Focusing on Branding

This blog has argued in a few articles that Taiwan's weakness in the technology sector is their weak or complete lack of branding. Although this blog continues to argue that Taiwan is a leading innovator in technology manufacture and production, and a leading producer of many electronic products, with very few exceptions, none of the big companies are household names.

For some of these companies, e.g. TSMC, this is a clear strategy. These companies are not interested in developing their own branded products as they do not want their customers to feel threatened by their forward integration. Companies like TSMC will continue to offer anonymous services to branded fabless chip design companies (like NVIDIA) and will never seek to establish their own brand. According to the TSMC 2007 Annual Report (see page 8):

TSMC is the world's largest dedicated semiconductor foundry.Founded on February 21, 1987 and headquartered in Hsinchu,Taiwan, TSMC pioneered the business model of focusing solely onmanufacturing customers' semiconductor designs. As a dedicatedsemiconductor foundry, the company does not design, manufacture,or market semiconductor products under its own brand name,ensuring that TSMC does not compete directly with its customers.

This is not true of other companies. Consider Hon Hai Precision Technology. Although they are the world's leading contract manufacturer, they felt compelled to develop their own branded products and created their own Foxconn brand that was spun off as a separate company. Although Hon Hai is listed in Taipei and Foxconn in Hong Kong, they are very closely connected. Hon Hai realized the real money was in the brand, not the manufacturing.

However, this blog has argued that save for a very few companies (ACER, ASUS, VIA etc.) very few tech companies have established brands. Yet this blog has also argued that many Taiwanese Tech companies are yearning to break free of the manufacturing-only business models and establish their own brands. It was therefore with great interest that I read a March 2008 article in the New York Time entitled: Taiwan Wants to Focus on Building Its Own High-Tech Brands. The article argues:

Taiwan companies are also largely focused on making products for global brands like Dell, Apple and Intel, instead of coming up with their own brands, and they focus on hardware manufacturing, where only a small percentage of the price the consumer pays for a product is earned.

As little as 5 percent of the consumer price for a product like a laptop can be earned by the Taiwan companies that assemble them, while a higher percentage — about 20 percent — is earned by contract manufacturers, also known as original equipment manufacturers, or O.E.M.’s — which make chips or other parts for the brand holders, according to industry estimates.

With their own brands, the companies could earn as much as 30 percent of the consumer value of a product, analysts estimate.

The article continues to argue Taiwan is used to transitions and highlights there rapid change from a primarily agricultural community post WWII to a high-tech heavyweight in 2008. The article says:

Transformations are nothing new for an island that has evolved from an agriculture- and textile-dominated society after World War II to a factory for light industrial and labor intensive products like sneakers in the 1960s and 1970s to an electronics production base in the 1990s and now to a high-tech center.

Do I believe Taiwan can develop top brands? Yes! However, there are big problems. The biggest problem is the unwillingness of executives and business owners to employ people with the right skill sets. That is, people who have the ability to communicate accurately and purposively in English. Native English speakers with the right abilities cost a lot in relative terms and therefore are viewed as being over priced for the market.

The second problem I see is the application of a manufacturing mindset to a branding. Most people in the tech companies grew up in manufacturing and come with a manufacturing culture. People with the soft skills required for developing effective brands are rare and knowledge of how to create brands even rarer. Many companies think of great names for their products and stick the name on their PC, screen etc. believing that the product is now branded without understanding that all they have done is name the product. After all a brand is a mental concept of something. Just naming a product doesn't create the mental concept, it merely enables product to be told apart.

I do believe change is afoot in the Taiwan tech sector. The skills that are lacking described above will be learned and the people in Taiwan will adpat. As I have argued before, to underestimate the Taiwanese is not a good idea. The people here do have a lot of potential and are intelligent. If they apply themselves to developing global brands in the same way they applied themselves to developing the technology sector in the first place, there is no reason why they cannot succeed.

There will be teething problems, but the next 10-years will certainly be exciting. Here's looking at you Taiwan!

Article: Taiwan Wants to Focus on Building Its Own High-Tech Brands.