Experts differ on manufacturing

The nation has in recent years seen an increasing number of information technology (IT) companies enter the branding business in order to make better profits than contract manufacturing provides.

But a question often faced by manufacturers is whether they should outsource labor-intensive and low-margin manufacturing businesses when they enter the profitable branding business.

Manufacturing is best off abandoned because it is not necessary for developing an own-brand business, Acer Inc's president, Wang Jen-tang (王振堂), told the Taipei Times in a recent interview.

Another heavyweight player, Asustek Computer Inc's (華碩) chairman Johnny Shih (施崇棠), does not seem to buy that theory. The capability to create innovative technology and maintain manufacturing strength is crucial for IT players as they try to outflank their competitors in fast-changing times, he told shareholders at an annual meeting last month.

Asustek is Taiwan's No. 1 laptop vendor, followed by Acer.

"Each company has finite resources that can't be stretched infinitely," said Steven Tseng (曾緒良), chief analyst on downstream electronics at Yuanta Core Pacific Securities (元大京華證券).

Giving up on manufacturing can be workable in the PC sector, which has mature technology and a complete vertical division of labor, Tseng said, and companies can thus concentrate on building up the brand images and distribution networks that are essential to branding business.

Asustek's brand image is too manufacturing-oriented, and so it doesn't touch consumers in the same way that Acer's does, Tseng said.

Acer underwent a drastic transformation in 2000, uncoupling its brand-name from its contract-manufacturing businesses, with the latter becoming Wistron Corp (緯創), which specializes in original equipment manufacturing.

That left Acer to concentrate on branding.

Before the restructuring, the company had suffered from a weakened competitive position in both sectors. But after outsourcing its manufacturing and focusing on brand positioning, Acer has begun to see returns, after going through an initial adjustment period.

Huang Ho-ming (黃河明), founder of Atelligent Global Consulting (悅智全球顧問), said that manufacturing is not everything and that one company does not need to do all the work.

"In advanced countries, manufacturing consists of less than 30 percent of gross domestic production," said Huang, who was former chairman of the semi-official Institute for Information Industry (III, 資策會) -- after having served for 20 years as chairman of Hewlett-Packard's Taiwan branch.

"Taiwan's IT companies should pursue higher added value," he said.

Acer generated revenue of NT$157.7 billion (US$4.66 billion) last year, up from NT$105.7 billion the previous year. The company generated revenue of NT$97.58 billion in the first half of this year, making up 48.3 percent of this year's projected sales of NT$202 billion.

The company held on to its fifth-place position in worldwide shipments of personal computers (PCs), with 1.27 million, or a 3.3-percent market share, over the same period, according to figures released by International Data Corp last week.

"Most Taiwanese companies believe the myth that a branding business must be linked to its own manufacturing for better growth. But actually they are two different businesses, with different focuses and investments," Wang said.