Mon, May 12, 2003 page11

• Ex-academic develops a taste for Taiwan Tobacco and Liquor

  Morgan Hwang, former director of National Taipei University's Business School, became the first chairman of the Taiwan Tobacco and Liquor Corp after the state-run monopoly was corporatized last July. Hwang talked with `Taipei Times' staff reporter Kevin Chen recently about his plans to restructure the company

  • By Kevin Chen / STAFF REPORTER
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  Taipei Times: Is it difficult for you, a business professor, to shift gears from academics to managing a state-run company?

  Morgan Hwang (黃營杉): I have been in this position for more than six months, and to be honest, the job is a bit easier than I originally thought. Basically the quality of employees here is good. What they are lacking is marketing and planning experience, and that's where I can offer my expertise. In the past, many chairmen of state-run enterprises were appointed based on political considerations. While they might have had a reputation in their prospective area, they were generally lacking managerial skills.

  TT: Market watchers were also concerned about your qualifications, saying you had no experience in managing a company. What's your response to those charges?

  

  Taiwan Tobacco and Liquor Corp chairman Morgan Hwang is working to change the way the former monopoly and its employees work and think by adding private-sector business strategies to the corporate brew.

  PHOTO: CHIANG YING-YING, TAIPEI TIMES

  Hwang: Many people did question my ability, saying I don't have much real market experience. But I started out my career as a salesperson for Sampo Co (聲寶) and stayed there for 11 years before I left it as a vice president at its US affiliate. I served as general manager at China Color Printing Co (中華彩色印刷) for seven years and executive manager for Yeu Tyan Machinery Manufacture Co (羽田機 械) for another two. I have 32 years' experience teaching and 21 years' overlapping experience in the private sector. So, saying I have no experience in the private sector is not true.

  TT: How long is your contract with Taiwan Tobacco and Liquor Corp?

  Hwang: Three years. But since Vice Minister of Finance Sam Wang (王得山) served as acting chairman for three months before I came in, I only have 33 months left to serve on the job [laughs].

  TT: As the head of a government-controlled business with NT$65 billion in annual sales and a 7,000-strong workforce, how do you plan to help the company stay competitive in the market?

  Hwang: First, we have to improve profit margins and sales volume. But the key is to restructure the company. We have four business divisions -- wine, beer, tobacco and distribution -- and are mulling the addition of marketing or biotech divisions. Everyone knows that our organization is both old and problematic. I haven't made big restructuring changes so far, but I will patiently deal with problems.

  Actually, I have a different definition of the efficiency of state-owned enterprises, as they are also part of administrative agencies which are required to achieve multiple goals. Unlike private companies focusing solely on profits, state-run companies have to perform under a bureaucratic system.

  TT: Any plan to cut surplus workers to improve efficiency?

  Hwang: I have no plan to do so for now. To be frank, as chairman of a state-run company, I'm not here to lay-off people and increase unemployment. On the other hand, most of our employees have been working in the bureaucratic system for years and are just in the first year of adjusting themselves to a new corporate culture. Realistically, I will watch their performance over the first year-and-half and do what I'm supposed to do, if necessary.

  TT: How high is your overhead?

  Hwang: Our overhead is very high, between 30 and 40 percent of our sales. Believe it or not, about 200 employees have annual salaries over NT$2 million each. But our high personnel costs weren't a problem created overnight. It is a traditional problem and cannot be resolved simply by reducing their salaries. Under the law, we can't cut employee salaries as long as we are making a profit. Therefore, I am thinking of assigning more work to employees and expect them to deliver more.

  TT: Taiwan Motor Transport Co (台汽客運), the state-owned long-

  distance bus operator, began to corporatize itself in 1980 but its business has remained in the dark since then. Does Taiwan Tobacco have plans to differ from that example?

  Hwang: We definitely will not follow Taiwan Motor's example because we will adopt private businesses' strategies in running the company. Although we recognize the government procurement procedure is very inefficient, we will abide by the law. Some told me that we could persuade lawmakers to change state-run companies' regulations regarding procurement. But you can imagine how hard it would be for lawmakers to do so for us -- under the current system.

  TT: Taiwan Beer's market share dropped from some 80 percent to 74 percent last year after China's Tsing-tao Beer entered the market. Are you worried about the new rival?

  Hwang: Tsingtao Beer is a strong rival and has captured nearly 8 percent of the market, but I don't think its popularity will last. The Tsingtao Beer we drink here is brewed in Shenzhen, Guangdong Province, not in Shandong Province. Remember, freshness is very important to beer. In contrast, Taiwan Beer is produced here and is the freshest.

  As beer accounts for the largest part of our alcoholic beverages, we have recently introduced a new Gold Beer targeting the younger generation. We have seen brisk sales since the product hit the market April 22 -- approximately NT$10 million in sales each day.

  TT: The government has recently banned Tsingtao Brewery from making TV and radio commercials, saying it is against the law. Will Tsingtao's sales be impacted by this?

  Hwang: Slightly, I think, because Tsingtao is already a well-known brand and the commercials are just one of instruments Tsingtao Brew-ery could use to promote its products. They may apply other means to drum up their sales. But I think the government move reflects our dissatisfaction over Beijing's rejection of the marketing of Taiwan Beer under its original brandname, instead of TTL brand.

  TT: What's your sales target for beer this year?

  Hwang: We hope to increase the beer's market share to 80 percent this year. To do so, we will provide incentives for distributors to sell Taiwan Beer. In addition, we will adopt new pricing on May 16 and raise the retail price of the 0.6-liter Taiwan Beer to NT$45, up from NT$40, while a can will sell for NT$28, up from NT$26. Overall, we hope to increase beer revenue to NT$25 billion this year from NT$21 billion last year.

  TT: Taiwan Tobacco has asked rock star Wu Bai (伍佰) to be in a series of ad campaigns again this year. How much do you pay him?

  Hwang: NT$5 million, but I think he is worth more than that price. Wu Bai is a very interesting figure and he represents 100 percent of what Taiwan Beer is trying to convey -- a truly local flavor.

  TT: What's your goal for overall sales this year?

  Hwang: Initially we expected to increase our sales by 10 percent to NT$64.9 billion. With our sales increasing by about NT$6 billion, or 23 percent, from a year ago during the first four months, we are forecasting NT$69 billion in annual sales this year. But if we can introduce our most popular local cigarette brand -- Long Life -- into the Chinese market at the end of this year, our annual sales may reach NT$100 billion.

  We reached a trademark-exchange agreement recently with the Shanghai Tobacco Co that allows us to use the Long Life-trademark on the mainland and them to sell Chunghwa-brand cigarettes here. We estimate that total sales of Long Life cigarettes may reach 2 million cartons, worth NT$35 billion, next year.

  TT: One of Taiwan Tobacco's missions is to upgrade its product image from a local flavor to an international brand. What challenges do you face in achieving that goal?

  Hwang: First, we have to develop and market high-priced alcohol products. The highest priced wine now is about NT$1,200 a bottle, followed by a NT$1,000 for premium-grade Kaoliang liquor, with most other products priced several hundred NT dollars per bottle. I think we have the potential to develop quality wine products priced somewhere between NT$2,000 and NT$3,000 per bottle.

  In addition, we may custom-make liquor for foreign businesses targeting international markets where Chinese reside, such as Los Angeles, Japan and Singapore.
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