Feature: SMEs at the front of brand building

Soon after Hiwin Technologies Corp (上銀科技) was established in 1989, the company enjoyed considerable success in developing and marketing ballscrew products. But into the middle of the 1990s, chairman Eric Chuo's (卓永財) plans for growth received a serious commercial blow.

Hiwin's Japanese rivals joined hands to block sales of precision machinery from Japan to Hiwin, afraid of the growing threat posed by the small Taiwanese firm.

It left the components manufacturer -- with a speciality in ballscrews, aircraft parts and linear bearings for use in precision machinery -- little choice but to turn to German vendors to purchase the necessary production equipment. The move would cost an additional NT$30 million (US$0.9 million) over its old suppliers.

Faced with this increase cost, Chuo decided to master the capability to manufacture the precision equipment himself.

After more than six years of countless attempts and failures, the company managed to lift the machinery quality to international standards -- a process that cost some NT$4 million.

"Without the capability to manufacture production equipment, a company's competitiveness will lag," Chuo said.

Chuo, who is a highly motivated individual, is representative of the entrepreneurial spirit of Taiwan's small and medium-sized businesses (SMEs).

Instead of pursuing contract manufacturing, where margins are forever shrinking, Chuo decided to make a bold attempt at branding.

But "branding is a long and windy road," he said.

Hostility from Chou's original Japanese suppliers was one of the early challenges he faced.

To ensure an edge in a highly competitive business, Hiwin has pumped more than 5 percent of total revenues into research and development (R&D) over the past five years.

This year's estimated R&D amount will hit NT$170 million, up from last year's NT$128.6 million, the company's statistics showed.

The R&D percentage will rise to 10 percent when total sales reach NT$10 billion in 2008, Chuo said.

Facing strong demand, Hiwin has set its sights on becoming the world's largest ballscrew maker and the No. 3 linear guideway maker in 2010.

While R&D is a key ingredient to ensure brand success, mergers and acquisitions (M&As) are another shortcut to fame.

BenQ Corp (明基), Taiwan's top cellular phone maker, joined the world's top-tier handset brands after taking over the loss-making handset unit from German Siemens AG in October last year.

Heavy losses, however, forced BenQ to stop financing BenQ Mobile in Germany in October, causing the latter to file for bankruptcy protection and leaving 3,000 staff out of work.

While large companies such as BenQ have not fared well with M&As, homegrown SMEs have their own experiences -- some good, some bad.

"Merging with someone too much larger in size may not help. Companies should not merge just for the sake of it," said Peter Lo (羅崑泉), chairman of Taichung-based Johnson Health Tech Co (JHT, 喬山健康科技).

Buying out a foreign firm is a viable strategy as companies might not be well versed in overseas markets, but the option does not guarantee instant success, he said.

Lo, who hails from Chiayi County, never knew that his purchase of a US fitness enterprise in 1996 would later pave the way for the world's fifth-largest fitness equipment corporation.

Lo decided to take over the fitness division of US-based Trek Bicycle Corp in order to make inroads into US market, and in the end the move paid off.