Taiwanese Contract Manufacturers Set Sights On Brand-Name Prize

from the store-brand-soda dept

Wed, Jul 18th 2007 6:48am — Carlo Longino

Despite manufacturing plenty of the most recognizable electronics products in the world, and making plenty of money, the names of most Taiwanese contract manufacturers aren't familiar to consumers. For instance, Hon Hai Precision Industry generated revenues of more than $26 billion last year by making products for Apple, Dell, HP and other companies. But the Taiwanese firms are increasingly trying to leverage their experience and expertise by establishing their own consumer brands and using them to boost their product margins. Contract manufacturing is a low-margin, volume based business: for instance, one analyst says contract manufacturers of laptops have 3-5% margins; compare that to the 40% or more Apple enjoys on iPods. But growing the brands can be a tricky proposition, and not just because the companies are looking to enter new and unfamiliar consumer markets. The problem is that these companies are looking to become competitors to their biggest customers: for instance High Tech Computer, which makes mobile phones for a variety of companies, is building up its HTC consumer brand, and competing with clients like HP and Palm in the process. Some are trying to get around this by splitting off their consumer operations from their contract-manufacturing businesses, such as Acer did successfully several years ago. Still, that's not the only obstacle. Getting the consumer marketing right remains a big issue -- particularly when the new consumer brands are competing against companies for which marketing, not manufacturing, is a specialty.

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Filed Under: computers, contract manufacturing, electronics
Companies: apple, dell, hon hai, hp, htc, palm

6 Comments

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Overcast, 18 Jul 2007 @ 8:39am

Very interesting...

Do a bunch of 'contract' work - build an infrastructure a core of knowledgeable workers...

And then move in to squash the 'competition'.
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- Unknowledgeable Geek, 18 Jul 2007 @ 12:39pm
  
  Re:
  I am amazed these companies don't have some sort of non-compete clause. Sounds like they should. I currently do IT support for small businesses, but I am employed by a company to do this. I cannot go to these same clients and offer my services because of this non-compete. I sounds like a very similar circumstance. Unless I am missing something.
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  - Charles Griswold, 18 Jul 2007 @ 6:11pm
    
    Re: Re:
    I am amazed these companies don't have some sort of non-compete clause. Sounds like they should. I currently do IT support for small businesses, but I am employed by a company to do this. I cannot go to these same clients and offer my services because of this non-compete. I sounds like a very similar circumstance. Unless I am missing something.
    There is a difference between Company A employing a person and that same company contracting with Company B to buy Company B's product. A non-compete clause would effectively prevent Company B from selling to anyone but Company A. That, clearly, would be completely unacceptable.
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Anonymous Coward, 18 Jul 2007 @ 5:46pm

Getting the consumer marketing right can be learned and/or hired.

Look at the brands of consumer electronics that are in your local stores. 5 years ago you never heard of most of them - LG for instance. They were doing the manufacturing for the brands you know and love.

When you outsource, it eventually comes back to bite you.

Those manufacturers aren't stupid, and they can read the P+L's of their customers.
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TM, 18 Jul 2007 @ 11:08pm

It's not easy
Carlo is spot on - the problem is that marketing is not in their DNA. These are companies who know how to make stuff cheaply. They won't have the stomach for sustained brand building. Even Acer, mentioned as something of a success story, seems to have an on-again-off-again relationship with the US market. The brand is somewhat known in the US, but it's no Sony. I can only think of a few examples - such as LG - who have come from no-name to brand-name in recent years.
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Anonymous Coward, 19 Jul 2007 @ 8:02am

I bought a rifle from the manufacturer who makes rifles (some models) for Remington and Savage. The model I bought incorporated some of the refinements from both "big" companies. I think I got a better rifle than either of the majors offer.
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