To All;
As promised, I wanted to post some thoughts about what might be going on at VLNC and what might be going on in its board room. This is a speculation and I did not want to publish it until I has talked to some of the other members by private message. Zeev made a comment that the manufacturing process is about 20 steps and that loss due to waste is a P&L factor in every step. That makes it difficult. That fact set me to thinking about how VLNC's management may be handling their marketing and why the involvement with Hanil. I see from the most recent posts that others may be thinking along the same line. The scenario is in the form of a narrative. I want to reiterate that this is just speculation and nothing more. Zeev feels it is quite possible and I wanted heirteg's opinion too but he seems to be gone with his family for the weekend. I'm sure we'll hear from him later. Here is a reprint of what I sent to Zeev with some corrections:
To: Zeev Hed (who wrote...)
From: William Epstein
Friday, May 28 1999 5:34PM ET
Zeev;
Now, you said something this morning. You said, the manufacturing process may involve about 20 steps.
Correct? That set me off. I began to think about it. Then a light went on. I goes like this. For this scenario I
have to make some assumptions. They have been going through a trial and error process. They have finally
got it to where they can ship essential material reliably and make money. First assumption. Now they have
also been making the rounds to American manufacturers with their batteries and they were getting almost
nowhere. They know it will be very hard to prove out their technology in the real world of mass production.
The chicken and egg problem. The big manufacturers don't want to commit money to purchase or for plant
and equipment to manufacture until it is proven out and of course, VLNC can't prove it out without orders.
Second assumption. So, they put their heads together and decide to go to the Far East.
Why? Far Eastern manufacturers face fierce competition in the Asian markets. They take no prisoners there. It is much worse than the U.S. Anything they can do to get a jump on their competitors they'll try. So, they are more receptive to new technologies because they've seen it gives them an edge.
Why Korea? They have a huge electronics industry and a beginning to rival the Japanese. Competition is fierce.
Everybody who is anybody in the Far East walks around with a cell phone plugged into his ear. That is one
reason why several countries are launching satellites over there. Every countries wants to have its own
communications satellite. Also, they make laptops but they face even fiercer competition here for that market.
When I went to Japan and visited several plants I noticed that the Japanese had reverse engineering
groups in every plant. They don't devote too much of their resources to R & D for new technologies rather,
they try to copy it and innovate or price it down by manufacturing more efficiently. They are not particularly,
creative. However, engineering is generally excellent. That is the nature of societies where everyone marches in lock step.
Why Hanil, a cement company? Far Eastern companies are not so hidebound about their lines of business as
are many of our companies. That is why we find for instance, Toyo a tire manufacturer making View Cameras
and good ones too or Mitsubishi, an auto, aircraft and ship builder making the best sheet fed printing presses
in the world and on and on. They view business as business. They don't care what they make, so long as, its
profitable. Hanil is a cement company that was looking to reinvest its profits. They probably have gone as far
as they can in their own business so, they are looking for new businesses and new markets. Far Eastern companies love to
spread out like an octopus because their business philosophy is different from ours. "From complexity comes stability". Jacob Bronowski.
Why does Valence need Hanil? Valence's directors are looking at their patents and their investment and they
know that every day that passes depreciates the value of their patents. They have, among them wide
experience in the Far East and probably, a lot of contacts. Maybe Hanil provided cement for a plant that
someone was building? Who knows? They were getting nowhere fast here so, someone made a call. They also
know that if their battery technology catches on in the Far East and is superior to what's being produced here
they've solved the chicken and egg problem. That may save them 2-3 years of trying to proliferate it. Time is big
bucks in this ball game.
What kind of deal? Well, I know that I would never trust an Oriental company with my technology. They will bypass me
the first chance they get. You can't touch them, either because their gov'ts can be bought to protect them. I
know it has improved in recent years but it is still nothing like the U.S. So, Valence makes a deal that they
supply the essential material and license Hanil to manufacture finished batteries in Korea only or within a
circumscribed area. They get paid for the shipments and then they get a royalty when the batteries are shipped.
That is the only deal I would make with an Oriental company. I would keep them on the hook, in some way with the essential
technology. The Koreans probably know all about the battery and its materials but Valence has probably kept
has some part of the manufacturing process secret. 20 steps, remember. Its a good deal for both. Hanil
probably has their market made if they can manufacture reliably. That is what this shipment was all about.
Korea is a small country they all know what the other guy is doing or trying to do. Nothing stays proprietary for very long.
Some conclusions. Valence could come on very fast, if this works for them. Ironically we might see the
technology proliferate in the Far East, a year or two before it reaches the U.S.. I've seen this happen before.
Wouldn't that be ironic? The American manufacturers left holding the bag? Well, that's the sketch. I need your
input.
Bill
Zeev pointed out that the current arrangement is probably not very profitable for Valence. I believe he is right. However, this strategy is designed to gain quick acceptence so, they may have to sacrifice some profits as a trade off. |
