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Publications Topics Archive Topics Archive 2003 Vol.33- No.10 Cover Story: Where the Sun is Still Rising
Publications Topics Archive Topics Archive 2003 Vol.33- No.10 Cover Story: Where the Sun is Still Rising | Cover Story: Where the Sun is Still Rising |
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By Lin Mei-Chun The impression is left that Taiwan's traditional industries -- most of them small- and medium-sized enterprises -- have either closed down, moved lock, stock and barrel to China, or are suffering through a painful period of steady decline. Yet in the course of their reporting duties, TOPICS journalists periodically encounter examples of companies from less glamorous industries that are not merely surviving but flourishing. The cover story in this issue is an effort to share some of those examples with our readers -- to demonstrate that with the right management and the right strategic approach, companies can succeed in bucking the odds to find new ways to prosper. The five companies selected for profiling in the following pages may not be typical of domestic businesses, but neither are they unique specimens. Numerous other enterprises could have served just as well as models of traditional industries that remain vibrant and viable. When reading the profiles, readers will undoubtedly notice some of the similarities shared by these companies, despite their being in totally different lines of business. Some of these traits -- none of which will surprise careful students of modern business practices -- include: * Strong leadership from a capable and often visionary executive. * Substantial investment in R&D in order to bring out a steady stream of innovative products. * Commitment to developing the company's own brand, while still taking OEM or (adding the design function) ODM orders to lower risks. * Concentration not only on manufacturing but also -- or even more so -- on marketing and distribution channels. * Globalization by setting up operations in a multitude of key markets. Inevitably, considering comparative production costs, many of these companies have also turned to China as a source for some or all of their manufacturing. But all have remained firmly rooted in Taiwan as their administrative, marketing, and R&D centers. And all are "little giants," to borrow the phrase used by the economics ministry for its awards to outstanding smaller companies. ------------------------------------------------------------------------ Bringing Stylish Products to the Bathroom Globe Union The Globe Union Industrial Corp., with manufacturing and marketing resources on three continents, is Asia's largest supplier and the United States'number-one importer of water faucets, showerheads, and other bathroom accessories. Founded by Scott Ouyang in 1979, the Taichung-based enterprise has 6,000 employees and projects sales of US$219 million this year. Last year, 80% of the revenue was generated from ODM customers, mainly the U.S. mega-retailer Home Depot. But following the company's switch in strategy to promoting its own brands, this year 44% of revenue has come from its own-brand products. Within two years, Globe Union aims to boost the proportion of own-brand sales to 60%. The main export brand, "Danze," has established itself alongside such venerable names as Delta, Kohler, and Moen in the U.S. market and ranks as the second largest brand in its field in Canada. A second brand, "Gobo," is geared toward the Chinese market. In March this year a third name was added to the group through the acquisition of the Chicago-based Gerber Plumbing Fixture Corp. -- an 800-employee manufacturer of faucets and vitreous china plumbing products. The 70-year-old company, whose strong distribution channels focus on the wholesale builders" market rather than DIY, operated four factories in the United States. "The acquisition of Gerber enables Globe Union to transform itself into a multi-functional supplier of a full line of bathroom ware," says the 52-year-old Ouyang. Globe Union began, with modest capital of NT$2 million (then US$50,000), as a trading company dealing in a wide assortment of products. A few years later, Ouyang decided that he needed to specialize. He chose water faucets because the one-handled faucet (which adjusts water temperature through a single valve) was then just being introduced to the Taiwan market, opening new business opportunities. Although Ouyang lacks an engineering background and the company suffered from a shortage of technical support in its early days, today Globe Union takes pride in its ability to vertically integrate every step of the manufacturing process using highly standardized techniques. Most of the manufacturing takes place in the company's three plants in China -- two in Guangdong and one in Shandong -- supplemented by a small operation in Montreal, Canada to produce sensor faucets. The headquarters in Taiwan takes charge of global strategic planning, marketing, finance, and R&D. The products are distributed worldwide through the company's marketing bases in Chicago, Montreal, Mexico, Italy, and five cities in China. A strong 200-member R&D team, financed by a budget equaling 3% of annual revenue, is the main driving force behind the company's technical development. Globe Union introduces new models every two months through collaboration between its R&D specialists in the United States, who are responsible mainly for design of the external appearance, and colleagues in Taiwan who look after the technical aspects of the products. In its elegantly printed 40-page color catalog, which boasts "Faucets to reflect every personality," Globe Union presents eight series of stylishly designed models under such catchy names as The Sonora Collection and The Melrose Collection. Because of the health issues relating to drinking water, the Globe Union R&D department devoted US$5 million to develop lead-free faucets to meet U.S. National Sanitation Foundation specifications -- the first Asian supplier to be able to do so. Currently Globe Union is heavily occupied with post-acquisition consolidation of the Gerber operation. Ouyang closed down three of the company's four unprofitable U.S. plants, shifting production to his factories in China. But he is retaining the porcelain factory in Kokomo, Indiana in order to keep Gerber's status as an American brand. Angela Hsiang, an analyst of KGI Securities, regards the acquisition as a shrewd move. It will enrich the company's product line, she says, and more importantly will help Globe Union take root in the U.S. market, taking advantage of Gerber's distribution network to tap into the building supply channel that is normally difficult for foreign companies to penetrate. Company spokesperson George Tai says that following the successful deal with Gerber, Globe Union will look for other opportunities to take over struggling American companies as the primary means of expanding its business in North American. The strategy is to utilize the production facilities in China to rationalize the cost structure, while gaining valuable U.S. marketing networks. In China, Globe Union has reached beyond the conventional commercial centers of Shanghai, Beijing, Guangdong to set up additional branches as far inland as Chengdu and Wuhan. It has also opened 30 specialty stores throughout China, to be increased to 40 outlets by the end of the year. A strong believer in globalization, Ouyang relies on local talent to run all of his overseas operations. In June, the company invited two of its foreign executives to sit on its board of directors. One of them, Michael Werner, who previously worked for Goldman Sachs, joined the group last year as CEO for the North American region. In another move to spur its globalization, Globe Union this year underwent an organizational overhauling under the guidance of the well-known consulting firm of McKinsey & Co. The restructuring attracted some prominent international institutional investors to take an equity stake, further strengthening the company's bid to become a major multinational player in its industry. ------------------------------------------------------------------------ Going Beyond the Traditional Barbecue Grill Grand Hall If you think of barbecue grills as just plain grids with a lid, you haven't seen the "outdoor kitchen systems" made and marketed by Taipei's Grand Hall Enterprise Co. Most of the company's products combine several burners and stainless steel cooking surfaces into a multi-purpose unit. Besides barbecuing, the outdoor chef can handle virtually any kind of cooking normally done in the kitchen. On the control panel, he can even check the temperature and the amount of gas remaining. This revolution in barbecuing was first devised 20 years ago by Grand Hall's founder, William Home (his own spelling of the Chinese surname Hung). When he tried to sell his products to American companies, however, nobody seemed to take him seriously. But now William Home has earned the international nickname of "Mr. Grill." His company is the fourth largest grill supplier in the United States, occupying a 6% market share. In Taiwan, Grand Hall was ranked eighth among the 50 best-performing businesses by the prestigious CommonWealth Magazine this April, and it listed on the Taiwan Stock Exchange on January 20 at a price of NT$165 per share, four times the level of the bluechip Taiwan Semiconductor Manufacturing Co. Grand Hall was founded in 1976. The manufacturing of gas stoves and grills does not require sophisticated techniques or huge capital, but under Home's leadership, the company has won a reputation for innovation. The 56-person Taipei office takes charge of finance, marketing, quality control, and R&D. Since the early 1980s, Grand Hall has outsourced all its manufacturing (originally located in Taiwan, its three vendors have since relocated to China). A branch office in Dallas is responsible for after-sales service in the United States, which takes 90% of Grand Hall's production since barbecuing is an integral part of the American lifestyle. Initially Home's plan was to establish a brand name from scratch in the United States. But the domination of the market by the major retailers, plus the huge investment needed for branding and distribution, kept him from carrying his strategy to fruition. Eventually Grand Hall's continuous efforts to come up with product improvements caught the attention of some of the big retailer chains. An order for 10,000 pieces placed by Wal-mart in 1996 was the breakthrough Home had been waiting for. Sears followed by signing up as a customer three years later. The cooperation with those two major clients continues today, with their combined purchases taking up 60% of the company's total business. Sam's Club, part of the Wal-mart group, is the biggest customer, followed by Sears and Char-broil. Reversing its previous approach of marketing under its own brand, the company now produces under such well-established names such as Sears' "Kenmore Elite" and Sam's Club's "Member's Mark." "It's much easier for us [to mange existing brands] because they already have their reputation and their sales network set up. All we have to do is to provide them with the best products and service," said Grand Hall spokesperson Yvonne Tsai. To ensure a long-term relationship with its main customers, Grand Hall has developed the concept of "original idea marketing (OIM)," taking the notion of OEM and ODM one step farther. According to this definition, an OIM company should provide a complete set of services to its clients, from R&D, manufacturing, marketing, and sales, through to customer service. "The clients don't have to wrack their brains over every single step. We do it all," she said. The customers appear to be highly appreciative. This year, Grand Hall was awarded a "Partner in Progress" award by Sears and was named "Supplier of the Year" by K-Mart in Australia. Last year, it was selected by Sam's Club as the "Supplier of the Year," the only Asian company ever to receive the honor. "It's an unusual achievement for an Asian supplier to win so much recognition from U.S. companies," notes Rex Chen, an analyst with the Capital Investment Trust Corp. He further commends the company for its strong R&D team, high quality, broad scope of service, and ability to maximize profits. Currently Grand Hall is seeking to broaden its customer base by moving into different retailer categories. It has already found major customers among wholesalers, department stores, and specialty stores, and is looking for home centers and discount stores to work with. To overcome the seasonal limitation on grill sales, the company has been developing other products. As early as next year, it hopes to launch a water heater division, and within two years, it plans to start manufacturing indoor cooking appliances. With the help of those new areas of business, Grand Hall aims to increase its annual revenue from last year's US$170 million to US$1 billion in 2010. ------------------------------------------------------------------------ Muscular Fitness-equipment Maker is Going for the Gold Johnson Health Tech Taichung-based Johnson Health Tech Co., Ltd. is Asia's largest manufacturer of physical fitness equipment and the sixth largest in the world. Founded in 1975 as an OEM supplier for weight training equipment, it later upgraded itself to ODM status. Now the company devotes most of its resources to managing its own brands -- "Johnson," "Vision," "Horizon," and "Matrix" -- all well-known names in different niches of the international workout equipment industry. Of Johnson's US$107 million in sales revenue last year, 85% was generated from its own-brand products. The company operates branch offices in the United States, Britain, Germany, and China, and maintains sales and service channels in 65 countries worldwide. Treadmills, upright and recumbent exercise bikes, and cross-trainer machines are their most popular products. Without the vision of chairman Peter Lo and his determination to develop his own brands, Johnson would still be an OEM provider struggling for survival in the face of low-priced competition from China. Says Lo: "Only by running your own brands can you add value to your products and gain competitiveness in the market." When the company was founded, Johnson made only dumbbells -- but within four years it had become the world's biggest dumbbell manufacturer. Then in the 1980s, Johnson lost about half its business to Chinese rivals. Lo decided that the only way to reverse the situation would be to strengthen the company's product design and development capability. Over the following 10 years, Johnson forged partnerships with such leading health-equipment companies as Universal, Tunturi, Schwinn, and Mizuno. The cooperation enabled Johnson to gain experience in manufacturing high-quality cardiovascular equipment. But the company faced another bottleneck in the early 1990s when annual sales stagnated at around US$15 million while profits slid. Lo saw the root of the problem as Johnson's lack of reputation in the market. That was when he decided to establish his own brands. The huge U.S. market was Johnson's first target for expansion. In 1996, Johnson acquired one of its customers, the fitness division of Trek Bicycle Corp., based in Wisconsin. The operation was converted into a company called EPIX D/B/A Vision Fitness, which then launched its line of "Vision"-brand products sold in 500 sporting good stores across the country. In 1999, Johnson unveiled its "Horizon" products, aimed at department stores, discount stores, wholesalers, and on-line shoppers. And two years later, it came out with "Matrix," the highest-end products, designed for health clubs and hotel health centers. The fourth brand, "Johnson," focuses on the Asian market. The three brands aimed at the Western hemisphere are run out of the branch offices in Madison, Wisconsin and Albuquerque, New Mexico, where the employees are all Americans. One of the chairman's successful strategies in entering the international market has been to "hire locals to run the local market," because of their familiarization with the local business culture and market conditions. Incentives such distribution of 20% of after-tax profits as annual bonuses have helped keep the foreign talent motivated. Also crucial to Johnson's success has been its powerful 200-member R&D department with operations on both sides of the Pacific. The U.S.-based R&D team designs the external appearance and writes the specifications for the equipment, while their colleagues in Taiwan are in charge of designing the component. Manufacturing is primarily done in Johnson's factory in Shanghai. With 2.5% of sales earmarked for R&D, Johnson is able to quickly reflect changes in the market by launching new models every half year. Wells Liu, an analyst at Polaris Securities, views Johnson's success as stemming mainly from its strong R&D team, its ability to turn out quality products at a reasonable price, and its strategy of adopting different brand names for different market segments. He believes that the recent addition of Sears to Johnson's customer list opens new opportunities for Johnson to enlarge its market share. The company will start supplying Sears at the end of this year name (on an ODM basis) and aims to take 10 percent of the mega-retailer's US$700 million-a-year fitness equipment business. Johnson's next focus will be greater China, since the people in Taiwan, China, and Hong Kong are becoming increasingly exercise minded -- and in China working out has become a fad as the country looks forward to hosting the 2008 Olympics. This year, the group opened four Cava sporting good stores in Taiwan to help promote its products. Johnson's goal is to open 200 "Cava" stores in Taiwan, China, and Hong Kong within three years. During the same timeframe, Johnson aims to become the third largest health equipment supplier in the world. And chairman Lo has set the goal of taking over first place with an anticipated revenue of US$914 million in 2008 in time for the Beijing Olympics. He has already booked 35 hotel rooms there for him and his key employees to celebrate their hard-earned success. -------------------------------------------------------------------- Applying Inventiveness to Medical Scooters Pihsiang Machinery When visitors enter the headquarters of the Pihsiang Machinery Manufacturing Co., Taiwan's largest manufacturer of medical scooters and wheelchairs, the first thing they notice is the impressive row of trophies lining a shelf near the door. Two of them are from Taiwan's Ministry of Economic Affairs, which has granted Pihsiang both the "Little Giant" prize and the "National Small and Medium Enterprise Award" for being among the country's best SMEs. The company has also been honored several times with "Symbol of Excellence" awards by the China External Trade Development Council. In addition, British Healthcare Trades Association has accorded Pihsiang's products a "Best Quality" rating for the past eight years. Taiwan's leading business magazine, CommonWealth, has annually selected it as one of the country's most profitable businesses since 1999. And last year, it was chosen by Forbes as one of the "Best 200 Under a Billion" companies worldwide, due to its 53% of growth in revenue from the previous year to reach sales of NT$2.17 billion (US$63 million). Pihsiang is the second largest electronic scooter supplier in the world [next to Pride Mobility Products of the United States], selling to more than 80 countries and taking an 18% worldwide market share. The company's non-polluting, noise-free power carts satisfy environmental concerns and have benefited large numbers of elderly people and the physically disabled around the world. A ten-employee family business 20 years ago, Pihsiang now employs more than 260 workers. Its original factory and an expansion plant opened last year, both in Hsinchu County, manufacture more than 100,000 medical scooters a year. "People only see our success, but nothing has come easily," says general manager Jenny Wu, who runs the company together with her husband, chairman Donald P. H. Wu. "There were bottlenecks at every stage, but you just have to keep working very hard. You'll lose your competitive edge once you become complacent." Donald Wu, who named the company after his Chinese given name "Pihsiang," started the business in 1983 to produce tractors and other agricultural equipment. But he soon saw the need to shift focus in view of the steady decline in Taiwan' farming sector. The turning point came in 1989 when Pihsiang obtained several patents in the United States and Europe after designing the world's first four-wheeled power scooters for the elderly. The invention was considered a breakthrough, providing the traction and stability lacking in conventional three-wheeled models (Wu got the idea for the change after falling off a three-wheeled scooter he was riding because of an injured knee). Under the brand name "Shoprider," which has become almost synonymous with "power scooters" in many markets, Pihsiang has built up a strong reputation in the United States, Europe, and Japan. In order to keep up its design competitiveness, the company commits around 3% of its annual revenue to R&D. In a further step to secure its place in the international market, Pihsiang in 1999 took on its first ODM customer by hooking up with Invacare Corp., a leading U.S. medical equipment provider. The Pihsiang R&D department ensures that quite different models are sold under the "Shoprider" brand and the private labels. Another recent milestone occurred when Pihsiang went public in March 2001, becoming the first medical-equipment company listed on the Taiwan Stock Exchange. The same year, Pihsiang bought out DCC Shoprider, its U.S. distributor, to set up its own sales channel. The company's two U.S. branch offices are located in California (Los Angeles) and in Florida (Ft. Lauderdale) Florida, states with large populations of retirees. The company is also in discussion with some U.S. veterans' institutions about supplying products, possibly to be assembled in the United States, to benefit retired military personnel. Floria Chung, a strategist with President Investment Trust Corp., said Pi-hsiang's biggest strengths are its R&D team's ability to constantly introduce new models and its well-established international distribution network. She called Donald Wu "a visionary entrepreneur" for entering the power-scooter business, because the aging of the global population will create steadily expanding demand for his products. Chung notes that Japan, with its strong background in mechanical engineering and motor production, could be a tough competitor, but Jenny Wu expresses confidence that her company's quick pace of product development will enable it to retain an edge over its less-nimble Japanese counterparts. Although a husband and wife hold the two top positions in the company, the Wus insist that they are not running the company as a family enterprise -- and that promotions are based strictly on professional ability. The 57-year-old chairman, who has been tinkering with inventions since childhood, still devotes much of his time to R&D, and can often be found in a work shirt and jeans dotted with grease stains. Wu's enthusiasm is evident when he talks about his ideas for improving his products to best fit users' needs. His ultimate aim, he boasts, is to turn his company into "the Mercedez-Benz of medical scooters." ----------------------------------------------------------------------------- Modeling Company is Flying High Thunder Tiger Corp. As a boy growing up in Taichung, Aling Lai was fascinated every time a plane flew overhead. Although he never became a licensed pilot, Lai has nevertheless made a career out of flying planes -- the award-winning model aircraft made by the company he founded, Thunder Tiger Corp., one of the world's leading manufacturers of model hobby products. As chairman of the company, Lai says his dream is to see "Thunder Tiger one day become the best-known name in the modeling industry." In the meantime, he keeps striving to bring out innovative and high-quality products -- and the progress toward his goal has been impressive. According to a report last year by Taipei's China Credit Information Service, Thunder Tiger is the eighth-largest radio-controlled model producer in the world, and the only one to integrate manufacturing, marketing, and R&D functions. All16 products that the company has entered in the national design competition over the past seven years have come away with "Symbol of Excellence" awards, including a gold award in 1999 for its "Raptor" helicopter series. Just this month Thunder Tiger was named "The Best Small and Medium Enterprise" of 2003 in a competition organized by the China Times and DHL Taiwan. Currently Thunder Tiger is going through the review process for listing on the Taiwan Stock Exchange. A tiny company when it was founded in 1979, Thunder Tiger now has over 600 employees plus sales and service channels in 47 countries. Of its NT$680 million (US$20 million) in sales last year, 70% was generated from its own-brand products. The company earned its initial reputation by making model planes, but now half the revenue comes from sales of radio-controlled cars. The company headquarters in Taichung is also an R&D center and a modern factory whose core products include engines and model helicopters. A second factory complex, opened in 1995, is located in Ningbo in China's Zhejiang Province, where the 400 employees primarily produce model aircraft, cars, and yachts. A subsidiary in Irvine, California, ACE Hobby Distributors, Inc., handles U.S. distribution. Lai started in business in 1974 by opening the Thunder Tiger Science Model Shop in Taichung as an outgrowth of his avocation of modeling. The shop sold imported materials to hobbyists and provided them with technical help, but it was often difficult to source suitable parts at affordable prices. Seeing an opportunity, Lai founded the Thunder Tiger Model Co. in 1979. It started by producing internal combustion engines, then went on to develop and produce various lines of model airplanes and cars. The ARF (Almost Ready to Fly) and ARTR (Almost Ready to Run) Supercombo series unveiled in 1994 revolutionized the modeling industry. Because of their innovative design, they greatly shortened the time needed for assembly and were very well received by consumers. These types of products soon replaced the kit-style airplanes and cars to become the mainstream of the consumer market. Contributing to Thunder Tiger's success has been Lai's insistence from the first on promoting his own brand. The term "Thunder Tiger," which symbolizes power and speed, was borrowed from the Thunder Tiger Aerobatic Team of Taiwan's air force. "Branding is our long-term commitment," Lai says. "It's part of our commitment to care about the needs of our customers, and a strong R&D section acts as the backbone for the company to fulfill that promise." Thunder Tiger devotes 5% percent of its annual revenue to its 40-person R&D department. To ensure reliable performance and low operating costs for its products, the team regularly engages in joint technology development programs with Taiwan's two leading R&D organizations -- the Industrial Technology Research Institute and the Chung-Shan Institute of Science and Technology. One of the recent fruits of Thunder Tiger's R&D is a model jumbo-jet engine, the only one on the market, whose structure is completely identical to the real one. It is largely used for educational and training purposes. While seeking to maintain its momentum of growth in the United States and Europe, the company is now also focusing on the Chinese market, particularly for products relating to aeronautical education. The company reportedly is close to reaching an agreement with the youth department of the Chinese Communist Party to supply it with aerospace models for use by students. David Chiang, associate professor of power mechanical engineering at National Tsing Hua University, praises Lai for his vision in moving beyond toy manufacturing to making actual aerospace products. Chiang, who worked closely with Thunder Tiger in developing the jumbo-jet engine, says the success of the project is a testament to Thunder Tiger's outstanding technical capability. It also demonstrates the company's potential for utilizing its resources and expertise to diversify into new and profitable undertakings, he notes. Thunder Tiger has already taken further steps in that direction by developing medical-care products such as bone joints, bone screws, and high-speed hand pieces used by dentists -- products manufactured with techniques similar to those used in making engines. It is also studying the possibility of producing motors and fans for computers. Lai spends half his time on the road, traveling the world to promote his business, but inventing and flying model planes is still where his passion lies. And if his business flourishes sufficiently, he has some ideas for what to do with the earnings. "If I get enough money, I'm going to found a school for aerospace education or open an aerospace museum," he says. |
