Interbrand, the world’s largest brand consultancy, recently selected Taiwan’s top 20 international brands for 2012. Reflecting on the announcement, Jerchin Lee, executive director of the Taiwan Trade Center in San Francisco said that although establishing an international brand is harder than being an Original Equipment Manufacturer (OEM), this is the only way for Taiwanese companies or even the island’s economy to survive in the future.
The Taiwan Trade Center is an overseas post of the External Trade Development Council (TAITRA), Taiwan’s semi-official trade promotion agency. Designed to promote global product marketing of Taiwanese enterprises and products in Silicon Valley, Lee has an overarching view of each country’s hi-tech businesses and suggests that “Taiwan’s economy should take another direction after traveling on the road of OEM for 50 years. It is imperatively urgent that Taiwanese companies establish international brands,” said Lee.
Is OEM the default position for Taiwan firms?
It has been nearly half a century since Taiwan stopped accepting US aid, embarking on its own road of economic development. Since then, Taiwan has continued as an OEM economy without interruption. Initially, Taiwan’s cheap labor force produced consumer goods in huge quantities, becoming a major exporter of textiles to appliances, footwear to umbrellas. This was Taiwan’s route to rapid industrialization.
Then Taiwanese businesses moved their factories and facilities to mainland China and South East Asia, shifting their roles to bringing financial resources and technology to areas with a cheaper labor force. Orders were still taken in Taiwan, but the products were manufactured by OEMs to customers in Europe and the United States.
The United Daily News pointed out that the OEM model seems to be the fate of Taiwan. On the surface, the most popular products like the iPhone 5 and iPad Mini are mainly manufactured by the high-tech companies in Taiwan. Though Apple makes 50 percent of the gross profit, those Taiwanese companies responsible for producing these famous products only take 1 or 2 percent of the profits.
The Commercial Times reported that Taiwanese commodity exports in 2001 accounted for 2 percent of the total global exports, ranking 14th in the world, but in 2011, Taiwan’s exports accounted for 1.7 percent of total global exports, tumbling to 18th place, demonstrating Taiwan’s industrial lag in terms of international competitiveness.
Enhancing Taiwan’s export competitiveness
South Korea is known internationally for brands like Samsung Electronics, Hyundai Motor, LG Electronics and others, which enhance market competitiveness with their brands. South Korean businesses have also invested in industrial research and development and in diversifying their products to include electronic components, iron and steel, shipbuilding, petrochemicals, plastic products and textiles, and in the process gain competitiveness in international markets.
The Commercial Times stressed that the decline of industrial status in international supply chains is the main reason for Taiwan’s drop in export competitiveness and a lack of economic momentum. The economic and trade agencies of the government should actively develop countermeasures to help Taiwanese products cut into the supply chains of international companies, and to create unique and key technology within Taiwanese enterprises specifically designed to compete in the global market place. Taiwanese companies should also devote more resources to research and development to create a brand presence in a range of fields to increase the diversification and competitiveness of Taiwanese export industries.
Taiwanese brands with Silicon Valley branches
Since 2003, Taiwan’s Ministry of Economic Affairs and the TAITRA have commissioned Interbrand to conduct the Taiwan Global Brands Value Survey to select 20 of the most valuable manufacturers in Taiwan. One of the selection criteria for this survey is that one-third of a company’s revenue must come from markets outside Taiwan.
On the tenth anniversary of the survey, the system continues to use the professional valuation procedures and services of Interbrand, which combine quantitative analysis of corporate financial performance and qualitative analysis of a brand’s role. The survey offers a brand value assessment for Taiwan’s world-class brands and gauges their global competitiveness. The survey is aimed at publicly traded, over-the-counter, international Taiwan brands. The brand valuation system uses the same methodology as used to assess the “100 Most Valuable Global Brand Value Ranking”.
“The information and communications technology (ICT) industry has been Taiwan’s mainstream industry with global competitiveness. Companies in the ICT industry used to take more than half of the top 20 positions, according to Lee’s analysis. This year is no exception, with 11 ICT firms in the top 20. In recent years, Taiwan’s food production industry has expanded rapidly in the mainland China market, and occupies five top 20 places this year. Also among the top 20 are three companies from the sports and leisure equipment industry, and one car tire manufacturer.
The top three spots are taken by the ICT industry. Taiwan’s technology industry has been facing the impact of industrial ecosystem migration from PCs to mobile applications. HTC, ACER and ASUS have retained their top 3 positions in this year’s survey, but the brand values of HTC and ACER have declined slightly after their growth spurt last year. HTC’s brand value was US$1.371 billion, US$3.605 billion and US$2.753 billion respectively in the three years from 2010 to 2012; while ACER’s brand value in those three years was US$1.401 billion, US$1.940 billion and US$1.676 billion respectively.
Among the top three, only ASUS has continued to strengthen in the marketplace due to its continuous innovation, the launch of several “Eee Pad Transformers” in rapid succession, and its collaboration with Google on tablet products such as Nexus7. The brand value was US$1.285 billion, US$1.637 billion and US$1.662 billion respectively, with 2 percent growth this year.
Lee stressed that with regard to the characteristics of each industrial market, the US is the world’s largest market for ICT products, compared to Europe and Asia. Accordingly, the key to success of these top ICT companies is to maintain facilities or posts in the American market, especially in Silicon Valley. More than 80 percent of the top 20 Taiwan brand enterprises, especially those in the ICT industry, maintain a branch office or some posts in Silicon Valley.
Taiwan’s food industry benefits from China market
Among the top 50 large enterprises in Asia over the last four years is Tingyi Holding Corporation, which specializes in making instant noodles and beverages under brands like Master Kong, ranked fifth this year. Their products account for more than 50 percent market share in mainland China. Ranked eighth is Synnex, now the largest ICT products distributor in Asia, also among the top three ICT product dealers of the world.
Ranked ninth among the top 20 Taiwan brand names is Maxxis, also the 10th largest tire manufacturer in the world. Ranked tenth is 85°C Bakery Café, which has over 100 retail stores in China, and continues to expand. Ranked 16th is Johnson Health, the third largest sports equipment supplier in the world with 10 percent global market share. Ranked 18th is Transcend which is the third largest USB flash drive producer in the world. Bikes of Giant and Merida are already well-known leading brands.
Lee mentioned two reasons for the rapid and smooth development of Taiwanese food producers in China – the huge Chinese market and Taiwan’s sterling food safety reputation. According to Lee, Taiwan’s food industry has been actively developing the Chinese mainland market for many years, making improvements in product distribution and operational efficiency, and dedicating resources to manage the unique Chinese life style, driving the growth of the overall brand value of the food industry.
Learning from Apple
Over the past decade, the brand value of the top 10 brands has grown from US$3.564 billion in 2003 to US$10.84 billion this year, a growth rate of 204 percent; triple the total value in 2003. As to the three major goals scheduled to be completed by the end of 2012 in the “Branding Taiwan Plan”, namely that “the brand values of the top five will have surpassed US$1 billion”, that “2 brands will have surpassed US$1.5 billion” (in fact, 3 brands surpassed US$1.5 billion), and that “the total brand value for the top 20 will have surpassed US$10 billion” (in reality, the total value for the top 10 exceeded US$10 billion). All the goals were fulfilled last year, and this year have been either maintained or surpassed.
OEM and ODM (Original Design Manufacturer) have been the major patterns of development for Taiwan’s international trade. Most companies have focused on manufacturing and production, and have long ignored the importance of research and development and marketing. Even those firms who want to develop their brands have placed more of an emphasis on function, underestimating the value of culture, creativity and marketing that brand names can engender. Lee said, “Let’s look at Apple’s new product announcement. They cover everything on every aspect of the product. This kind of thinking should be ingrained in Taiwanese manufacturers who really want to establish their brands.”
Lee concluded, “I also find that Taiwanese enterprises are in a process of transition, slowly learning how to strengthen brand value. Actually Taiwanese firms have a strong learning ability, and the R&D talent is full of potential. I believe that Taiwanese enterprises eventually will take an important seat in the international community if they are given a little more time.”
More information about the 2012 Taiwan Top 20 international brands can be found at http://brandingtaiwan.org/TopTwenty/en/Index.html.