Is Foundry Really the Fate of Taiwanese Companies?

26 May

Minister of Science and Technology Simon Chang said in a recent interview with the Central News Agency that the size of the Taiwanese market and the source of capital for Taiwanese technology companies are too small. In terms of marketing dollars in the international market, Taiwanese companies are like underdogs in the sea of big-budget firms. Chang said that local companies may be better off focusing on contract manufacturing and high margin products.

Some media interpreted his remarks as an indication that the minister believes that Taiwan is unsuitable for developing its own brands and should focus on being contract manufacturers. The remarks sparked controversy and discussions on whether bigger bucks make better branding and marketing.

In related news, Taiwanese consumer electronics makers, including Acer Inc., Asustek Computer Inc. and HTC Corp., are said to be struggling in the competitive market when competing with Samsung and Apple. Those Taiwanese companies don’t have pockets deep enough to utilize their marketing strategies and thus find it increasingly difficult to compete in the market. Chang’s remarks might have be taken out of context and used as excuses for failures for Taiwanese technology brands. However, is it really true that Taiwanese companies should only serve as contractors and that it is hard for them to develop their own brands?

Management is the real issue; branding is just a means.

TechNews believes that among Taiwanese technology companies, the three most well-known ones — Acer, Asus and HTC — have all enjoyed the fruits of successful branding.

Acer used to be the world’s top PC manufacturer. The company did not tumble because of its marketing budget, but its internal operations and strategies. The company failed to ride the wave of mobile devices and subsequently lost its market edge following the decline in global sales of PC and notebooks. As the company re-organizes, Acer’s brand value gives the company some space to catch its breath. If it wasn’t because of the existing brand values, it might have been even more difficult for Taiwanese manufacturers to turn the corner.


(Table 1: According to Gartner’s statistics in the first quarter of 2014, Taiwanese companies still accounted for two of the top five global PC vendors in terms of shipment. It is premature to say that Taiwanese brands have failed in the global computer market.)

HTC has also seen its better days. The company relied on its first-mover advantage to take the world by storm. With HTC’s experiences, Taiwan’s manufacturing and design capabilities were clearly evident for the world to see. With more and more competitors in the market, marketing budget was definitely not the reason for HTC’s sales decline. The real reason was the company’s product strategies, including its confusing line of product names and the lack of a strong brand image. Confusing advertising messages and weaker brand image were the results. Asus is still thriving in the global market because of its flexible product strategies, precise product positioning and strong R&D capabilities. Marketing budget was not necessarily the only reason behind Asus’ success.

Branding is a form of commitment to a sustainable business.

Deep pockets will make it easier, though not definitely, for companies to create successful branding. Brand marketing may be central, but not essential, to the success or failure of a product. Branding is a means to help businesses tap into a larger market. Taiwanese consumer electronics companies are fighting a hard battle in the market, and budgetary issues and marketing strategies are not the only reasons. Corporate visions, products strategies, execution and the ability to integrate resources are also involved.

Contract manufacturing is of course simpler than creating a brand. However, the previous successful experiences of Taiwanese companies show that Taiwanese companies do have the ability to establish their own brands. The esthetics in a corporate culture and the ability to tell stories have not only become the most valuable assets for businesses but also demonstrate a company’s multiple strengths. Building a brand may be a long way to go, but many Taiwanese firms are halfway to success.

Brand management involves many complicated tasks, and the most important of all will be the promises and visions the brand provides for its users to help make them identify with the brand. To successfully make users identify with the brand can bring profits and also make it easier for the company to execute operational strategies. The intangible influences that successful branding can bring cannot be overlooked; after all, the value of brand influences can be estimated at double-digit billion sums.

Taiwanese contract manufacturers are experienced in cutting down cost, but many of them do so by relying on the cheap labor in emerging markets. However, in some emerging markets including China, labor cost and the awareness of labor rights have been increasing. Could it be that the Taiwanese businesses would just stick to the same tactic and move their factories in accordance with area development? That might not be better off than building brands after all.

In recent yeas, some companies in China, which has long been the world’s factory, have departed from the old “white-box” — China-made, grey-market — products model and begun building their own brands. Those brands might not have high level of brand commitment among their users currently and might resemble other brands in some areas; however, undeniably, such brands have had certain level of influence on the market. While China seeks to emerge from the role of the world’s factory, it is truly unacceptable if Taiwanese officials intend for the country to keep the role as contract manufacturers.

Discussing branding and marketing from the successful experiences of China’s Xiaomi

Although Xiaomi phones might have highly resembled other phones or been accused of copying other brands, Xiaomi grew rapidly in China. Instead of strong R&D capabilities, Xiaomi focused on marketing and resources distribution. This type of operational model is what the European and American brands are good at. As long as there is a home market with a size big enough, it is relatively easy for companies to achieve brand visibility.

For Taiwanese companies and brands, the local market is neither big nor small. If they cannot even succeed in the local market, how will they manage the market abroad? Southeastern Asia enjoyed rapid economic growth in recent years. Many Chinese, Japanese and South Korean brands invested in the region with their eyes on the vast market.

Whether Taiwanese brands and companies are able to stand out in emerging markets, including Southeast Asia, depends on if they will make the effort to understand the diverse culture in different markets, reinforce their marketing resources and develop soft power, rather than purely focusing on R&D capabilities and strong sales teams. Business owners should distribute their resources to marketing talent that will help increase the companies’ value and should change the mentality of a contract manufacturer.