On the eve of Christmas in 1997, Ren Zhengfei led the senior management team of Huawei to the United States to seek practical experience from IBM.
At that time, Huawei had just been founded for ten years, with 5,600 employees, and was at a critical juncture of transitioning from a Chinese private enterprise to a world-class company.
When he was the president of IBM, George P. Stolyar openly imparted to Ren Zhengfei the four major principles that need to be emphasized in the high-tech manufacturing industry. These four principles were later summarized by the industry as the “Four Iron Rules of Manufacturing”.
This history teaches us a profound lesson: The competition among enterprises, in essence, is a competition in terms of their levels of cognition and their systematic management capabilities.
Today, when we look at the Chinese connector industry, we will also find that – this industry, which is undergoing a transformation from scale expansion to high-quality development, actually also needs to revisit the four fundamental principles left by Porter Nash for the manufacturing sector.
01
What are the four fundamental principles of manufacturing?
Based on the analysis of various sources, the core essence of the four fundamental principles of manufacturing that Guo Shengna imparted to Huawei is as follows:
First, the manufacturing industry has always been product-oriented. “As long as you maintain product leadership, you will have a sustainable competitive edge. The manufacturing industry definitely does not rely on business models; relying on models won’t take you very far.” When Gao Shengnao took over IBM in 1993, the first reform proposal he put forward was “maintaining technological leadership”. Product leadership is the “1” in manufacturing, while business models, marketing, and channels are the subsequent “0”s. Without product leadership, everything else is meaningless.
Second, a process-oriented organization based on customer needs. The entire organization should not be production-oriented; it must be customer-oriented. George Westinghouse proposed to “be guided by the customer’s values, form marketing departments based on specific targets, and provide a complete set of solutions for different industries”, and pushed IBM to implement the “Warmly Embrace Customers Program”. Through methods such as executive visits to customers, he strengthened customer connections and reflected on the drawbacks of technological leadership but being distant from the market.
Thirdly, services are a growth point. In the manufacturing industry, in the future, it is not only about selling products, but also about selling services. Enterprises not only sell products, but also sell scenarios, experiences, and integrated solutions. Fosner clearly stated, “Strengthen services and pursue customer satisfaction.” Selling products can only earn one-time income, while selling services can continuously create value.
Fourth, sufficient scale and focus. In the electronics consumer goods sector, to achieve profitability and possess competitive capabilities, one must “focus” and ensure a sufficient scale in the core products. Porter believes that having too many diverse businesses and overly complex product lines were common problems faced by Chinese enterprises at that time. Only by making the products among the top in the industry can one truly have competitive capabilities.
These four principles are logically interlinked – product leadership is the foundation, customer orientation is the direction, service value enhancement is the leverage, and scale concentration is the guarantee. These four principles form a complete closed loop of manufacturing competitiveness.
02
Why does the connector industry need to revisit these four fundamental principles?
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The industry is sizable, but the market structure is fragmented.
In 2025, the global connector market size reached 90.87 billion US dollars, and it is expected to increase to 95.72 billion US dollars in 2026. China has become the largest single market for connectors globally, accounting for approximately one-third of the global share. It is projected that the market size will reach 241.2 billion yuan by 2026. The data and communication industry is the largest application field for connectors, accounting for 23%, followed by automobiles and consumer electronics.
However, the industry landscape is highly fragmented. China has approximately 30 listed connector companies, but only Lieyun Precision, Zhonghang Optoelectronics, and Changying Precision have revenues exceeding 10 billion yuan. Most companies are still operating within the 1-2 billion yuan revenue range. The vast majority of connector products in this industry are in a highly competitive state with excessive supply, resulting in intense price wars and continuous pressure on profits.
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The four “deficiencies” are widespread
If we were to describe the current management situation in the connector industry with a single word, it would be “lack of basic management skills” – and this is precisely the direct consequence of the fact that the four fundamental principles have not been seriously adhered to for a long time:
Product Leadership Gap: Most connector companies are still at the stage of “copying designs, competing on prices”. Their product lines are broad but lack depth. Lishun Precision started from connectors and built a platform-based ecosystem through frequent mergers and acquisitions between 2011 and 2014. However, many other companies have not yet formed differentiated product competitive advantages.
The organization lacks a customer-oriented approach: Many connector companies still operate as typical “production-oriented” organizations – they produce products based on the drawings provided by customers, lacking the awareness and ability to proactively understand customer needs. Profits are continuously squeezed, and small and medium-sized enterprises are struggling to stay above the break-even line.
Service lacks value-added features: Most connector enterprises remain at the “product-selling” level and struggle to evolve from component suppliers to system solution providers. The industry has fallen into a distorted ecosystem of “zero-sum game”, with R&D investment being disregarded in favor of low-price demands.
Lack of focus on scale: Many enterprises strive to “be capable of doing everything”, with product catalogues often consisting of thousands of items, but none of these categories can rank among the top in the industry. The excessive variety of businesses and overly complex product lines are precisely the common problems pointed out by George Soros for Chinese enterprises. The current chaos in the connector industry – where raw material prices increase are borne solely by suppliers, and R&D investment is disregarded in the face of low demands – essentially represents the complete absence of these four fundamental principles in practice. If connector companies want to weather the cycle and secure the future, they must return to these four underlying logics.
03
Rule One: Product Leadership
The foundation upon which connector companies stand.
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The essence of the iron rule
Goldman said it straightforwardly: “In the manufacturing industry, there is nothing else. The manufacturing industry is always about product leadership. As long as you achieve product leadership, you will have continuous competitiveness.” The competition in the manufacturing industry is not about the competition of business models, but about the competition of product capabilities. Product leadership is the “1” in manufacturing. Without this “1”, the “0” of business models, marketing, and channels would all be meaningless.
Huawei’s implementation of this principle is exemplary. Among its 188,000 employees, 45% are R&D personnel. It invests 10% to 15% of its annual sales revenue in R&D, and has cumulatively spent nearly 500 billion yuan on R&D over the past decade. It is precisely this kind of unrestrained investment in products and technologies that has enabled Huawei to make the leap from a Chinese private enterprise to a global communication giant.
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How the connector industry can implement
① Leading in products is not about “doing everything”, but about “doing one thing to the extreme”
The connector product line is extremely diverse, ranging from consumer electronics to automotive electronics, from communication to industry, with numerous sub-sectors. Enterprises must choose one or two promising sub-sectors to focus on and build a technological barrier.
Electric Link Technology focuses on developing miniature RF connectors for mobile phones and FAKRA connectors for automobiles. In both of these fields, it has achieved the highest market share in China.
The Changjiang Connector has continuously invested in the field of online board-to-board connectors, forming a complete solution and becoming one of the few brand enterprises in the connector industry.
AVIC Optoelectronics has chosen the high-end connector route and is focusing on developing solutions such as next-generation high-speed backplane connectors and satellite internet high-speed optical hybrid interconnection solutions.
All of the above represent the achievement of product leadership in the respective selected tracks.
② Product leadership requires strategic R&D investment
The net profit of AVIC Optoelectronics decreased by 30.89% in the first three quarters of 2025. This was precisely due to the increased investment in high-end connectors, which brought short-term profit pressure.
This strategic choice of “relying on short-term profits to achieve long-term competitiveness” is precisely what is expected of those who adhere to the principle of product leadership. Connector enterprises must recognize that research and development investment is not a cost, but a necessary path to achieving product leadership.
③ Product Leadership is the Fundamental Premise for Mergers and Acquisitions Integration
The previous article discussed how mergers and acquisitions can enhance industry concentration. But what is the fundamental premise of such mergers and acquisitions? It is that the product capabilities of the involved companies are strong enough.
The reason why Luxun Precision was able to achieve a leapfrog development through mergers and acquisitions is that its product capabilities in the connector field have already been sufficiently solid. Mergers and acquisitions merely serve to strengthen rather than replace. Without product leadership, mergers and acquisitions will only lead to a larger management void.
04
Rule Two: Customer Orientation
From “What can I produce?” to “What do the customers need?”
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The essence of the iron rule
When Porras-Narro proposed the “process-oriented organization oriented towards customer needs”, he emphasized two aspects: First, the organization must be centered around customers rather than production; second, the customer needs must be responded to quickly through a process-based approach.
When Gou Shengna took office at IBM, he deeply reflected on the drawbacks of “technological leadership but away from the market”. He proposed the “Warmly Embrace Customers Plan”, requiring senior executives to personally visit customers to strengthen the connection with them. This is not just a slogan for the sales process, but a full-process orientation from research and development to production. Huawei has internalized this concept into the core value of “centered on customers”, which runs through all business processes.
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How the connector industry can implement
① From “passive order-taking” to “active insight”
The norm in the connector industry is that “customers provide the drawings, and the enterprises follow suit”. This “passive order-taking” model keeps enterprises at the bottom of the value chain. Enterprises that truly implement customer-oriented strategies, such as Jiaoheli and Lingke Electric, will actively study the changing trends of downstream application scenarios and complete product reserves before customers make their demands.
Take new energy vehicles as an example. As the EE architecture evolves from a distributed system to a centralized one, the demand for on-board connectors is shifting from “many and diverse” to “high integration, high speed, and high reliability”. Enterprises that can accurately perceive this trend will be able to gain an advantage in the competition.
② Ensure customer response capability through processization
Customer orientation is not just a slogan; it requires processes to be implemented. From collecting customer needs, defining products, initiating research and development projects to batch delivery, an end-to-end customer response process needs to be established. Huawei adopted the IPD (Integrated Product Development) model introduced by IBM, whose core objective is to deeply integrate customer needs into the entire product development process. Due to differences in business nature and organizational structure, connector enterprises cannot simply copy Huawei’s approach wholesale. However, establishing a standardized customer needs management process is the first step of customer orientation.
③ The ultimate goal of customer-oriented approach: Establishing a long-term partnership with customersA distressing phenomenon in the current connector industry is that both the supply and demand sides have transformed from “partners” to “zero-sum game” rivals. The increase in raw material prices is borne solely by the suppliers, while research and development investments are disregarded due to low-price demands. Quality purchasers should share costs and collaborate on technologies, and connector enterprises should also learn to “select” customers – collaborating with those who truly respect technical value and are willing to establish long-term partnerships.
05
Rule Three: Service is the Growth Point
From “Selling Products” to “Selling Solutions”
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The essence of the iron rule
Gates clearly stated that “manufacturing is not just about selling products; it also involves selling services”, and he believed that this would be a growth point for the company in the future. Enterprises not only sell products, but also sell scenarios, experiences, and integrated solutions. They must have the ability to provide integrated solutions for customers.
This fundamental principle reveals the logic of the value chain extension in the manufacturing industry: selling products can only generate revenue once, while selling services can continuously create value. When Pao Shi-nao was driving IBM’s transformation, he successfully transformed IBM from a hardware manufacturer to a service provider by shifting from “selling hardware” to “selling solutions”.
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How the connector industry can achieve
① Transition from a parts supplier to a solution provider
The value of the connector industry is being redefined. In the “new four modernizations” wave of the automotive industry, connectors have evolved from being merely simple connection components to becoming a key system component that affects the performance, reliability and cost of the entire vehicle.
The “mix-and-match” design concept proposed by Thought Technology provides customers with a complete solution that can both meet the requirements of low current transmission and handle high current demands. This has successfully enabled the company to transition from a single component supplier to a system-level solution provider. This transformation is the best practice of the service value-added principle in the connector field.
② Early involvement in customer design to achieve value pre-positioning
The true service value enhancement is not the enhancement of after-sales services, but the enhancement starting from the product definition stage. In the highly customized industry of connectors, enterprises that can provide professional connection scheme design and system integration suggestions at the early stage of product development often gain higher customer loyalty and bargaining power. Early involvement in design is not merely “selling products”, but “selling solutions” and “selling professional capabilities”. This is precisely the core essence of transitioning from selling products to selling services.
③ Insights from Service Value Enhancement on Mergers and Acquisitions Integration
The previous article mentioned that the core logic of mergers and acquisitions is “enhancing industry concentration through integration”, and the integration of service capabilities is often the most underestimated source of value in mergers and acquisitions.
If the target company possesses certain unique application service capabilities (such as the ability to provide system solutions in specific industries), after the merger, these capabilities can be replicated to the parent company’s customer base, achieving a “1 + 1 > 2” synergy effect. On the contrary, if the merger merely involves the simple combination of production capacity and customer lists without the addition of service capabilities, the value of the merger will be significantly diluted.
06
Rule Four: Sufficient Scale, Focus
Achieve the top position in the core product category
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The essence of the iron rule
Goldman Sachs’ CEO, Fred Smith, clearly stated: “In the electronics consumer goods sector, to make a profit and have competitive capabilities, one must ‘focus’ and must achieve a sufficient scale in the core products.” He believed that having too many diverse businesses and too complex product lines were common problems faced by Chinese enterprises at that time. Only by making the products number one or top in the industry can one truly have competitive capabilities.
The first principle in the “Huawei Basic Law” is: “In order to make Huawei a world-class equipment supplier, we will never enter the information service industry.” Making our core products the best in the world precisely aligns with the concept of “focus”. Huawei has proven a truth over several decades through its decades-long dedication: scale is not about doing everything, but about achieving excellence in core products.
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How the connector industry can implement
① Clearly define the core business areas and continuously deepen the exploration
The connector industry is highly specialized. No one can achieve leadership in all fields. Successful enterprises understand that they should choose business areas that match their capabilities and continuously deepen their exploration. Aerospace Electronics has entered the leading supply chain system in areas such as 800V high-voltage platform charging systems, high-density optical interconnection, and energy storage system interconnection. This “specialization rather than diversification” strategic choice is precisely the embodiment of the focus principle.
② Scale is the outcome, not the goal
Many enterprises pursue scale as their goal, only to find themselves trapped in the predicament of “large scale but low efficiency”. Porter Sisson emphasizes that “attaining a sufficient scale in the core product” – scale is predicated on focus. Without focus, scale is merely bloated. Connector enterprises should first ask themselves: What is my core product? On this core product, can I achieve the top three position in the industry? If not, is it a lack of focus or a lack of capability?
③ The Relationship Between Focus and Mergers and Acquisitions: Mergers and Acquisitions Support Focus
In the previous article when discussing mergers and acquisitions, one issue that was easily overlooked was: Do mergers and acquisitions distract the enterprise’s energy or do they strengthen its focus? The acquisition practices of Luxun Precision have taught us that a good acquisition is goal-oriented – it is not about “buying everything”, but rather strengthening the core capabilities. Through acquisitions, it gains technologies, customers and market share, which in turn enhances the competitiveness in core products. Focusing is not confining oneself to a fixed area, but rather selectively expanding.
07
The systematic integration of the four fundamental principles
A complete framework for navigating through cycles
The four iron laws are not isolated dogmas, but rather a coherent and interdependent complete system:
The value of these four principles lies in that they not only answer the question of “how to win” for enterprises, but also provide a framework for assessing the health of the enterprise. For connector enterprises, these four dimensions can be used to examine their own situation:
Does your product have a technological and quality advantage in the specific market segment?
Does your organization truly focus on serving customers, or is it still driven by production alone?
Have you shifted from selling products to selling solutions, providing system-level value to your customers?
Have you achieved sufficient scale in your core product, or have you been spreading your efforts too thinly without any of them being particularly outstanding?
Only those enterprises that can provide affirmative answers to these four questions have the confidence to weather the economic cycle.
Looking back at the development history of the connector industry in China, those enterprises that have weathered the cycles and maintained steady growth have all been implicitly adhering to these four fundamental principles.
Lingxun Precision has built a platform-based ecosystem through continuous mergers and acquisitions, and has set benchmarks in terms of product leadership and scale focus.
AVIC Optoelectronics has been continuously investing in the research and development of high-end connectors and has organized a global layout based on a customer-oriented approach.
The company transformed from a parts supplier to a system-level solution provider, achieving a significant leap in service value.
The growth trajectories of these enterprises tell us: There is no shortcut in the manufacturing industry. The so-called “success” lies in achieving the utmost perfection in the most basic management principles.
Conclusion
What kind of determination do entrepreneurs need?
When Foslien proposed these four principles in 1993, IBM was in its most difficult period in history. Instead of choosing a short-term strategy of “filling the hole with the wall”, he started from the most fundamental aspects of management and operation, and spent several years bringing a “huge and cumbersome elephant” back to its graceful gait.
In 1997, when Ren Zhengfei led Huawei to learn from IBM, Huawei was merely a Chinese private enterprise with annual revenue of several billion yuan. He did not reject Western management experience because of the “special circumstances of China’s economy”, but instead spent an astronomical consulting fee at that time, devoutly learning management from IBM. Ren Zhengfei called this experience “IBM taught us to ‘climb the tree’, and we climbed up the tree to pick the apples”.
Today, the connector industry in China is in a crucial period of transformation from “scale expansion” to “high-quality development”. New fields such as new energy vehicles, AI servers, and industrial automation have opened up new growth spaces for the industry. However, problems such as excessive low-end production capacity, reliance on imports for mid-to-high-end products, and increasingly fierce price wars are also prominent.
In this context, what kind of determination do connector entrepreneurs need? My answer is: While chasing the trends, never forget the fundamentals of management. Mergers and acquisitions can help enterprises bridge the gap in scale, but to bridge the gap in management, it can only be achieved through the continuous accumulation by the enterprise itself – like IBM reshaping its management, like Huawei devoting itself to learning, re-examining its operation and management with the four iron laws, and continuously polishing its basic skills.
In the future connector industry, it will undoubtedly belong to those enterprises that truly understand and implement these four fundamental principles. Because manufacturing has always been a long-distance race, and the only way to navigate through the cycles is to return to the essence and move steadily towards the goal.