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Source: Mercury News
Date published: 24th Oct 2008
Reporter: -
Editor: -

TAIPEI, Taiwan — First came the slim fashion models, hugging the slim new laptops.
Then a tuxedo-clad Jerry Shen, chief executive of Asus, stepped onto the stage earlier this month to introduce his company's new S101 mini-laptop to a horde of reporters. He stood in front of a sign that likened the new product, which is now going on sale in the United States, to "fashion on the go."

And just Wednesday, another low-profile Taiwanese tech company took center stage: Little-known HTC introduced the much-hyped first cell phone based on Google software.

These moves signal a dramatic shift in the island's high-tech focus as it seeks to step out of its behind-the-scenes role as a manufacturer and into the spotlight as a direct challenger to Silicon Valley's dominance in the consumer product market.

It wasn't long ago that the closest a Taiwan technology company came to buzz-making was through assembling products for the likes of Apple and Hewlett-Packard.

"A company going bankrupt in Silicon Valley had a better image than a successful company in Taiwan,'' said Stan Shih, founder of Acer who now heads iD SoftCapital, an investment management and consulting company. "Brand Taiwan" includes computer makers Asus and Acer, the world's No. 3 PC vendor, as well as HTC, a manufacturer of mobile phones. They are among a host of Taiwanese tech companies — along with Chinese computer maker Lenovo — trying to move out of the shadows of Western super brands.
With a cultural DNA more suited to tech tinkering than show-and-tell marketing, Taiwanese companies have struggled to pitch their products to Best Buy buyers. Some of their efforts haven't worked — Acer concedes its foray into the United States during the 1990s did nothing but lose money, and Taipei-based BenQ's acquisition of Siemens' mobile phone business was a failure — but now Taiwanese companies are starting to gain ground in the global market.

Executives, feeling constant price pressure from low-cost mainland China, are altering business plans and company cultures, hiring overseas designers and foreign executives. In 2004, Acer hired Italian Gianfranco Lanci to be its president; bringing in a foreigner in a such a role is virtually unheard of in Taiwan. (He is now co-chief executive.) These companies are also aggressively setting up U.S. offices and hiring Americans to run them.

"People often talk about 'guan xi' being important in China,'' said Mark Stocker, managing director of Direction Design Group, a marketing consultancy in Taipei. He was referring to a Chinese phrase that explains the importance of business networks. "But it is just as important in the U.S. and Europe. Getting somebody with industry connections opens doors much faster."

While grabbing consumer allegiance from American powerhouses HP, Dell and Apple remains difficult, these Asian upstarts have received a boost from the growth of markets outside the United States, which give them global market-share traction and momentum to crack the tough U.S. market.

"These Taiwanese companies used to solely rely on the U.S. market, and most of that was "... making products for U.S. brands," Stocker said. "Growing markets in Eastern Europe, Brazil, Southeast Asia are allowing companies like Asus and Acer to make profits. And that profitability is allowing them to attack the U.S. market."

The United States' slice of the worldwide market for computers has dropped from about 31 percent in 2004 to 25 percent last year, according to research firm IDC. The Asia Pacific region, excluding Japan, has edged up to about 25 percent of the worldwide market for the same period. Indeed, all the industrialized regions — the U.S., Europe and Japan — are showing market shrinkage while emerging economies are grabbing larger slices of global PC sales.

"It's become less of a one-man show and more of an ensemble cast,'' said Richard Shim, IDC research manager. "Costs for PCs have come down. As a result, they are more affordable to a larger part of the world's population.''

While adjusting its sails to the shifting market wind, Acer has also made recent acquisitions — Packard Bell in Europe and Gateway in the United States — to begin a direct assault on No. 1 PC vendor Hewlett-Packard across the globe. The company's goals are to supplant HP as the world's No. 1 notebook vendor by 2011 and to increase its annual sales to $30 billion. Last year, Acer reported $14 billion in revenue.

At the end of 2000, Acer split off its contract manufacturing business to focus on being a consumer brand.

"A common understanding in Taiwan was, you couldn't make money as a branded company,'' Acer Chairman and Chief Executive J.T. Wang said.

Much of the optimism among many of these companies is based on the explosion in popularity of notebook computers, which Acer and Asus specialize in. Asus has hired a team of European designers, and Acer worked with a subsidiary of BMW to create its new Aspire line of lightweight laptops.

HTC, meanwhile, is now prominently displaying its logo on the sleek handsets it is developing for major phone companies in the United States and Europe. And the Taiwan mobile-device maker made a big splash last week, becoming the first company to build a Google Android phone, which will be sold through T-Mobile.

Taiwan is aiming to develop a global tech image similar to that of Japanese manufacturers.

"The Japanese established their brand through quality,'' said Shih, an evangelist for creating branded businesses across Taiwan. "But today, quality isn't enough. Innovation is critical, as is communications and marketing.''

Asus has focused on this strategy with its line of Eee PC mini-laptops, whose success last year surprised many in the industry and prompted HP, Dell and Acer to create their own versions of the low-cost mini-laptops.

Analysts, though, say the ultra-portable laptops aren't true innovative breakthroughs. They also point out that Taiwan PC vendors still must work hard to grow in the U.S. market — the world's single most important land of consumers — if they expect to cut into the business of American competitors. And that can be tough to do solely through hardware design, which is easy to copy.

Apple, for example, fuses hardware, software and services into its products, which enables it to stand apart from look-alike tech companies.

Reaching into the wallets of U.S. consumers also requires a sophisticated marketing strategy and the ability to infiltrate the retail giants, such as Circuit City and Best Buy.

"Very few companies have the skill and patience to do that,'' marketing guru Stocker said. "It may be years before you see any profit.''

Even HTC Chief Executive Peter Chou, who has the advantage of close partnerships with U.S. telecom companies, know's "it's not easy. For HTC, it will take time. Developing brand credibility takes time."

Acer has slowly gained U.S. market share, growing from 2.3 percent in the third quarter of 2006 to nearly 8 percent in the second quarter this year, according to IDC. Asus has much farther to go: It had just a half-percent of the market earlier this year.

Nonetheless, Asus CEO Shen said the Eee PC line has given his company a boost. It has so far sold about 4 million units worldwide. Long known as a motherboard manufacturer and a maker of high-end laptops for gamers, Asus had $6.9 billion in revenue last year. Its latest slender laptop, the S101, which starts at $699, will join other Asus products on the shelves of Best Buy.

"We have much more confidence about developing our brand," Shen said. "We know how to combine aesthetics and technology."

Issues: 

Taiwan companies like Lenovo, Acer and Asus need to have the patience and skills to break into the western market and this require branding with the existing low-cost strategy. However to garner a piece of the pie from big companies like HP, Dell and Apple, it is not an easy affair. While tough and time-comsuming, Taiwan companies being one of the highest volume of manufacturing country in the world back with the investment in R&D which Taiwan is slowly transforming into, they are confident about developing their brand worldwide.

Influences:

Breaking into the western market might mean cheaper western products in Asia and this could benefit Asia countries a lot as Asians get to buy and use new technologies at a cheaper price, for their ICT development.

Personal opinion:

This show that Taiwan will slowly have to change from a full-time manufacturing country to a partial manufacturing cum R&D country if they want to break into the western market. It is time to invest abit on branding, while maintain their low-cost strategy to attract buyers and investors from the western area. All in all, this will bring good prospect for the ICT industries in Taiwan.

Reference:

Taiwan PC makers ready to challenge Silicon Valley in the tech marketplace - San Jose Mercury News http://www.mercurynews.com/breakingnews/ci_10800166?nclick_check=1
accessed on 25 Oct 2008.