of the past decade, with major re-writes of published reports on PC sales by IDC and Gartner, the major industry research firms.  What everyone was just beginning to realize was that the "contract manufacturers" - Foxconn, Proview, BenQ and others - were coming out with their own brands, in a decade which would shock the industry, as Acer (a Taiwanese contract manufacturer) bought Gateway and Lenovo bought the IBM PC division.
This is huge.  If you do not understand who Foxconn, Proview, or BenQ are, you are a out of the loop in discussions about "manufacturer takeback", "stewardship", warranty business, online sales, and the electronics industry.   We are not talking about being a baseball fan who forgets the Arizona Diamondbacks.  We are talking Red Sox, White Sox, Cardinals... If you don't know who Foxconn is, you may have read The Hobbit, but need to check out "Lord of the Rings".

Industrial scale repair and refurbishment, or re-manufacturing, occurs in many industries - engines, airplanes, tractors, cell phones, etc.  To really understand the re-manufacturing markets, you have to begin with the actual manufacturing markets.  Refurbishing does not start at the recycling yard, it starts with repair under warranty and recalls of units for a uniform type of repair.
Most American's know very little about electronics manufacturing. First thing you learn is about "contract manufacturing"  - which IBM is credited with developing.  Your company focuses on the parts of your industry which you control patents for and outsource things like "assembly" or component manufacturing and "commodity" parts).

The biggest company in the CRT refurbishing business was a Taiwanese company, Proview.  In April 2000, the same month as Massachusetts started the USA's first mandatory ewaste recycling law (the "waste ban"), Proview company consolidated contract manufacturers MAG Technology and CTX International.  Those companies (like BenQ and Viewsonic) were contract manufacturers for the display units, which HP, Dell, Compaq, etc. largely contracted out.  Often several competitors contracted out their CRT computer monitors to the same company.

Samsung and LG Philips Electronics and Sony kept their manufacturing in house (Sony announced today, ten years later, that they were outsourcing LCD production to Foxconn, another Taiwanese contract manufacturing giant).  Those companies had their own CRT production furnaces.  (I am not completely sure about Thomson, I will research it tonight and add info as it comes to me).

Foxconn, or Hon Hai Precision Industry,  is by far the largest and most diversified contract manufacturing company.   They employ 550,000 people (including a single factory campus which employs 270,000 in Shenzhen, which makes Ipods, HP computers, Wii, Kindle, Nintendo games, and products for many other manufacturers).  It started in 1974, by Terry Gou, who had 10 employees that made the plastic molding for TV sets.  Those are the plastic cases that CRTs go into.  The Wall Street Journal calls Gou "the biggest exporter you never heard of".  Those cases became the key for monitor cases.

Proview did not own a furnace or any CRT manufacturing capacity, yet became the 3rd largest computer monitor maker that year just by sheer labor and volume.  Proview purchased the CRTs from Samsung or one of the Chinese CRT companies and ran 14 monitor manufacturing factories in several countries, minting 17" computer monitors like there was no tomorrow.

Then something happened.  Proview discovered that Americans were throwing CRT monitors away.  The same factories Proview was running for Foxconn began to buy the used CRTs, and using the same plastic housings that Terry Gou made for TV manufacturers, started making their own line of CRT products.   Proview bought out Mag and CTX, and sent Chinese brokers out to buy CRTs in the USA like crazy.  At the peak, these buyers were buying and exporting 50,000 CRT monitors per DAY.  Most worked ok, but it was accepted to import 70% acceptable and to dispose of the other 30% to local dumps, fishermen (for deep sea fishing ballasts) or sold for copper to informal sector scrapyards in Nanhai or Guiyu.

Look closely at BAN's photos.  Disturbing yes.  But in the context of 50,000 per day, how significant is the wire burning in the photo?  The 270,000 employees of Foxconn in Shenzhen, when they go home from work, probably throw away more than that at their household.

Imagine just one of the Proview Mag facilities, like the one in Jakarta, which was making 5,000 monitors per day.  Overnight, it changed from a cost structure of 5000 monitors purchased from the CRT maker, e.g. Samsung, for $85 apiece.   That was $425,000 per DAY.   Suddenly you realize you can buy 5000 "gently used" CRTs from the USA for $10 each.  Your savings were $375,000 PER DAY.  Seven days per week, 365 days per year.

The CRTs are generally good for 20 years, so even a ten year old monitor from the USA was worth buying.   Now PROVIEW's product - the digital tunerboard - becomes more important than the CRT furnace.  Suddenly Proview (and other contract manufacturers, including some who were contracted by Proview to do work on the contracts Proview was contracted to do...) becomes more than a simple assembler.

So these Taiwanese company owners were building huge factories in Shenzhen (between Hong Kong and Guangzhou).   Who do you suppose doesn't like this?

Who owns the largest new CRT molding and manufacturing furnace investment?  Who strategically decided to invest heavily in CRT glass manufacturing, to take over the industry in the 1990s?   Who is so powerful, yet so naive in business, that they would invest in new CRT glass capacity in the past decade?  Hint:  they really, really, really don't like Taiwan, or rather the current political structure on the island of Foshan?

CRT rebuilding and remanufacturing was wildly profitable during the ten years between 1996 and 2006.  People in their early twenties were making millions of dollars on USA discards. And they were primarily replacing new CRTs made by factories owned by the Chinese Communist Party, which had used CRTs as the jumping off point for government-owned factories in the 1990s.

Taiwan electronics manufacturers are "the man behind the curtain". 


Ok, this is a bit meandering, and not my best written blog posting.  But if you are really researching ewaste, electronics imports and exports, gray markets, stewardship and other e-waste related policies, you have some new lines to google and twitter about.