NINE
Han’s Laser
Creating New Markets
The journey of a thousand miles begins with one step.
—Lao Tzu
GAO YUNFENG FOUNDED Han’s Laser Technology Company, Ltd. in 1996. Gao was 29 years old at the time, and China’s economic landscape was vastly different from what it is today. Then, there were only 10,000 privately owned industrial enterprises in the entire country. While private enterprises were very much on their own, the more than 80,000 state-owned companies not only received generous government funding but also had close connections to provincial politicians, many of whom depended on the state-owned industries to provide employment for their constituents. These bureaucrats naturally tended to be suspicious about the approaching transition to a “socialist market economy.” In this climate, private entrepreneurs were dealing with odds that were heavily stacked against them.
From outside China, it looked as though Deng Xiaoping had given an official green light to private enterprise during his famous 1992 trip to Shenzhen, when he delivered the famous line “To get rich is glorious.” But the truth is that Deng’s strategy was still far from accepted by everyone. His trip to southern China had actually been a public relations maneuver intended to undercut budding opposition to his economic reforms. True, at the top and the bottom echelons of Chinese society, there was pressure to move forward and to liberalize the economy. But at the middle levels, especially in provincial bureaucracies, vested interests remained resistant to change.
From the entrepreneur’s perspective, bureaucratic difficulties were only part of the problem. The real challenge was access to start-up capital. China, emerging from a centralized economy, had almost none of the options for financing commonly available in the West. State-owned banks tended to deal with state-owned companies. Anyone outside the loop was left to scrounge for funds elsewhere. Deng had tried to open China to the outside world, but the Cultural Revolution of the 1960s had closed many of the country’s schools, dispatched intellectuals to the countryside, and jailed people for knowing how to speak English. The social and economic inertia that needed to be overcome in order to achieve Deng’s vision was enormous. The entrepreneurs who took on Deng’s challenge and eventually changed the shape and the direction of China’s economy were in every sense of the word pioneers in a new environment that still needed to be defined.
Gao’s Early Life and Background
Gao Yunfeng was born during the Cultural Revolution on February 1, 1967, in Jilin Province. He was the fifth of eight children. His two older brothers were forced to do farm work in the fields in order to support their younger brothers and sisters in school.
When the Cultural Revolution ended and China seriously turned its attention back to education, Gao placed 79th in the county-wide exam to enter senior high school. Gao recalls that when he was in high school, his family would give him 12 buns and tell him that they had to last him for a week.
In senior high school, Gao quickly rose to the top of his class, and his academic achievements in high school earned him a place in Beijing’s prestigious University of Aeronautics and Astronautics, where he majored in aircraft design and the application of mechanics. After graduation in 1989, he secured a teaching position at Nanjing’s University of Aeronautics and Astronautics. Gao and his family were so poor that when he decided to get married, none of his family members were able to attend the wedding because they did not have enough money to pay for a train ticket to Nanjing. As time went on, however, Gao eventually managed to help all of his siblings attend university. Two obtained doctorates.
Laser Marking Machines
In 1992, Gao landed a job in Hong Kong to work as a technician on laser marking machines. Laser markers, which cost around $80,000, use laser beams to emboss patterns and logos on a variety of different products ranging from ordinary buttons to shoes, bags, and accessories. Although laser markers were beginning to be used on assembly lines in the West, there were fewer than ten machines in all of China. In Hong Kong, where laser markers were in wider use, it was widely acknowledged that they added value to the manufacturing process, but the downside was that they often broke down. Trying to get a manufacturer to repair one was a nightmare. The average wait for a technician was around eight weeks, and while the machine was down, the entire assembly line ground to a halt. Breakdowns were not only inevitable; it was also virtually impossible to run one of the machines for 24 hours without having it malfunction.
Gao went to work analyzing the frequent breakdowns and concluded that minor variations in the electric current were at the root of the problem. He designed a circuit board to automatically maintain a level voltage in the machine despite line voltage fluctuations. Gao’s enhancements cut the work stoppages dramatically.
In 1995, one of the Hong Kong company’s clients, who had been impressed by Gao’s ingenuity, contemplated buying a new machine from Germany. Gao told the client that he thought he could build the same machine for a third of the price. In addition, Gao offered to sweeten the deal by promising the client a substantial holding in the new company that he intended to start with the capital that he would put together from the payment for the new machine. Gao also offered to refund the full amount if his machine failed to work properly.
To Gao’s surprise, the client—who was considerably older than him—offered to pay Gao the full purchase price for the machine and also to let Gao keep all the shares in his new company. The client added that if Gao’s machine failed, he would be under no obligation to refund the purchase price. Gao was so impressed by the man’s generosity that he worked around the clock to finish the machine in three months. It worked perfectly and Gao collected $80,000, which he used to officially register Han’s Laser as a company in Shenzhen in 1996. Gao had officially become one of China’s 10,000 private entrepreneurs who promised to make dramatic changes in the future direction of China’s economy.
Han’s Laser Begins
Getting a license was one thing. Managing to sell a highly sophisticated machine in China’s primitive environment was something else. Deng Xiaoping had realized early on that the key to moving China toward private entrepreneurship was to encourage light industry based on simple machinery. Most entrepreneurs, operating on razor-thin margins, simply did not have the capital to spend on expensive equipment, especially if it was not clear how it would add value.
When Gao started Han’s Laser, hardly anyone in China even knew what a laser marker was or why anyone would need it. The major hurdle was price. By the time a laser marker reached China, it was likely to cost around $100,000. It would have to operate under primitive conditions, and servicing it was likely to be extremely difficult.
TARGETING STATE-OWNED ENTERPRISES
Gao’s first idea was to hit the large state-owned enterprises, which at least had easy access to financing. He was enough of a realist to know that he would need connections to well-placed senior government officials. He didn’t have these kinds of connections, but he did have some former classmates who were now working for a massive state-owned automobile conglomerate, the China FAW Group, which happened to be based in his hometown in Jilin Province. Gao called his friends, who found a small hotel for him to stay in while he tried to contact the company’s management.
The executives at FAW told him to wait for an appointment. At the end of a week, Gao realized that nearly everyone in the hotel was waiting for a similar appointment. Some had been waiting for months. The state-owned companies, he concluded, were not likely to be interested in a small start-up with no track record. He realized that he had picked the wrong target. Changing direction, Gao decided to focus on small entrepreneurs like himself. He picked Wenzhou in Zhejiang Province as the place to start.
FOCUSING ON THE ENTREPRENEURS OF WENZHOU
During China’s transition to a market economy, Wenzhou had virtually cornered the market for manufacturing buttons, shoes, and electrical parts, all of which were prime candidates for laser marking. Even better, Wenzhou was exporting globally to a wide range of clients who would be more likely to understand the utility of laser marking than the average manufacturer in China.
Gao also felt a certain sense of identification with the business mentality in Wenzhou. The city was bursting with small to medium-size enterprises, and the companies seemed to have that entrepreneurial spark that made them open to new ideas. As it turned out, Gao’s analysis was only partly correct. Everyone in Wenzhou loved the idea of a laser marker, but none of the entrepreneurs he contacted had the cash to spend $80,000 on an untried concept. Most of Wenzhou’s businesses were simply too small to take the risk. Laser markers, Gao realized, faced a Chinese version of Catch-22. No one knew about laser markers because there was no market for them, and a market was unlikely to develop because the machines were too expensive to buy without first seeing a demonstration of their value. To do that, Gao needed to establish a market.
Gao spent six months combing the region and passing out fliers explaining the idea. The response was zero. Then Gao realized that the answer was to create the market himself. He needed to make the entrepreneurs of Wenzhou actually earn money with a machine so that they could see the machine’s true value.
Gao ordered a laser marking machine shipped to Wenzhou, and he began producing a broad array of sample designs on buttons, shoes, bags, lighters, and just about anything else that would take a laser imprint. Realizing that most of the entrepreneurs were only semiliterate and that hardly any of them knew English, Gao also began drafting sales pitches in English, explaining the added value of laser marking to potential overseas customers. Gao realized that he would have to create a market for laser markers by demonstrating to the Wenzhou entrepreneurs that the machine would make their products more exportable.
Nine months later, the first tentative overseas order for a shipment of laser marked products from one of Wenzhou’s entrepreneurs came in. It brought with it a new dilemma. The prospective client who had received the order wanted to buy one of Gao’s machines, but he also wanted Gao to promise not to sell machines to anyone else in Wenzhou. Since Gao’s ultimate objective was to create a market for the machines, the offer was a nonstarter. It was also a sobering moment. Han’s Laser was already on the verge of bankruptcy, but if he agreed to the deal, he was pretty certain that future bankruptcy would be virtually guaranteed. Gao told the client thanks, but no thanks. He decided to hold his ground.
Not long after that, another prospective client received an overseas order, and this time the client was ready to buy one of Gao’s machines with no strings attached. Gao delivered the machine and within two months, his client had recouped the original purchase price of the laser marker. The man’s friends and relatives now clamored to buy machines, too. Gao was suddenly in business. Within a few years, the industrial marking by Han’s Laser would be credited with having helped to generate more than nearly $40 million in sales for the cloth button industry alone.
Sustaining the Business
For Gao, however, launching the business was only the beginning. Sustaining it in China’s rapidly changing economic environment was a different prospect altogether. Gao realized quickly that cost and maintenance were key issues in building a market. He began reducing costs by determining which parts could be manufactured locally. By using local manufacturing for all but the core components, he managed to stake out a competitive advantage over machines manufactured outside China. Eventually, he was able to start producing the key core components in China as well. An important element in Gao’s strategy was to streamline the machine’s design to the smallest number of components actually needed to accomplish a specific job. If additional capabilities were needed, they could be added later. Eventually, Gao succeeded in reducing the sales price for his laser markers to $30,000 to $40,000. The competition from Han’s Laser eventually forced foreign manufacturers to cut their prices by 20 to 30 percent in the Chinese market. Even with the cost reductions, Han’s Laser managed to maintain gross margins at around 50 percent.
Most companies dealing in a new technology need to invest heavily in R&D, and it can take 18 months or more to develop a marketable product. Gao felt that he didn’t have the financial resources or the time to invest in that kind of development, so he designed the best machine that he could with the information and experience that he had. Then, he assigned a technician to follow and adapt each machine for six months after it had been sold. The technician filed daily reports to headquarters on the machine’s operations, and adjustments were made until it worked satisfactorily.
On the surface, this looked to the customer like a generous offer of personalized attention, but in fact it constituted a slimmed-down, learn-as-you-go form of R&D that enabled the company to make substantial savings. Instead of trying to foresee all of the potential things that might possibly go wrong, Gao had the company do its research on the fly and correct problems as they developed in real time. The small R&D team at headquarters was able to focus on the specific problems that actually arose on a working assembly line. By the time all of the adjustments had been made, each machine was perfectly designed for the special needs of the customer who had bought it. This made Han’s Laser marking machines a more practical choice for customers. The fact that the machines had also been cheaper to produce was a bonus.
As Han’s Laser acquired more experience, its machines improved substantially from the R&D that emerged from the field. Between 1996 and 1999, Han’s Laser introduced 3,000 improvements to its machines, while each machine seemed uncannily designed to fit each customer’s specific needs. The strategy sounded simple enough, but it was actually the direct application of an important principle of Gao’s basic philosophy. Gao was determined from the start to make technology responsive to actual market conditions, rather than to push a product out and expect the market to adapt to a design that had been thought up by engineers operating in a vacuum.
Gao remembered the frustrations of his days as a technician in Hong Kong, when most companies took eight weeks or more to respond to a failure in their machines. Gao did not care how remote a client’s location was. If a machine broke down, he had a technician on the spot almost immediately. Han’s Laser eventually established 150 sales and service centers throughout China. While most foreign manufacturers provided standardized software, Han’s Laser generated its own software that could easily be adapted on the spot to a customer’s needs. As a result, Han’s Laser machines appeared to be more flexible and better adapted to the specific work at hand.
The ultimate benefit of creating its own software came when the company finally broke through the barrier that had kept machines confined to an operating run that was less than 24 hours. By fine-tuning the software and adjusting the motion sensors and photonics, Han’s Laser was able to eliminate the small glitches that had led to the machine’s inevitable malfunction after only a few hours. The breakthrough was so revolutionary that competitors initially accused Han’s Laser of false advertising. A government inspector insisted on sitting next to one of the machines for more than 24 hours while it ran continuously. When the test was concluded, he was forced to admit that the machine had accomplished what had previously been considered to be impossible.
Gao realized that many of the people who would be using the machines were likely to have only a partial education. Han’s Laser set up its own schools and training facilities and began publishing manuals on how to use both the machines and basic computers. The program was so successful that clients began sending their children to advance their education.
The International Market
Once Gao felt that the company had established itself in the domestic market, he began looking toward foreign buyers as well. Gao heard that a foreign-owned keyboard manufacturer whose factory was in China was about to sign a contract for a laser marking machine with a U.S. producer, and he dispatched his sales team to try to make a counteroffer. The keyboard manufacturer showed no interest. Undeterred, Gao approached one of the company’s major shareholders. The selling point that Gao harped on was the delay that was virtually guaranteed if the company bought from a producer in the United States. The U.S. company, Gao argued, would need at least eight weeks to deliver its machine. Gao, who was well aware of the frustration that that kind of time lag could produce, convinced the shareholder to let Han’s Laser offer its laser marking machine for free during the period that the American company would need to actually deliver its machine.
A hand-picked team was assigned to install the Han’s Laser marker on the keyboard company’s assembly line at night, and it finished installing the machine only minutes before the employees showed up for work in the morning. An emergency maintenance crew stood by in case anything went wrong. Eventually, the American machine arrived. The client decided that while the American machine produced slightly more polished results, the fact that Han’s Laser was able to provide immediate high-quality service that fit his company’s special needs was a deciding factor. The company’s subsequent orders went to Han’s Laser.
Gao’s Management Approach
Apart from technological innovations, Han’s Laser owed its success to Gao’s management approach. In contrast to most other Chinese companies, at Han’s Laser, Gao had ruled out nepotism from the start. Family members, friends, and close associates were banned from employment at Han’s Laser. Gao liked to describe the employment structure as being shaped like a barbell, with the sales team at one end and the engineers at the other. The basic salaries were purposely kept below subsistence level but supplemented by bonuses for exceptional work. The basic salary for a salesperson was around $100 a month. For an engineer, the starting salary was $400 a month. At the sales end, the system acted according to a Darwinian elimination. There was no limit to how much a salesperson could earn in bonuses, but he or she had to make bonuses in order to survive. As a result, salespeople who couldn’t sell were quickly eliminated and, gradually, the most successful ones rose to the top.
The same process was employed with engineers, only in this case the question was how many new innovations and applications the engineers could come up with and how much profit they would be likely to bring to the company. As Gao saw it, R&D was, in effect, a revenue-earning center.
The Need for Financing
In fact, Gao had created a nearly perfect business model. What he hadn’t counted on was the time it would take for the business environment in China to catch up. China was moving from a state-controlled, centralized economy to a socialist free market model, but it hadn’t yet managed to create the independent sources of credit needed to get private enterprise up and running. Gao’s major problem was undercapitalization, which was even more dramatic in his case because of the high cost of the machines.
Gao had tried to get around the problem by taking a build-to-order approach. He depended on a 30 percent advance payment from clients to buy the necessary components. He would then assemble the machine and deliver it a few months later. If everything worked correctly, he would get the final payment once the machine was up and running. While this was an effective way of financing a new business in a developing economy, it also made the company vulnerable to a variety of risks. A client could refuse to pay, a machine might run into unexpected problems, or there could be a sudden surge in orders that required extra financing, not to mention a surge in the cost of components. Any of these factors could cause serious cash flow problems.
The year after Gao founded the company, he faced a crisis when he couldn’t meet salaries in time for his employees’ traditional trip home to celebrate the spring festival. Each employee expected to receive an extra $120.00. Gao was forced to pawn the company’s van for $3,600. On another occasion, he had to pawn it for RMB 90,000 just to buy components. To make matters worse, Gao had used up all his available collateral. He had exhausted the possibility of taking out more loans. While his competitors were able to get substantial financing from state-owned industries, he risked being left behind. In desperation, he wrote hundreds of letters in search of a financial partner.
A state-owned company based in Shenzhen seemed like the ideal white knight. The company had specialized in working with SMEs, and it was interested in Han’s Laser as an intriguing growth opportunity. Furthermore, it seemed to like Han’s Laser’s entrepreneurial spirit and the fact that Han’s Laser had developed its own software. Four months of discussions followed, and the Shenzhen company made an offer. The only drawback was that it wanted a 51 percent controlling interest in Han’s Laser. The argument was that unless the state-owned company gained a controlling share in Gao’s company, it would appear to lose face.
Gao held out for five months, but the state-owned company refused to change its position. Gao finally realized that without an injection of cash, he was likely to go bankrupt. The one concession he managed to get was a provision in the deal that allowed him to buy back the Shenzhen company’s shares if Han’s Laser was able to increase its net asset value to $2.4 million within 18 months. Han’s Laser’s net assets were valued at just over $1 million at the signing, and the Shenzhen company thought it was highly unlikely that Gao would be able to meet the deadline.
As it turned out, the Shenzhen company had badly miscalculated. The injection of cash enabled Gao to leapfrog over the obstacles that had previously held back Han’s Laser’s growth. The connection to the state-owned company opened up a $3.5 million credit line, and Han’s Laser could now borrow from state-owned banks. That cleared the way for Gao to break away from his build-to-order model and to keep an inventory of components, which dramatically reduced the lead time for new orders. In 1999, Han’s Laser managed to sell 69 machines, compared to only ten the year before. Its original target had been to sell 50 machines. A year later, sales nearly quadrupled to 249 machines, and revenues hit $7.2 million. Han’s Laser had become the dominant manufacturer of laser marking machines in China, with a 60 percent market share for all of China and a 90 percent market share in hyper-dynamic Guangdong Province.
The phenomenal growth was not without a price. The state-owned company from Shenzhen had insisted on placing its own man as chairman of the company, and in an unsettling departure from Gao’s opposition to nepotism, the chairman had begun slipping his relatives into key positions. Since the Shenzhen company had controlling interest, there was little that Gao could do about it. Finally, when Han’s Laser’s cash flow was threatened after the chairman’s brother-in-law misappropriated a large sum of money, Gao complained, and the scandal went public. The chairman retaliated by refusing to sign the company’s tax statements.
Gao Tries to Get His Company Back
By October 2000, the 18 months were up, and Gao decided to exercise the clause allowing him to buy back the shares from the state-owned Shenzhen company. By then, Han’s Laser was valued at more than $3.6 million—$1.2 million more than the amount required. The state-owned company was understandably reluctant to let Han’s Laser go, but it finally agreed grudgingly to sell back its shares, amounting to 46 percent of the company, for RMB 17 million. Gao agreed to let the state-owned company hold on to 5 percent of the shares as a future investment. Gao used his own shares as collateral for a loan enabling him to make an advance payment of half the amount. In the meantime, Gao had to obtain signatures from a variety of government agencies in order to close the deal. The process dragged on toward the end of the year, and before it could be completed, Gao was informed that a new law had just been passed changing the rules of the game. Henceforth, any sale of shares in a state-owned company had to be submitted to a public auction, which would be handled by a different state-owned company, the Shenzhen Enterprise Ownership Exchange Center. The declared intention was to maximize profits to state-owned industries that were in the process of being privatized. For Gao, this meant that his agreement to buy back the shares for RMB 17 million was no longer valid. When he asked for his money back, he was told that there was a “cash flow” problem and the money was no longer available.
It looked like a classic scam intended to keep Gao from exercising his option to win back control of his company. In addition to losing his $1 million, the new rules required Gao to put up a deposit of $600,000 before being allowed to take part in the auction for his own company. Since it would be an open auction, the shares were certain to cost more than the $2 million originally agreed on. Gao was clearly being taken to the cleaners. To make matters worse, the Shenzhen Enterprise Ownership Exchange Center, which was organizing the sale, began aggressively recruiting Han’s Laser’s competition to compete in the bidding. If a competitor secured controlling interest, Han’s Laser would very likely be sidelined or eliminated from the market. At best, the company’s internal management problems would be likely to deteriorate even further. Gao had the option of taking the state-owned Shenzhen company to court, but since he was up against a state-owned company with political connections, he realized that the outcome was not likely to go in his favor.
Instead of surrendering to panic, Gao had a brilliant insight. He decided to present his dilemma to the lender who had supplied him with the original $1 million loan and was now holding Gao’s personal shares in Han’s Laser as collateral. If Gao lost the bidding, he reasoned, the company would disintegrate, and the lender’s shares would no longer be worth anything. The lender would lose his $1 million along with Gao. On the other hand, if the lender bankrolled him further, he would be likely to increase his profit even more. The lender accepted Gao’s logic and offered to bankroll him to the end.
The auction took place on April 4, 2001, and after hectic bidding, Gao finally won back control of the company. The cost was nearly $3 million instead of the original $2 million, but it soon turned out to be worth it. On June 15, Gao managed to put together a private group of investors who paid 3.8 times the net asset worth for shares in Han’s Laser. Gao arranged the deal so that no single investor had more than a 10 percent share in the company. He was not going to make the same mistake twice. With the private placement, Gao succeeded in paying back the original loan along with RMB 4.3 million in interest.
Going Public
Back in control, Gao was now determined to take Han’s Laser public. His chief competitors, Beijing Daheng and Huagong Tech, had already raised $54.4 million through IPOs in 2000, and Han’s Laser still had cash flow problems. In 2002, the company had nearly $20 million in revenues with nearly $4 million in profits, but its accounts receivables were $7.9 million and its cash flow was $1.24 million in the red. Two years later, on June 11, 2004, the company went public on the Shenzhen Stock Exchange’s Board of Small and Medium Enterprises. At $1.09 per share, the IPO raised $28.8 million. On the day it was listed, the stock opened at $4.83 a share and closed at $4.82. The shares represented 43.36 percent of the company. Gao’s personal worth skyrocketed to more than $217 million. The IPO enabled Gao to reward key employees, especially his best engineers, with shares in the company.
The cash flow problems that had held Han’s Laser back were now largely over. By 2006, Han’s Laser, which had started out by servicing the cloth button industry in Wenzhou, had expanded its scope to more than 70 industries, and it was constantly adding new applications. The company had added laser cutting, engraving, surface treatment, labeling, PCB drilling, and laser welding to its specialties. Han’s Laser was now the world’s leading producer of laser markers, with an 80 percent share of the China market. The company had also emerged as the second leading producer of laser cutters in China, and it was the world’s second largest producer of PCB laser drilling equipment. In 2007, sales reached RMB $196.3 million—more than four times the sales before the IPO. The company had begun to run out of factory space to fill orders.
In July 2008, Han’s Laser made an SEO (seasoned equity offering), which raised nearly $146.4 million. The proceeds went into building the largest laser production site in the world.
Gao’s Success and Future Prospects
In 2010, Gao Yunfeng—at the age of 43, when most people are just beginning to approach their prime—was listed by Forbes as the 366th wealthiest person in China, with a personal worth estimated at $200 million. It was a long way from the young high school student who had to ration 12 buns over a week’s time to have something to eat.
Gao had taken incredible risks in his career, and they had paid off handsomely. Any other executive might have opted for early retirement and a life of ease. Instead, Gao continued to be concerned about the future of the company he had created. Gao was particularly concerned about the fact that the market for laser markers was very specialized and had a relatively small number of potential customers. “I feel that I am digging my own tomb,” he once remarked. “Every machine I sell means that there is one less machine that anyone needs to buy.”
Han’s Laser had been growing at a compound annual growth rate of 50 to 60 percent, and it was continuing to add new industries and new products, but that kind of growth seemed unsustainable over the long haul. The company dominated the market, but Gao knew that sooner or later it would experience pressure at the top end of the market as well as from the bottom. Han’s Laser’s competitors had already shifted much of their manufacturing to China to cut costs, and competition would inevitably heat up in the China market. Gao’s dilemma was that even without external competition, by improving his machines and making them last longer, he was effectively saturating the market that the company depended on to survive.
The worldwide financial crisis came as a wake-up call, affecting Han’s Laser along with everyone else. In the case of Han’s Laser, it meant that the growth rate decreased to a mere 15 percent over the previous year and that profits dropped by 39.37 percent. Any other company might be satisfied with that, but Gao saw it as a preview of dangers on the horizon. He was convinced that the company needed a new strategy to continue growing.
As Gao saw it, the options were mixed. Han’s Laser could expand beyond lasers and offer its own total production solutions to selected industries, but that would require a substantial investment in R&D and in its production capacity. Han’s Laser had already tried to replicate its business model in South Korea and had failed. The synergy available from operating in China was not there. Costs were too high, and the market was too far away and too different from the company’s home territory.
Another option might be to expand beyond lasers and to look at the broader photonics industry. Han’s Laser had started experimenting with LEDs (light-emitting diodes) in 2007, and growing concerns about climate change and energy conservation made LEDs look like a good bet. Solar energy was also emerging as a new interest. On the other hand, Han’s Laser could move entirely out of its field of expertise and explore the service industry. The government had set a target of having more than 50 percent of China’s GDP come from the service industry by 2020, and the mass migration from rural areas to the cities made real estate look promising as an investment.
The final option was to go global. This is what Gao had dreamed of doing all along. The brief foray into South Korea had failed, and the company had also briefly tried to set up a partnership with a foreign company in Singapore. The Singapore partner initially wanted Han’s Laser to build a factory to produce components locally, but then it terminated the relationship and began building its own factory in order to compete directly with Han’s Laser. The sudden switch came as a warning to Gao about the dangers of competing globally.
As Gao saw it, going global meant actually becoming global. Han’s Laser had bought a 9.92 percent share in an Italian manufacturer, Prima Industrie Group, hoping to gain knowledge of high-powered lasers used in cutting. But Gao quickly realized that Western companies were constantly afraid that China would try to steal their technology, so the relationship tended to be awkward at best.
The solution, Gao finally decided, was to put together his own international R&D team and have it work for him. He had already contracted what he considered to be a world-class R&D team and installed it in Shenzhen in 2004. The team brought its own patents, redesigned Han’s Laser’s research process, and helped train the company’s R&D staff. By the time the team left in 2005, Han’s Laser had developed its own ultraviolet laser technology, which was considerably more advanced than the competition’s. Gao later said that the lesson he had learned was that you needed to be very precise about what it is that you want to achieve.
By 2008, Han’s Laser had more than 30,000 machines in operation around the world. The company had always expanded market share by offering free service, but now the maintenance services it was offering were eating up profits. Free maintenance, in fact, equaled 60 percent of the gross profits. The company found itself as at a crossroad, pondering whether to continue to seek greater and greater market share or shift its focus to maximizing profits.
Whichever way Han’s Laser ultimately decided to go, Gao had clearly turned his creation into a major player on the world stage. The challenges of launching a company in China’s fast-changing and often turbulent economic landscape had taught him lessons that were likely to serve him and the company he had founded well in taking on world competition.