We all are after business ideas with low investment and high profit. Where are those high-profit ideas? Here is a shining story from Taiwan—Largan. In iPhone’s value chain, which company makes the highest margin? Surprisingly, it’s not Apple. It’s Taiwan’s Largan. A plastic lens-making company has acquired a significant competitive edge by creating proprietary knowledge and developing a patent portfolio. Most importantly, it has scaled up profiting making models by integrating them into the design of products and processes to produce them. Largan is a unique example of turning knowledge into a competitive edge–even making material-centric age-old products.
A lens-making company among Forbes’s top 100 digital companies in 2018 is intriguing indeed. High-density, sharp images of iPhone or other high-end smartphones shine over Largan’s aspherical plastic lens. Among 17.5 billion optical components produced by Largan in 2017, Apple bought a lion share. Although it splits orders for iPhone lenses with Genius and Kantatsu, Largan is the preferred supplier of microlens assembly for smartphones. This company dominates the high-value wide-angle lens for iPhone’s main and rear cameras.
Apple is known to be frugal in paying component suppliers. But, while Apple’s 25 percent net profit margin creates headline news, its relatively unknown component supplier Lagan’s net profit quietly rises over 40 percent, with $1.7 billion sales. We all know that Steve’s magical creativity is behind iPhone’s success. But where is the magic in Largan’s lens making? How has this company created a unique edge in an age-old industry? Its High-tech Innovation is a question worth investigating.
Micro-lenses for stunning, high-resolution images are high profit-ideas:
Smartphones use micro-assembly of plastic aspherical lenses for producing megapixel, stunning images. The surface profiles of an aspheric lens are not portions of a sphere or cylinder. The possibility of using a single aspheric lens to replace a more complex multi-lens system is its best part. As a result, the device could be made smaller, lighter, and sometimes cheaper than the multi-lens design. Hence, it is very suitable for space constraint smartphone cameras.
Lens making is an age-old industry: creating high-profit ideas is a challenge
Lens making is one of the world’s oldest industries, so does the making of aspherical lenses. René Descartes made early attempts at making aspheric lenses to correct spherical aberration in the 1620s; Christiaan Huygens followed it in the 1670s. And plastic is a widely available cheap material. Scientific knowledge of material and geometry in shaping optical properties of glass and plastic is quite established. Besides, technology for cutting, processing, and finishing plastic in giving the desired shape is also widely available. Moreover, there has been immense competition among many firms in producing lenses.
In the high-tech edge, creating a sharp competitive edge, generating as high as 70 percent gross margin in such material-centric production, appears to be a significant challenge. Despite the high labor cost and dominance of high-tech firms in Asia’s Silicon island, Largan succeeded in reporting the highest earning per share among all listed companies in Taiwan—producing labor and martial-centric components.
Humble startup with a focus on knowledge and ideas for an edge:
With an investment of NT$1 million, in 1987, Scott Lin and his son Adam Lin established a small lens-making company. It was Largan Precision Co. Ltd. in Nantun District, Taichung City of Taiwan. The two, father and son, had, and still have, a passion for technology. They followed simple principles–no contracting, no purchasing of technology (intellectual properties, patents), and no poaching of talent from other companies.
At the age of 47, after quitting a public sector job, Scott Lin started learning optics with the aspiration of building a business of lens making. By studying books, he immersed himself in lens design technology. He started designing lenses by drawing on paper. In the early days, he used to carry four suitcases with him in a marketing mission. He used to tour camera factories around Taiwan, and global optics shows to show Largan’s products and learn the business. His patience of waiting for seven years in getting his first order from Kodak helped build Largan’s foundation. Instead of looking for a generous government subsidy or contract lens manufacturing opportunity, from day one, Lin was after acquiring the knowledge. He focused on building a competitive edge in lens making through proprietary knowledge by captivating learning and R&D.
Glass lens making did not offer a knowledge base new edge for having high-profit ideas:
From the early days, Lin’s kept insisting on home-grown R&D for developing a competitive edge. It was arduous as technology in making glass lenses were already matured. Although he eventually received his first order, his innovation room was quite limited. Furthermore, most patents for glass lenses were in the hands of the Japanese as always; it posed a huge obstacle that seemed unconquerable. Knowledge base competitive edge development scenario started to change, while smartphones started demanding high-resolution but very compact as well as low-cost lens assembly. Lin made the bold move in abandoning glass and throwing everything into plastic lenses—in developing the competitive edge through R&D in offering plastic camera lenses for smartphones.
Microlens assembly for smartphones opened the new wave of patents:
Despite the maturity of knowledge and technology in glass lens making for conventional cameras, the growing demand for mega-pixel, very compact lens assembly of the smartphone was stretching the limit of lens-making know-how. The gap of lens-making knowledge and growing demand for higher megapixel smartphone cameras opened the opportunity to Lin’s in-house R&D to acquire unique competence. Largan’s R&D in plastic aspherical microlens assembly started showing dominance in a new line of lens-making patents.
To develop the competitive edge through in-house R&D, making plastic lenses for the smartphone was the only opportunity for Lin. Although perceived as an audacious or reckless move by the competitors, abandoning the past and developing plastic lens technology from nothing was the only successful path opened to Lin’s philosophical strategy. Like Steve Job’s focus on details, Lin’s seemed overly demanding obsession with technology and insistence on quality appear to be the underpinning supporting the growth of the unique competitive edge of Largan.
Focus on details and attaining the edge through in-house R&D is the key:
Largan’s success is out of Lin’s passion and focuses on details. Largan eventually rode its home-grown technology. According to Nikkei, the company has established itself as the global leader in smartphone camera lenses, with a market share exceeding 30 percent. This is supported by having more than 460 technology patents (as of 2016). With the saturation of developing competitive edge with new knowledge and patents in microlens assembly making for a smartphone, Largen is looking into repeating the success of microlens making for a dual-camera smartphone to multiple-lens systems, automotive lenses, and contact lenses—new engines for future growth. They are slowly unveiling themselves, hoping to extend Largan’s legendary aura as Taiwan’s stock market king.
Startup lesson for high-profit ideas:
Largan has many lessons for Startups and developing countries aspiring to increase per capita income through innovation. It’s not about tossing great ideas; the success in innovation depends on the continued generation of knowledge and turning it into product and process features—so that quality keeps increasing while cost falling–increasing both consumer and producer surpluses. Instead of just looking for volume and easy ramp up through subsidies and tax incentives, meticulous focus on details matters. Creating knowledge and turning it into a Flow of Ideas for perfection is the key. Furthermore, predicting the unfolding future demand and building competence through in-house knowledge creation is at the core of success.
Hence, technology invention and innovation of product and process features around the knowledge is a key area to focus in turning mental capacity into Wealth. This is the core competence, indeed, in building a knowledge economy. Hence, as opposed to looking for a magical spark, the focus should be on the Passion for Perfection out of knowledge for finding high-profit ideas.
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