Taiwanese companies can either adapt themselves for the growth of electronic commerce (e-com-merce) worldwide, or be prepared to see their traditional profit margins and market share steadily eroded, consulting group McKinsey says. "Attack now -- or be attacked," was one of the key messages delivered to a gathering of chief executives in Taipei this week by John Hagel, McKinsey's global leader of its e-commerce practice, based in the Silicon Valley.
The way Hagel sees it, opportunities are unfolding rapidly for established companies to get in on the e-commerce action and claw back market share lost to earlier Internet pioneers. But any such action should not be seen as merely a "defensive" play. To be sure, companies can use the Internet to cut costs dramatically, but this will only go so far, and new sources of revenue need to be generated by adopting different strategies in using the Internet.
For a start, Hagel told the group of CEOs, which included luminaries such as Morris Chang of TSMC, they need to recognize that their industries are being restructured by new economic forces unleashed by the rise of the Internet. Customers are becoming more powerful as the Internet is widening their range of choice and giving them increased bargaining leverage. As a result, companies are being forced to use the Internet themselves to reduce costs and expand services.
Once they have accepted that such "reverse markets" are being developed, incumbents need to find ways of operating differently. In a highly unstable operating environment, they must come up with a "bifocal" approach to their business -- with one eye on their core business and the other on the potential of e-commerce. In most cases, they will need to carve their e-commerce operations out of their traditional business so that their managers can be given more freedom to move, and thus be better able to adapt to rapidly changing market conditions, Hagel said.
This is sometimes easier said than done, Hagel admitted. "It's difficult to download a car over the Internet," he quipped. Nevertheless, incumbents in huge, established industries such as car manufacturing are finding ways to change their approach to doing business, such as using the Internet to strengthen relationships with dealers. This increases speed of delivery and improves service.
If they don't, Hagel cited as an example of what could happen the case of Autobytel.com, an on-line service that allows customers to key in requirements of the car they're looking for, which it then sends out for bidding on a network of dealerships. Again, the empowerment of the customer is resulting in the squeezing of traditional profit margins and the undercutting of market share among those dealers who are not on the network.
Taiwan's two biggest constituents of the local stock market -- electronics and financials -- are not immune to these world trends, other McKinsey consultants said at the conference. They, too, face enormous challenges gearing themselves up to take better advantage of the rise of e-commerce.
Admittedly, there remain problems related to the regulatory environment in Taiwan that banks and insurers -- who were well represented at the conference -- cannot immediately overcome. But according to Greg Gibb, a senior McKinsey manager in Taiwan, opportunities abound nevertheless.
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