April 18, 2011, 6:11 PM — When it was founded in 1997, a Taiwanese firm with the drab, generic name High-Tech Computer did what almost everyone on the island does: It made its money doing contract manufacturing work for bigger-name brands.
That changed in 2006. Today, the company known worldwide as HTC designs its own smartphones and tablet PCs, chipping away at the market shares of giants such as Apple and Nokia. It sold 24.67 million smartphones under its own brand last year, more than double the number in 2009.
Now, after years of keeping a low profile, other firms in Taiwan have realized from watching the likes of HTC and Taiwan's branding pioneer, Acer, that they can use the expertise accumulated from contract work to design and sell their own products, under their own brands.
Newer entrants include the huge contract PC maker Quanta Computer, which has started to sell its own notebooks and smartphones, and Micro-Star International, which will release its first tablet PC on June 1.
Their efforts to move up the value chain are providing end users with new supplier choices for their PCs, smartphones and peripherals, at prices often lower than those from established foreign rivals. Local firms are already known for keeping costs down through cheap labor, the use of factories in China, and quick, flexible means of sourcing components.
"When you're an up-and-coming brand, you compete on price," said John Brebeck, head of Taiwan research with Yuanta Investment Consulting. "Taiwan's edge has always been that they take costs out of the manufacturing process. But we also have really good engineers here."
The island's makers also face challenges, however. Taiwanese firms accustomed to operating behind the scenes may struggle for years to market their own products to a point where customers know and trust them. Some have no experience building a brand, while others put too little money into the effort.
Taiwanese firms targeting consumers "can't be successful unless they have very good marketing to accompany their brands," said Mike Clendenin, managing director with RedTech Advisors in Shanghai. Otherwise, he said, "consumers are going to be confused and stick with [what] they had before, like the HPs, Samsungs and Apples."
They must also be careful about competing with their contract manufacturing customers. Some deal with this by setting up separate companies that have almost nothing in common but the board of directors, and by avoiding markets where their top clients are most active.