Twinhead (
"The notebook [manufacturing] industry is changing," said Tzou. "A lot of industry players depend on OEM [original equipment manufacturer] purchases to stay in business, but when an overseas buyer changes suppliers, it's a shock to their system."
Taiwan's notebook manufacturing industry has fallen prey to a lot of talk of late. The rumors point to a shakeout that is making the big players like Quanta Computer Inc (
PHOTO: CHIANG YING-YING, THE TAIPEI TIMES
Just last week, reports surfaced that mid-size notebook manufacturer Arima Computer Corp (
But Tzou says that not only is the Sharp report untrue, his company is moving away from the traditional model of manufacturing for overseas buyers.
He explained that falling retail notebook sales margins have forced these big retailers to seek better prices from Taiwanese manufacturers, the upshot being that a number of small companies have seen large customers like Compaq and IBM switch to different notebook suppliers.
"A lot of Taiwan [notebook] OEM companies are being squeezed by buyers like Compaq," said Tzou. He explained that in the past, a manufacturer could pad its profit margins by adding "a dime or two" to the cost of certain components. Then, Compaq and other foreign buyers started checking and discovered the skewed accounting. Profit margins have been falling ever since.
"Now they check everything. They looked at the panel, hard disk, CPU, and found out the [accounting] was wrong," said Tzou. "Quanta's profit margin is probably only 1/3 what it was 2 years ago and Arima is only 40 percent of what it was."
RE-ENGINEERING
THE BRAND
According to Tzou, Twinhead hit rough waters during the height of the Asian financial crisis in 1997. Revenues slipped and the company had to have a good look at how to be competitive under the new rules of Taiwan's notebook industry. The company also faced internal problems.
"In 1997, Twinhead went public [on the Hong Kong stock exchange] and our company changed ... people went `soft' and didn't work as hard," said Tzou. "Maybe they got rich from the stock offering."
So Twinhead re-engineered itself. Tzou said the company examined its strengths and weaknesses and decided to focus efforts on its already internationally recognized brand name. With a strong brand as its central focus, Twinhead has moved to expand its Internet presence and has targeted the China market for direct sales.
"We took a look at what we had to offer as a company .... Where is the value of the company? For Twinhead, it's our own brand name," said Tzou. "In 1984, we started producing PCs under our own brand. Now we can market products over the Internet as Twinhead, and people recognize the name."
THE INTERNET ADVANTAGE
What followed was a deal with eBay-Europe to sell notebook PCs on the popular online auction site. According to Tzou, although B2B (business to business) and B2C (business to consumer) sales over the Internet are hot topics, it is a difficult way to make a profit because of the logistics. After an online purchase has been made, getting products to customers quickly and offering after-sales service is difficult. But Tzou thinks Twinhead has an advantage.
"We aren't the first [notebook company], to sell through eBay. Compaq and HP both used eBay in the past, but it didn't work out," said Tzou.
He explained that Twinhead's cycle time -- the time between order placement and final delivery -- is easier to manage than that for HP or Compaq.
According to Tzou, Compaq and HP have to place orders with their OEM companies in Taiwan, then move the product across the world. Twinhead, on the other hand, can process the order immediately and deliver it from a service center in Germany.
To maintain Internet sales operations and bring together Twinhead's worldwide service center and distribution network, the company uses the Net in conjunction with e-commerce software developed by Oracle.
"Our distribution network is worldwide, we have operations in Africa, Asia, Europe and China," said Tzou. "So, how do we link this worldwide operation? We use Oracle's ERP [R11] BASE, Web-enabling software that connects all of our operations and handles accounting, accounts receivable and accounts payable, everything."
Twinhead has also started to link its component suppliers to an e-supply-chain system. Tzou said that a number of component makers aren't yet equipped to become part of an Internet-managed supply chain. "We have linked our major suppliers and are trying to link more, but it is not complete yet," he said.
Part of Twinhead's restructuring effort is aimed at focusing sales in China. In 1999, Twinhead ranked fifth for notebook market share, the best-placed Taiwanese company. Ahead of it were Toshiba, IBM, Chinese brand Legend, and Compaq.
But to show how serious Twinhead is about the China market, the company last week launched its newest notebook products in Shanghai.
Tzou said the decision to launch new products in China came after the EU and China signed their WTO agreement. He believes that after China enters the world trade governing body, the nation's market will grow much bigger and faster than its current pace.
a developed city
"We chose Shanghai [for the product launch] because the city is more developed than other parts of China, there is already a market there," said Tzou. "China is such a big market ... we need to get into that market early."
To get an early start in China, Twinhead cooperated in a joint-venture factory in Wuhan (
"Our main office there is in Beijing and our distributors stretch all the way to Urumchi [in China's far east]," said Tzou. "We have over 200 `channels' [local distributors] and branch offices in 20 cities across the country."
An established network of offices gives Twinhead an advantage in both logistics and customer service, according to Tzou.
He said that Toshiba and IBM both take two months to repair a customer's notebook. With branch offices throughout China and a factory in Wuhan, Tzou claims Twinhead can make repairs in two to three weeks.
With the squeeze in profits brought on by competition in Taiwan's notebook manufacturing industry, Tzou says the big money-maker for notebook manufacturers and other information technology (IT) companies will be Internet appliances (IAs). An Internet appliance is a new breed of wireless device that helps people connect to the Internet from almost anywhere. Tzou said these devices are much simpler to make than notebook PCs and will be much more profitable.
the early bird
"A lot of companies have changed tactics and are making Internet appliances because the profit margins are better," said Tzou. "The trick is to get into the market early. The profit margin on IAs is high right now, but after a few years a lot more companies will enter the market and the industry won't be as attractive [due to competition]."
Twinhead is developing a personal digital assistant (PDA) to compete with the likes of the Palm Pilot. The addition of a "hot key" that connects a user to the Internet instantly makes Twinhead's PDA competitive in the Internet appliance market by combining the functions of a digital assistant with the ability to access the Net, according to Tzou.
"We chose to focus on PDAs," said Tzou. "Our PDA will come out in the fourth quarter."
Aside from re-engineering its brand name and developing an online network to keep up with worldwide operations, Twinhead made one adjustment to its bread and butter product: The company hired a US-based design firm to create a new look for its notebook computers. According to Tzou, the new Efie! Series is thin and light, with long-lasting battery power.
He hopes it will show off the results of the company's re-engineering efforts.
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