One of the ants
It may be inevitable that in the blood of each entrepreneur there is an ingredient called "restlessness." One day, Peter Lo just decided "You have to give yourself an opportunity to make something out of life," and he quit his job to go into business.
"Johnson started out as a two-person company," says Cindy Lo, now the company vice-chairman as well as being Lo's spouse. In those days, she would often spend the morning in the front room writing English letters of introduction to be mailed off to the US, after which she would head back to the kitchen at noon to cook. In half a year, this "two-person company" had mailed off three or four thousand letters to the States, spending almost all their savings on postage. Lo thinks back to those days and says, "At first I had no idea what I was doing, and I just took US phone books and mailed letters to everybody, claiming in each letter that 'I can do everything,' endlessly writing and endlessly mailing." Finally, after half a year, they got a response.
That order was "just in time." The winter of 1975 was a cold one, getting down to 10°C outside, but Lo was feeling warm inside. When he got that request worth only US$200, Lo responded without even thinking about it, "Yes, I can."
In fact, he didn't have the slightest inkling what that first order, priced at US$15 per kilogram, was all about. Indeed, he had never even seen the "donut-shaped iron ring" described in the order, and still less had he any idea of whether or not the deal would be profitable. It was only when he took the blueprint all over the place asking questions that he discovered that the product he was being asked to make was called a "dumbbell." But that to him was not important. He stresses that "first you've got to survive in order to have any value." Only if the company survived, with that first order as its foundation, would there be second and third opportunities.
Next he moved to ask for help from factories with manufacturing experience in this line. But the first guy he came across told him, "Even if you do a crude job, it will still be at least US$20 per kilogram." When he heard this, his mood hardened and he told himself, "I refuse to believe it!"
So, in the spirit of a teacher pursuing a question without being satisfied until he gets the right answer, he made inquiries at more firms. He discovered that the raw material for dumbbells was pig iron, and that pig iron was made from iron ore imported from Brazil. So he sat down and did the math: a kilo of raw material at NT$4.20, $1.20 for fuel, $6.20 for molding costs, $0.80 for polishing and finishing, plus more for drilling, coating, packaging.... If he did as much of the work as possible by himself, he figured that his costs would be US$8 per kilo, leaving US$7 in profit. Using an entirely improvised crude casting process, Johnson's first order for dumbbells from the US was thus produced and delivered, piece by piece, out of a rented former chicken coop.
That experience set Johnson off on the OEM path. Turning a profit in the first year, Lo bought land in Taichung (now the site of the Johnson global operations headquarters), built a casting plant, and began cooperating with the US firm Ivanko to produce weightlifting gear. Within three years, price advantage combined with the warrior-ant like power of the "Taiwanese-style SME" (small or medium enterprise), turned Johnson into the world's largest supplier of weightlifting equipment, accounting for half the global market.
It took Lo only three years to bring in to play the comparative advantage of the Taiwanese SME, but it took only two more years for the situation to change dramatically. In 1978, China initiated the policy of economic reform and began to play a major role as "factory to the world," offering low prices its competitors could not match. In addition, the technical barriers to entry for production of free weights are low. At that time Johnson's list price was US$40 per kilo, whereas Chinese firms were quoting US$20.
In order to survive, Lo had no choice but to transform. The shift from OEM to ODM (original design manufacturer) took Johnson a mere six months.
"Hey boss, what's this machine here? It's like a bicycle, but it's only got one wheel." It is now 1980, and Peter Lo has just brought back from the US Taiwan's first-ever exercycle, and, with its own workers still in a state of perplexity, Johnson plunges headlong into the field of exercise cycles, and moreover decides to shift to the ODM path, doing its own R&D. Orders from world leading companies like Universal, Tunturi, and Schwinn soon follow.
But the same regrettable events as before repeated themselves, and by 1995, global sports equipment manufacturing had entered a period of ferocious competition, with PRC firms proving to be strong at copying. Once again Johnson was facing a struggle for its corporate life.