Mon, Oct 02, 2006 - Page 8 News List

Editorial: BenQ's failure a cautionary tale

BenQ chairman Lee Kun-yao's (李焜耀) announcement last week that BenQ would stop funding its German subsidiary, BenQ Mobile GmbH, took most observers by surprise -- especially since the company only acquired the Siemens handset business last October.

It was a "painful" decision, Lee said, but one that had to be made. BenQ had booked losses of 600 million euros (US$760.8 million) from BenQ Mobile since the takeover of the Siemens unit. These losses had grown unbearably high compared to BenQ's total capital of NT$26.25 billion (US$793 million).

Despite the combination of Siemens' brand recognition and technological know-how with BenQ's manufacturing capabilities and ability to control costs, it was no secret that all was not well at BenQ's handset business. The company announced recently that it would downsize two cellphone plants in Taiwan, and earlier this year said it planned to shut down a cellphone plant in Mexico.

BenQ had hoped to win at least a 10 percent global market share, but only managed to secure 3.2 percent. Siemens effectively paid BenQ 250 million euros to take over its money-losing handset business, and BenQ faced tough challenges. It needed to prop up Siemens' falling handset market share while trimming operating expenses and manufacturing costs.

Worse, delays in handset research and development (R&D) postponed the launch of new products, which only added to the challenges in a market increasingly dominated by larger rivals Nokia and Motorola.

It is sad to see BenQ fail, but Siemens, which had been aspiring to the No. 4 spot for its handset unit, had fared no better. After all, the handset business is a high-volume business, with scale in both sales and R&D a key differentiator in the industry.

A year ago, BenQ had hoped that the takeover of Siemens' unit would help make it one of the world's leading players. But on Friday, BenQ Mobile filed for insolvency protection in a Munich court, a move aimed to protect the interest of creditors. BenQ Mobile will hand over its management to a new team appointed by the German government.

But whether BenQ can retain its ownership of the subsidiary remains questionable. The case is now in the German courts, amid strong protests from German unions and politicians.

Whether the company can continue operating the BenQ-Siemens co-brand is also in doubt, as Siemens said it may take legal steps against BenQ. Siemens said that the continued operations of its facilities in Germany were an important factor in its decision to sell its handset unit to the Taiwanese firm.

Investors are also wondering whether BenQ is just saying goodbye to European markets, or if it may leave the handset business altogether.

But the biggest concern BenQ's move has raised is whether other Taiwanese firms will now be discouraged from trying to become top global brands. If the nation wants to avoid this fate, then Taiwan Inc should look more carefully at what its firms need for success -- beyond strong manufacturing skills, cost control ability and ambition -- before making such a bold leap again.

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