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What's in a name? Ask Acer's founder

Posted: 17 Jul 2006 ?? ?Print Version ?Bookmark and Share

Keywords:Mike Clendenin? EE Times? Stan Shih? shih? Acer?

A few years ago, after 28 years of running Acer Inc., co-founder Stan Shih retired!but you wouldn't know it. The guy just can't stop moving, and everything he does these days is with the singular intention of elevating Taiwan companies into the category of household names. Although some see his mission as quixotic, Shih remains convinced that Taiwan's long-term prosperity will be based on a formula that leverages its established manufacturing and logistics prowess with product innovation that eventually leads to brand recognition.

Acer took that path, and so have Taiwan's other best-known tech brands: BenQ and Asustek, both run by Acer alumni. To encourage more of the same, Shih is putting his money where his mouth is. Along with some former Acer associates, he runs a venture capital fund, iD SoftCapital Inc., which specializes in funding companies in Taiwan and China with a focus on advanced-technology development and global branding.

Shih recently spoke with EE Times about Asia's next brands, China's role in the tech world and why invention isn't the only kind of innovation.

EE Times: Since Acer, a few Taiwan companies!including BenQ and Asustek!have attempted to build brands. How feasible is it for Taiwan's contract manufacturers to make the transition into global brands?
Stan Shih: Brand requires innovation, and innovation needs a market to share the risk and provide an incentive for the return. Because Taiwan is far from the major markets geographically, it is very difficult to take an innovation and gain access to the major markets to commercialize it.

If you look into the major brand names, they come from the United States because they have a huge market; then Japan, which is the second-largest market; and Europe, because pan-Europe is a big market. China and India are becoming potentially huge markets, so the opportunity to create a brand from Asia will be easier, since they can focus on innovation in the products that serve their local markets first.

The approach from Taiwan should address mature industries so that it can leverage its manufacturing and engineering competitiveness. Then you have an opportunity for innovation based on those mature products that take care of a particular customer need and create value for the end-user.

Innovation used to be more closely linked with an invention that could be patented. This is no longer true, is it?
No, especially if you are talking about innovation in business models and services. This is sometimes more valuable than technology. Technology is fundamental, but real contributions come through business models. How do you integrate resources or use services more effectively? That can have a greater contribution than the invention.

China is clearly on everyone's minds these days. Is there reason for concern about the challenge it presents to tech industry business models?
Mainland China enterprises can have a good advantage in their local market, especially in products where there is little differentiation and where technology is mature or in areas like Internet services, where it might be really difficult for an outside company to understand the local market.

But the problem for them is, how can they go global? Consumers don't have a reason to use Chinese products except for cost. But multinational brands can also outsource to China and get similar costs. So the only way for China enterprises to pressure multinationals is if they access the global market and develop advanced technology.

Without that, they just provide human resources for multinationals that are selling into the global market and will also compete in their local market.

Are Taiwan's ODMs in serious danger from emerging China manufacturers?
We don't really see many companies in mainland China competing with Taiwan's ODMs. The number one reason is the technology. The second one is global logistics. If you look at the Taiwan ODM approach and you are talking about manufacturing, we may do better than China companies because we have advanced engineering capability and capital, and access to the international markets.

As more Taiwan companies pursue opportunities in brand-name products, how will this affect the OEM/ODM business model?
I consider the brand-name business and the OEM/ODM business a good business to develop. You cannot just rely on the brand-name business, especially from Taiwan's point of view. But you cannot just do the OEM/ODM business in the long run because you are totally squeezed by the customers. Intel, for instance, is a business-to-business company, but they do consumer branding because they like to control their own destiny. So in the long term for Taiwan, we will work very closely with our OEM customers. But they have to understand that Taiwan companies have to consider how to diversify their customer base or provide more value-added.

Didn't the problem of having ODM and branding under one roof plague Acer and raise customer questions about conflict of interest?
Acer started from a brand business first, and we were one of the leading companies in the world for PC development. U.S. brand-name companies tried to take advantage of Acer's knowledge to support their product development and make themselves more competitive in the marketplace. From Acer's point of view, we also needed those customers because they helped us build up our scale, and that meant we could have a larger budget to do R&D.

Then, after PCs became a commodity and our advantage in leading-edge innovative technology became less important, those customers wanted a pure OEM/ODM company from Taiwan. The Acer split into branded and ODM businesses was not only to deal with customer concerns!it's really about management efficiency because the cultures are totally different. In the long run, the split between brand and manufacturing will be the trend.

How long do you think the OEM/ODMs in Taiwan can continue to leverage their strengths to stay ahead of China?
Based on the current ODM approach, the industrial cluster is very critical. In Taiwan, the IC area is one of the most important!the value chain from the IC design, to the foundry, to packaging and testing. It is all available and very competitive on a global basis. For China to do this, it will require huge capital and technology. And if they cannot establish a huge scale, it will be harder to have the resources to develop the technology.

So in ICs and LCD panels, Taiwan can compete in the long run. Of course, the Chinese government is trying to build up these two areas, but if you look into why you develop any industry, you need a snowball effect. So when you put money in, a few years later, you are able to make a profit and then inject that profit into expansion. No country, from a business point of view, can just invest in technology without profit!it is not a sustainable approach. But Taiwan has demonstrated that it can get a relatively quick return on its investment. In China, a lot of money has gone in, but there has not been good return.

Isn't it too early to tell?
If you look at when Taiwan's government invested in chip making, they had a long-term vision, but they only had to put in a small amount of money. When they spun off TSMC and UMC, they quickly demonstrated that they could make money, and it has attracted foreign capital into this industry.

China is leveraging its local market to have this upstream industry, but it will take more time. Maybe they can build it up, but I don't see it happening in five years!maybe 10 to 20 years. But before that, Taiwan will have to find a way to move ahead!just like the U.S. did when it lost a lot of its manufacturing to China, but still remained competitive. Taiwan has to leverage its industry infrastructure to move into higher-value-added areas. That's why I am putting my effort into branding right now.

What do you think about the trend in mainland China to develop its own standards?
Japan had its own PC standard for a while, and so Japanese companies dominated the local market. But they gave up the global market. The same thing happened in cellphones. Japanese companies should have been major global players in those technologies, but they lost that opportunity because they didn't adopt global standards, so their technology development cannot compete with companies that are dedicated to global needs.

China should leverage the global standards and make sure all their effort is good for the global market, not just focused on local needs. In business, when governments try to help the local industry through standards, you also need to consider the reality of the marketplace. You need to leverage the global standard, and then try to add in something that adds value, but still does not conflict with the global standard.

Then your effort for the local market can be used in the long run for global requirements.

- Mike Clendenin
EE Times

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