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May 11, 2007

Brand new Taiwanese

Bruce Einhorn

Another electronics manufacturer from Taiwan trying to break out of the commoditization trap. As I wrote here yesterday for BW, smart phone pioneer High Tech Computer Corp. is switching strategies and trying to build up a brand name of its own. Like many other Taiwanese companies, HTC built a nice business as an ODM (original design manufacturer, industry-talk for a company that designs and produces a product and then sells it to another company that slaps on its own brand name). That worked well for years but the rise of China and the exodus of Taiwanese manufacturing to low-cost factories in the mainland increasingly makes that model unsustainable.

Maybe HTC can pull this off, despite the fact that no other Taiwanese company really has. Acer is a top brand worldwide - and the company execs are crowing now because they have pulled ahead of Lenovo in the race for the No. 3 spot globally - but Acer was going nowhere until it finally jettisoned its manufacturing business and decided to focus just on marketing its own brand. Other Taiwanese companies, most notoriously Acer offspring BenQ, have sought to build up their own brands while still maintaining a strong manufacturing side. Most haven't been able to have it both ways. BenQ has turned into a disaster, with top execs accused of insider trading and the company bleeding money from its unfortunate attempt to jump-start its name-brand business via an acquisition of the old handset division of Siemens.

There's a basic problem that all Taiwanese face. It's just reasonable that ODM customers from the U.S., Japan or even China aren't going to want to give business to a company that is also a competitor. Acer learned that the hard way and now BenQ is, too. I saw Peter Chou, HTC's affable CEO, yesterday in Hong Kong and asked him about this. He says that HTC is different. Of course, BenQ was different, too.

06:12 AM

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In order to build a brand in the computer/electronic business, a company has to have a whole array of products rather than just one or two. It's impossible to manufacture that many things by one company alone. China and Taiwan are both making the same mistake. They try to focus on manufacture and marketing of one product, which simply doesn't work. Consumers are more likely to buy a Sony DVD drive over a brand that specialize in DVD drives just because of the name recognition.

Posted by: Jia Ming at May 11, 2007 01:47 PM

The ODM model is unsustainable and over the next few years there will be casulties and mergers.You can only undercut for a while and after sometime you will left with nothing to cut. The ODMs have painted themselves into a corner by playing the pricing game and they have no one else to blame but themselves for ending up in this situation.

So it is not surprising to see they are starting to transform themselves into OEMs. But this is going to be tough. However the Koreans have shown that this is possible and this is a potential model that the Taiwanese can emulate.

Posted by: Tanglimara at May 12, 2007 12:53 AM


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