pou chen is one company that

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Pou Chen is one company that's full of sole. Its Yue Yuen subsidiary is theworld's largest athletic shoe manufacturer turning out more than 250million pair a year for customers like NIKE, adidas, Reebok, New Balance,and Puma. Athletic shoes, made in China, Indonesia, Taiwan, and Vietnam,account for more than 50% of sales. The company also makes casualshoes, plastic sandals, and shoe parts as well as thin film transistor LCDmodules and monitors. Pou Chen also makes hiking and work boots for Dr.Marten, Timberland, and Merrell. The company, which handles its ownR&D, chemical processing, logistics, and delivery, is actively expanding itsretail and manufacturing operations. Pou Chen was founded in 1969.

Key numbers for fiscal year ending December, 2009:Sales: $6,403.8MOne year growth: 5.0%Net income: $217.9M

Officers:Chairman: C. C. TsaiGeneral Manager: N. F. TsaiDirector Finance and Accounting: Chan Lu Min

Competitors:KingmakerLi NingPegasus International

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Incorporated: 1969NAIC: 316219 Other Footwear Manufacturing; 316213 Men's Footwear(Except Athletic) Manufacturing; 316214 Women's Footwear (ExceptAthletic) ManufacturingSIC: 3149 Footwear Except Rubber Nec; 3143 Men's Footwear Except

Athletic; 3144 Women's Footwear Except AthleticPou Chen Corporation is a Taiwan-based holding company representingthe world's largest OEM/ODM (original equipment manufacture/originaldesign manufacture) footwear design, manufacturing, and distributiongroup. While Pou Chen itself concentrates on research and developmentand design activities for the footwear industry, its main subsidiary, HongKong Hang Seng Index-listed Yue Yuen Industrial (Holdings) Ltd., overseesthe group's footwear production. Pou Chen and Yue Yuen are themanufacturing force behind nine of the world's top ten sports shoebrands, including Nike, adidas, Asics, Puma, New Balance, and Reebok.The company also produces boots, work boots, and shoes for brands suchas Timberland, Rockport, Doc Marten, Clarks, and many others. The

Company Perspectives

Corporate Strategy: Expand horizontally. Grow vertically. Pursue businessopportunities in China. Develop logistics services. Establish synergistic

joint ventures. Reach critical mass and leverage it to achieve position aslead manufacturing partner for industry players.

Key Dates

1969: Tsai Chi Liu and his three brothers establish Pou Chen, afactory for producing plastic footwear in Taiwan.

1980: The company receives a breakthrough contract to producesports shoes for adidas.

1988: The Tsai family establishes Yue Yuen Industrial in Hong Kongin order to expand production to mainland China.

1992: Yue Yuen goes public on the Hong Kong Stock Exchange;both Pou Chen and Yue Yuen establish the Pou Yuen Industrial jointventure in China.

1993: The first production plant in Indonesia opens.

1994: Production in Vietnam is launched.

1996: Yue Yuen acquires full control of Pou Yuen.

2002: Pou Chen transfers its production operations to Yue Yuen.

2003: Pou Chen enters the high-technology sector, launching abacklight production joint venture; Yue Yuen enters sportswear

production with the purchase of the majority of Pro Kingtex.

2006: Yue Yuen announces plans to build a new footwear factory inIndonesia with a production capacity of 3.5 million pairs per year.
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company produces nearly 190 million pairs of shoes per year, orapporximately one in every six pairs of shoes sold each year, with almost290,000 employees working at some 350 production lines in China,Vietnam, and Indonesia, as well as at a small number of production unitsin its Taiwan home base. The company also operates a smaller production

unit, Solar Link, for New Balance in the United States.In addition to shoe production, Pou Chen has branched out intodistribution, establishing a 600-strong retail store network in mainlandChina, where it sells its customers' shoe brands. The company expects toexpand its retail chain to 1,000 stores in the near future. Caught up inscandals involving labor conditions at many of its factories, Pou Chentransferred its production operations to its Yue Yuen unit in the early2000s. Since then, the company has targeted growth beyond the footwearmarket, establishing operations for the production of LCD displays andrelated high-tech products. Both Pou Chen and Yue Yuen are dominated

by the founding Tsai family, who launched the company in 1969. PouChen is listed on the Taiwan Stock Exchange, and Yue Yuen is listed onthe Hong Kong Stock Exchange. Nai Fang Tsai is Pou Chen's chairman ofthe board. In 2005, the company's sales topped TWD 150billion ($3.15billion), roughly four times the size of its nearest competitor, fellowTaiwanese producer Feng Tay Enterprises Co.

From Rags to Shoes in 1969

Pou Chen was founded in Changwha (alternatively Chang Hwa), Taiwan,by Tsai Chi Jiu and his three brothers as a manufacturer of footwear forthe export market. The Tsais came from a family of fabric weavers; Tsai

Chi Jiu himself went to Taichung Normal University, where he studied artdesign. Tsai then began a career as an art teacher for an elementaryschool. At night, however, Tsai moonlighted as freelance designer for localshoemakers, both as a colorist and as shoe designer. By 1969, Tsai haddecided to found his own footwear companies, and together with hisbrothers launched Pou Chen Corporation.

Pou Chen initially produced plastic shoes; by 1973, the company also hadbegun shipping plastic sandals. The booming Taiwanese export market,which was rapidly replacing Japan as a global source of cheaply producedgoods, enabled the company to achieve strong growth, and by 1974, the

company had bought the Fu Hsing Industrial Estate in Changwha andbegun preparations for a new factory complex there. By 1976, thecompany had launched production of plastic casual shoes, which werecomplemented a year later by the production of boots. During this period,Pou Chen also began developing its contacts with the internationalfootwear market, and increasingly began to take on OEM (originalequipment manufacture) and ODM (original design manufacture)contracts from a number of international footwear brands.

The completion of the Fu Hsing factory in 1978 enabled Pou Chen to beginmanufacturing a new type of shoe that was to change its destiny. The late1970s had seen the appearance of a new generation of sports shoe. Moretechnically oriented than their predecessors, the new sneaker typesrevolutionized the footwear industry, and launched a number of new
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brand names, including Nike, Reebok, adidas, Puma, and New Balance, onan international level. Pou Chen launched production of sports shoes in1978, signing on New Balance as one of its first customers.

Pou Chen's true breakthrough came in 1980, when the company signed acontract with adidas, already one of the world's top athletic shoe brands.The adidas contract not only provided the company with a strong revenuesource, it also built the group's reputation among the global footwearindustry. In this way, Pou Chen rapidly built up partnerships with many, ifnot most, of the major athletic shoe brands in the world.

Pou Chen expanded its production capacity, as well as its client list, in1984, with the acquisition of rival Pou Yun Industrial Company. Two yearslater, the company completed a new extension of the Fu Hsing site,adding an additional factory complex.

Into the second half of the 1980s, however, Pou Chen found itselfstruggling to maintain a competitive edge amid the rising worth of theTaiwanese dollar, and the rising wages of its workforce. The first signs of ashift in manufacturing in mainland China had begun to be seen by then;yet Pou Chen was restricted from a direct entry into the mainland marketby Taiwanese law.

Instead, in 1988, Tsai Chi Jen, one of Tsai Chi Jiu's brothers, moved toHong Kong to establish a new company, called Yue Yuen IndustrialHoldings. This company provided Pou Chen with a conduit into themainland Chinese market. Backed by a major manufacturing contract forReebok, Yue Yuen opened its first manufacturing plant in China, in Zhuhai,in 1988. The company also began production of private-label footwear for

the department store market in the United States. Over the next threeyears, Yue Yuen set up three more factories in China, in Dongguan,Zhuhai, and Zhongshan. This expansion enabled Pou Chen to transfer anincreasing proportion of its production from Taiwan to the mainland intothe early 1990s.

International Expansion Through the End of the 20th Century

Through the 1990s, Pou Chen continued to expand its number ofproduction sites in mainland China. By the mid-2000s, the number ofChinese production lines operated by the company in China neared 160,representing more than half of the company's total production. Many ofthe company's factories in China were established as joint ventures,arranged through a network of investment companies and shellcompanies registered in the British Virgin Islands. To this mix, Pou Chenadded its own directly controlled manufacturing joint venture after theTaiwanese relaxed the island state's foreign investment rules. Thisallowed Pou Chen to form a 55-45 joint venture with Yue Yuen, called PouYuen Industrial, to begin manufacturing in China in 1992. In that year, YueYuen was listed on the Hong Kong Stock Exchange.

Pou Yuen Industrial also provided a vehicle for the expansion of PouChen's industrial infrastructure beyond the Chinese market. The company

targeted Indonesia, by then emerging as a new low-cost productioncenter, establishing its first shoe factory there in 1993. Pou Chen and Yue
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Yuen next teamed up to enter another new market, Vietnam, in 1994. Thecompany quickly began building up its presence in both countries. By themid-2000s, Pou Chen's and Yue Yuen's holdings reached 72 productionlines and 51 production lines in Vietnam and Indonesia, respectively.

Pou Chen continued to transfer its production outside of Taiwan throughthe 1990s. By the beginning of the 2000s, the company operated justeight production units in Taiwan, in large part to supply the local footwearmarket. Pou Chen also had transferred its 55 percent of Pou YuenIndustrial to Yue Yuen, in a share swap deal that gave Pou Chen majoritycontrol of the Hong Kong-based company. Both companies, at the sametime, continued to be controlled by the Tsai family.

Also during the 1990s, Pou Chen began constructing a verticallyintegrated operation. On the one hand, the company entered theproduction of raw materials and shoe components. This was accomplishedthrough the creation of an array of more than 60 subsidiaries, including a

number of joint ventures, such as its 50 percent stake in natural leatherproducer Prime Asia, and a 45 percent stake in split leather producerCohen, both based in China. The company also established a technicalpartnership with Kuraray in Japan for the production of high-quality,polyurethane-based synthetic leather. That company, Megatrade,remained a 100 percent subsidiary of Pou Chen.

At the same time as it built its upstream wing, Pou Chen turned towardthe downstream side as well. In 1994, the company, in partnership withYue Yuen, established its first retail operations in China. The companybegan building up a network of retail stores and in-store counters in the

mainland, and by the mid-2000s had opened some 600 stores. Thesestores were stocked with the branded shoes Pou Chen manufactured forits customers.

Exploring New Markets in the New Century

Pou Chen found itself at the center of controversy in the late 1990s,however, as the often appalling working conditions at factories under thecompany's control sparked a wide-ranging scandal throughout much ofthe global manufacturing market. The resulting controversy, whichcentered especially around Nike (estimated to account for as much as 53percent of Pou Chen's sales), contributed to a slowdown in the market into

the early 2000s. In part in response to the growing backlash againstAsian-produced goods, Pou Chen made the unusual move of establishing amanufacturing subsidiary in the United States. That company, called SolarLink, was dedicated exclusively to the production (chiefly the assembly) ofNew Balance shoes for the U.S. market.

The continued controversy surrounding the company's labor practices, aswell as the undervaluing of especially Yue Yuen's stock due to thecomplexity of the two companies' organization, led Pou Chen to launch astreamlining drive in the early 2000s. By 2002, Pou Chen had transferrednearly all of its footwear production units to Yue Yuen, at the same time

tightening its control over the Hong Kong-based company. The addition ofPou Chen's nearly 70 production subsidiaries helped boost Yue Yuen's
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Pou Sung Vietnam Industrial; Pou Yuen Industrial (Hong Kong); Pou YuenInternational Limited (British Virgin Islands); Pou Yuen Marketing Company(British Virgin Islands); Pou Yuen Vietnam Enterprise Ltd.; Solar LinkInternational Inc. (U.S.A.); Yue Yuen Industrial Limited (Hong Kong).

Principal Competitors

Feng Tay Enterprises Co.; Shanghai Leather Corporation; Korindo Group,PT; Hardaya Aneka Shoe Industry, PT; Omzest Business Division; HyosungCorporation; C and J Clark International Ltd.; Binh Tien Imex CorporationPrivate Ltd.; Garuda Indawa, PT.

Further Reading

"Pou Chen Expands from Footwear Manufacturing into Retailing," TaiwanEconomic News, November 30, 2005.

"Pou Chen to Tap Global Market for Working Shoes," Taiwan EconomicNews, October 18, 2005.

"Pou Chen Unit to Build Plant in Indonesia," China Times, March 19, 2006.

"Pou Chen, World's Biggest Footwear Maker, Predicts Continued Growth,"Taiwan Economic News, March 21, 2003.

"A Successful Tsai Is an Average Joe," Taipei Times, June 10, 2003, p. 10.

"Taiwan's Two Footwear Giants Benefit from Noted Sports Games," CENS,June 2, 2006.

Zarocostas, John, "Pou Chen Bulks Up Vietnam Production," FootwearNews, July 5, 2004, p. 4.

M. L. Cohen

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