Tag Archives: OEM

Taiwan brands seeking to break the OEM pattern

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.

Taiwan seeks to keep edge in hi-tech production

Whereas in the past, Taiwanese firms played a significant role in the production of the iPhone, this was not the case with the iPhone 5 when it was released in September, according to a recent study by iSupply. Taiwanese companies made a contribution of just 10 percent to the whole supply chain of the iPhone 5, accounting for profits of less than one percent.

Despite this worrying situation for Taiwan’s original equipment manufacturers (OEMs), Taiwan’s Ministry of Economic Affairs announced that the share of Taiwan-made and OEM smartphones reached 37 percent worldwide, placing the island as the world’s leading manufacturer of smartphones. It is expected that Taiwan will continue to hold this top ranking into 2013, solidifying its position as the worldwide epicenter for makers of smartphones and other hand held devices. Taiwan’s domestic production is estimated to reach US$43 billion in 2015, bringing in new investment of US$678 million in 2015, and creating 150,000 job opportunities by 2020, reported the Commercial Times.

In the new age of tablet computing, Global Views monthly said, Taiwan is losing its edge in terms of component sourcing. This affects gross profit and reduces the influence of Taiwan’s electronics industry. Taiwan used to control this area, but now the ball is in Apple’s court.

In the past, Taiwan’s notebook ODMs like Quanta Computer, Compal Electronics Inc., and Wistron, enjoyed the ability to influence components ahead of global brand names such as HP and Dell. They could increase the importance of Taiwan’s component supply chain. But now Apple controls 70 percent of global tablet computing market, exerting more bargaining power and the ability to suggest components. Taiwanese companies are increasingly being relegated to mere assemblers of Apple products, rather than designers and innovators.

Of all the Taiwanese firms, only Foxconn maintained its previous share, accounting for 4.5 percent of the total component assembly for the iPhone 5, while other makers of touch screens and shells did not get any orders from Apple.

A senior product manager in Taiwan pointed out that Apple’s CEO Tim Cook, who took over the reins of the company following the death of Steve Jobs, is an expert on hardware specifications and a tough squeezer of supply chain production costs. As such, the iPhone 5 mainly focuses on upgrading and improving, the hardware, such as adopting the 4G LTE chip set module made by Qualcom and Retina screens made by Sharp. For those component providers, if they were lucky to get orders from Apple, it was at a reduced price, according to Global Views.

In fact, it is getting harder and harder to get orders from Apple. Starting from 2012, many Taiwanese electronics manufacturers, including some ODMs of Apple products, have turned to China for orders. According to Topology Research institute, the global total cell phone production volume, including traditional cell phones, is expected to grow 4.5 percent in 2013, in which the total volume for the Asia Pacific region including China is expected to grow up to 51 percent, far more than the 10 percent expected in North America.

Global Views reported that Foxconn, one of Apple’s main manufacturers, has long been taking orders from China’s brand name cell phones. For example, the company started assembling the “Happy phone” series of smartphones in 2011 for Lenovo, which started by making PCs and is now positioned to take some market share from HP. Foxconn also started this year to take orders of the popular MI-One, a smart mobile phone designed by Xiaomi Tech Company.

Besides Foxconn, TPK Holding (a manufacturer of touch panels) and Catcher Technology (a manufacturer of cell phone shells), and MediaTek Inc. (a fabless semiconductor design house) are all turning to China. These Taiwanese companies have formed new market links between Taiwan and China.

However, when Taiwanese companies apply their smart phone manufacturing technology to China’s brand name products, the advantage of Taiwan’s smart phone technology over China’s counterparts has also narrowed. The challenge now for Taiwanese companies is how to maintain the lead, Global Views stressed.

Now the only irreplaceable value of Taiwanese companies is the optical lens made by Largan Precision Co., in addition to the system assembly.

According to analysis by Business Weekly, the electronics industry was one of the key locomotive forces driving Taiwan’s economic growth, but now most of those related job opportunities have moved overseas leading Taiwan to shift its focus increasingly toward the service sector. More and more manufacturing resources are drawn to the service industry, namely, the so called high technization of services. Once the service industry is integrated with high technology, more innovation will develop.

At present, no one can predict exactly where the next big economic growth momentum will come from, but opportunities are certain to open up. One suggestion is for the government to continue to lift restrictions and let new businesses emerge. In either case, Taiwan still has the most treasured resource – manpower.

According to the global competitiveness report 2012-2013 released by the World Economic Forum in September, Taiwan remains in 13th position due to its sufficient manpower in R&D, its industrial clustering effects, and the low cost of its financial services. According to Business Weekly, Taiwan’s high quality manpower provides unlimited potential for the future.

Taiwan strives to create international brand names

Over the past decade, Taiwanese businesses have actively sought to upgrade themselves by moving from being labor-intensive industries towards technology-intensive and high value-added industries. With this strategy in mind, Taiwan has sought core patent technologies in areas such as solar energy, light emitting diodes (LED) and flat panel displays. The result has been very positive for Taiwan’s ability to create recognizable international brand names.

Recently, Global View monthly focused on almost 40 business areas where  Taiwan has remained within the top three in terms of global market share, covering the pioneering wafer foundry industry, LEDs, smart phones and computer hardware. Taiwan Insights has chosen six core sectors from the magazine’s cover story to review these well-known sectors.

Smart phones

In February of this year, Taiwan’s smart phone maker HTC Corporation won the highest honor in the global mobile communications industry when it was named the “Device Manufacturer of the Year” by the GSM Association. HTC beat two other finalists, Apple and Samsung Electronics, to take the top honor in the device manufacturer category at the 2011 Global Mobile Awards in Barcelona, Spain. Peter Chou, HTC’s CEO and president, attended the ceremony and proudly accepted the award.

According to the information released by market researcher IHS iSuppli in May 2011, HTC ranked 5th in terms of global market share for smart phones, behind Nokia, Apple, RIM and Samsung. Its first quarter growth rate of 6.2 percent only lags behind Apple’s phenomenal 14.9 percent.

Established in 1997, HTC was originally an OEM maker of personal digital assistants (PDA). Later when Google acquired Android mobile operating system in 2005, HTC jumped on the bandwagon to partner with Android with a solid R&D and manufacturing ability. It developed the first Google smart phones based on Android’s platform.

In 2006, HTC made an important decision to promote its own brand name. At the time, most people did not think it was a wise move, but HTC understood that branding was the only way to upgrade its value and services.

Now, most of the global telecommunication giants, like France Telecom’s Orange, the UK’s O2 and Vodafone, and the US’s Verizon, Sprint and AT&T, are all partners of HTC. This kind of cooperative model is astonishing in the vastly competitive mobile device industry.

Solar cells

Occupying about 20 percent of the global market, Taiwan’s solar cell industry is ranked No. 2 by worldwide production value, reaching NT$128.4 billion (US$4.3 billion) in 2010. Taiwan has surpassed Germany and Japan, two leaders in the global solar energy industry, for many years, and only lags behind China. Despite this, Taiwan is technically more advanced than China in solar energy manufacturing.

Taiwan’s Solar Industry has a longer history than China with solar cell makers Motech and E-Ton Solar entering the industry in 1998 and 2001, respectively. Due to the similarity between the manufacturing of semiconductors and solar cells, Taiwan’s businesses have  jumped headlong into this expanding industry and successfully taken a solid chunk of the global market.

In the early 1980s, Taiwan’s Industrial Technology Research Institute (ITRI) entered the solar industry by developing and training many professionals who have continued to be competitive forces in the global solar energy market.

Due to the world’s declining crude oil reserves and concerns about the safety of nuclear energy, the solar industry is expecting healthy growth.

Digital cameras

According to information compiled by the Institute of Information Industry in 2010, Taiwan is the second largest digital camera producer in the world, after Japan. Taiwanese makers such as Altek Corp., Hon Hai Precision, and Canon (Taiwan), are important original design manufacturers (ODM) or original equipment manufacturers (OEM) of digital cameras for brands like Canon, Kodak, and others. Taiwan produced 60 million units in 2010, over half of the world’s supply.

As the first Taiwanese company to enter the R&D of middle to high-end digital cameras and to develop a mega-pixel camera, Altek has been making the core chips for digital cameras for over a decade. Its chips have been used in over 40 million cameras globally. Altek is a long-time partner of well-known brands like Japan’s Fuji and America’ s Kodak, and is the largest ODM maker in the world. It accounts for over 10 percent of the global ODM market share, with annual revenues of NT$28.8 billion (US$990 million) in 2010.

No longer limited to making digital cameras, Altek is combining digital cameras with global positioning systems (GPS), creating its own brand, Altek Leo. On display at the Singapore Telecommunications Show in 2010, it has three times the optical zoom and uses an Android-based mobile operating system.


It is a little-known fact that over 40 percent of the backlighting illuminations for notebook computers, and 40 percent of the LED displays in the world are made in Taiwan.  According to ITRI, Taiwan is the largest LED producer in the world in terms of output, retaining a quarter of the global market share. However, in terms of value, Taiwan comes  second, after Japan, with an annual production value of NT$80 billion (US$2.7 billion).

Epistar is the largest red LED supplier, and one of the three leading blue LED makers in the world. The other two are Japan’s Nichia and the American firm Cree.

The advantage of Taiwan’s LED technology over that of other countries is that ITRI has developed the alternating current LED, which does not need inverters as in a traditional direct current LED, thus requiring less power consumption and a smaller unit size. Also, one of the characteristics of LED is its ability to maintain illumination at a low temperature, making LEDs perfect for medical applications in a sterile and low temperature environment.

Portable navigation devices (PND)

According to the Department of Industrial Technology, the Ministry of Economic Affairs, Taiwan is the largest PND producer in the world, with almost 90 percent of the global market share at a total annual production value of NT$122.2 billion (US$4.2 billion) last year. Major PND makers include Garmin (Asia), Tomtom (founded in Amsterdam), and Mio, ranking No.1, 2 and 3 in the world market, respectively.

Garmin was established in 1989 by Gary Burrel and Taiwan-born Min H. Kao (hence the company named GarMin) to produce global positioning systems (GPS). At the time, the US was engaged in the First Gulf War in the Middle East. Using his experience of developing military GPS applications, Kao led a team of engineers to redesign a huge GPS. Initially, it was so big; it took two people to carry. It was a far cry from something which now fits easily in the palm of your hand.

Today, seven out of every ten GPS devices in the world are made by Garmin. Their GPS devices help American soldiers locate their position in wartime and guide civilian drivers to their destinations. It is the modern re-envisionment of the ancient Chinese compass invented several thousand years ago.

E-Book readers

With the worldwide popularity of e-Books and tablet personal computers, there are many brands to choose from. They range from Apple’s iPad, Amazon’s Kindle to the European 7-inch Flyer by HTC Corp. Buyers can also try the ASUS 12-inch ePad Transformer, if they are willing to wait, since it’s currently out-of-stock due to its popularity.  

Regardless of the brand, 90 percent of these devices are either made in Taiwan or are made by Taiwanese companies. Kindle, which has taken 70 percent of the global e-reader market, are mostly assembled by Hon Hai Precision and the remaining 10 to 20 percent are manufactured by other Taiwanese companies. iPads, which accounted for 90 percent of the global tablet computer market in 2010, are also produced by Hon Hai.

Even though some core components are still controlled by international giants, Taiwanese makers supply many of the important components of e-Book readers, including iPad’s touch screen sensor modules (accounting for 13% of manufacturing costs), battery cells (7%), cases (5%) and printed circuit boards (5%). 

The key to the continued success of Taiwanese manufacturers has much to do with having the shortest lead time coupled with the most competitive prices. These conditions are also fertile ground for generating some of today’s most successful and recognizable electronics  brands.

OEM sector shakes off economic downturn, earn record profits

Despite the continuing global economic woes Taiwan’s original equipment manufacturers (OEMs) are emerging with their heads held high. While their 3 to 4 percent profit margin may seem rather unspectacular, these statistics hide a resurgence that is hard to ignore, according to the Central News Agency. In fact, through innovation, expansion and cost control, many Taiwan OEMs have actually earned record high profits in the wake of the 2009 financial crisis.

What is even more surprising is the fact that despite a fall in profit margins from 15 to 4 percent Taiwan’s notebook OEMs have rolled out record high earnings in the last three years.

Companies with record high after-tax profits in 2009 and exceptional earnings per share (EPS) include: Quanta Computer with profits of NT$22.3 billion (US$6.9 billion) and EPS of   NT$6.09 (US$0.19), Compal Electronics with profits of NT$19.2 billion (US$6 billion) and EPS of NT$4.91 (US$0.15) and Wistron Corporation with earnings of NT$9.135 billion (US$285 million).

Constant innovation is the key

Unlike their Chinese counterparts, Taiwan’s OEMs do not rely on low labor costs to make a profit. The main reason behind the continued survival and growth of the island’s notebook OEM manufacturers is their continual technological innovation and their ability to add value to their products.

Perhaps an industry with a 3 to 4 percent gross profit margin does not merit a discussion and maybe a sector that does not evolve is destined to stagnate. Indeed, in order to survive, every business must innovate. Some OEMs have made the transition to a brand name in their own right, for example ASUS and Acer. Although this transition is difficult to achieve, companies can create new value, according to the Central News Agency.  The key is “diversified developments” in a common direction – from desktop computers  to notebook computers,  and  extending to the 3C industry (computer, communication and consumer electronic parts), televisions, auto parts, medical equipment, and even furniture and furnishings.

In the future, not only 3C industries will be high-tech. Technology will be integrated into automobiles, furniture and even home furnishings, making these smart electronic products as well. Taiwan’s OEM industries have expanded from the 3C industry gradually to infiltrate every corner of the home, thus expanding their market. Furthermore, these companies will form alliances to create new business opportunities.

After twenty years, Taiwan’s OEM sector has accumulated ample experience in production technology and design capability. In the face of the booming Chinese market, Taiwanese businesses believe they have what it takes to compete.  The industry is aided by a new generation of creative design elites who have studied abroad, combined with the experience of the older generation of production management, making the partnership ready to handle the Chinese market. At this point, the growth of the Chinese economy provides Taiwan businesses with many mouth-watering opportunities.

Brand name versus OEM?

In the tussle between brand name and OEM, OEM leaders know where their commitment lies.  Speaking to the Central News Agency,  T.H. Tung, chairman of Pegatron, which spun off from ASUS in 2008 to focus on the OEM business, said that design expertise and the foundry will be at the core of the  business and will comprise  the true value of Pegatron.

Ray Chen, general manager of Compal Electronics, is also pragmatic when it comes to what is important and believes the 3 to 4 percent profit margin is a smoke-screen. “Do not underestimate us … ignore the gross margin figures, pay attention to the solid profit rates and profit numbers,” he stressed. Of course, everyone dreams about his brand, but not everyone can realize that dream … better to understand one’s own expertise, and take full advantage of it,” he said.