Taiwan’s computer hardware industry ranks fourth in the world, but its software industry lags far behind. Software products brought annual sales of US$1.4 billion in 1994 compared with US$11.6 billion for hardware products. The good news is that software sales are growing at an average rate of nearly 20 percent annually, and that about 7 percent of revenues now come from exports. (In the hardware sector, exports account for 95 percent of sales.) The bad news is that Taiwan software suppliers, mostly small-scale operations, cannot survive by selling within the small domestic market and face serious obstacles when competing internationally. This spring, Tu Tze-chen (杜紫宸), director of the Market Intelligence Center of the institute for information Industry (III), discussed the industry’s status and potential for growth. The institute is Taiwan’s premier quasi-public research organization in information technologies. Excerpts follow.
FCR: Why has Taiwan’s software industry grown so significantly in the past four years?
Tu Tze-chen: Our software industry is in a beginning stage. For the past few years, the annual growth rate has been just over 19 percent. This is a good rate, of course, but it doesn’t apply to all local companies. Some are performing well; others are not. The growth is largely due to the demand from several rapidly growing local business sectors. The growth in banks, stock and mutual fund brokers, hypermarkets, convenience stores, and department stores has boosted the demand for software products. The new interest in multimedia and the Internet have also created opportunities for the industry.
Niche products such as Chinese and Japanese font software, PC games, CD-ROM titles, and anti-virus products—all new applications of computer technology—have contributed greatly to the market. These enjoy a good market share because of their specific niche. Games and CD-ROM titles especially deserve mention. They have grown by one or two fold in the past couple of years.
Why are PC games and CD-ROM titles faring better?
There are several reasons. First, the global market for these two products is booming. There are 100 million PC users worldwide. Each of these users needs only one word processor, one spreadsheet system, et cetera. When a user buys one word processing system, he doesn’t need to buy another. Therefore, in the market for word processing products, if you aren’t ranked among the top three companies, you can’t survive. But PC games and CD-ROM titles are different. A user who owns fifty games might still buy more. The market for games is infinite. Thus a game company can survive even with a small market share.
Second, Taiwan has a cultural advantage in creating these products. Chinese culture is one of the world’s richest and best preserved, and it remains strong in Taiwan. There are more than 2 billion people familiar with this culture worldwide, including the ethnic Chinese living abroad and the peoples of Southeast Asia, Japan, and Korea. And because of global communication, Asian philosophies are no longer unknown to Westerners. For example, Ninja and the concept of Zen have been highly commercialized in the West.
I believe local producers have great opportunities in marketing PC games and CD-ROM titles. My observation is that American software engineers are more disciplined than Taiwan engineers. Their training in standardized procedures makes them more suited to developing products that require great specificity, like operating systems. On the other hand, Taiwan engineers, working in smaller companies, have greater flexibility and creativity, which makes them suited to creating games and designing CD-ROM titles.
Still, while many of the companies producing these two products are extremely successful in the domestic market, they all seem to have difficulty exporting. When one company tried selling a game based on the Tun-huang legend [an adventure story detailing the search for the famous Tun-huang cave paintings], it had a hard time getting responses from potential publishers. This shows the difficulties that Taiwan companies face overseas. Another company produced a [CD-ROM] version of Nu-kua Fixes the Broken Sky and tried to sell it abroad. But most foreigners have never heard of the myth of Nu-kua, and it also contradicts the Bible concerning the creation of the world. Not surprisingly, the product was not accepted in the West. This teaches local companies a lesson: be cautious in choosing products for an intended market.
Since exports are vital to the growth of Taiwan’s software industry, what are the major target markets and which selling strategies are most successful?
There are around six hundred local software companies now, compared with only two hundred fifty in 1986. Export sales for the software industry grew by close to 70 percent last year. Forty to fifty software companies now export and total sales reached around 100 million U.S. dollars in 1994.
The Japanese market is the largest and fastest growing, followed by Southeast Asia. The main products sold to Japan are Japanese font design and anti-virus software. We’ve always sold to the U.S. and Europe, but on a smaller scale, and we have just started selling to the mainland.
Sales strategies vary with different markets. In the U.S. market, Taiwan companies usually adopt the OEM method—selling the product to a large U.S. company that in turn sells the product to end users. The local manufacturer earns only a commission. This is the most cost-effective strategy for a huge market like the United States.
Selling under one’s own brand name is of course a possibility, but it’s extremely taxing. In a big market like the States, the chances of success are pretty low. One Taiwan company recently tried to market a product called Silk, an enhanced version of Lotus 123 with 3-D spreadsheet function. [U.S.-based] PC Magazine rated it as better than Lotus 123. But in trying to sell the product through its own distribution channels, the company found it too expensive to play the promotion game. Since the company wasn’t able to throw big bucks into promotion, Silk disappeared from the market.
What are the biggest problems faced by software exporters?
Although the government has long promoted exporting as an official policy for the software industry, our basic marketing infrastructure is flawed. Local companies have only a limited understanding of the demands of foreign markets. For instance, our product literature and packaging have not reached international standards.
Consumer testing is probably our biggest problem. It’s a major task, but it’s crucial for determining whether the product will sell in an intended market. Consumers in different countries have different tastes in software. Most local companies are small; they don’t have the financial power to address all these cultural variations. One possible solution to this problem is to form business associations among the companies that export to the same foreign market.
The Ministry of Economic Affairs has just commissioned the Taipei Computer Association to set up a Japanese consumer testing center. It will collect commonly used Japanese hardware products so software companies can test their products on them. This will save each software company from having to buy around two million NT dollars worth [US$79,000] of hardware for product testing. But this is not enough. We also need experts who are familiar with the Japanese market to provide a detailed analysis of consumer needs.
[Taiwan-based] Dynalab Incorporated and Trend Incorporated have both operated branch offices in Japan with about twenty employees each for the past four or five years. They are setting up distribution channels there and providing customer service, which means they are sinking roots into that market. This is necessary for companies that sell brand-name products. But these companies are the exception. The Institute for Information Industry estimates that there are around thirty software companies trying to break into the Japanese market, and that most of them are small, with ten to fifty employees. Most of these companies need assistance in making connections overseas.
Currently, III has one person stationed in Japan to collect market information, and the Taipei Computer Association has two people there collecting market information and assisting in trade negotiations. But these small-scale operations don’t give local software companies enough support. We need major promotional efforts to gain attention. I suggest that local companies seek out major Japanese companies to sell their products because the barriers to entering the market are incredibly high. They need a good Japanese partner to oversee the localization of products to fit the needs of Japanese users.
Tu Tze-chen of III says market testing is the biggest problem for software exporters—“Consumers in different countries have different tastes in software. Most local companies are small; they don’t have the financial power to address all these cultural variations.”
How can local companies compete better with foreign companies in the domestic market?
There are two kinds of software products: horizontal and vertical applications. Horizontal application products are those that nearly every computer user needs—word processing, spread sheets. The global market for these items is dominated by major international companies. For word processing, for example, the market belongs to Microsoft Word, Lotus Amipro, and Norvell Wordperfect.
Software users must stay with one system because everything must be compatible. Besides, switching to a different system requires learning to use it. That’s why users are often loyal to one product line. For these products, large, well-known international manufacturers fare much better than Taiwan companies. Therefore, local companies shouldn’t try to enter markets dominated by these major international companies.
People tend to think that local companies should be able to gain a share of the Chinese-language market even in the competitive arena of horizontal application products. But actually, the large scale international companies often offer Chinese versions of their products. The Chinese version often comes out within three or four months at the most. Again, we can’t compete. But local companies can focus on Chinese-language key-in products that enter in spoken or handwritten information.
The situation for nonessential, vertical application products [such as industry-specific or entertainment software programs is different. Users choose these products according to individual preferences. It is in this arena that Taiwan can compete. Local companies probably have a better grasp of the specific demands of local users in various businesses and they can design their products to fit them.
In general, what are the prospects for Taiwan’s software industry?
Taiwan’s software companies tend to take the road most trodden—providing mainstream products already on the market. But the fact is that U.S. companies hold most of the global market in this sector and we can’t compete with them. On the other hand, if we focus on niche products, our domestic market is too small to support local companies. Unless we establish strong industry associations and solid export channels, our software industry will not expand. It looks like a no win situation.
We do have some advantages, however. Taiwan is located in the center of Asia. This is where East meets West. It’s a pity that few foreigners recognize this. They tend to favor Singapore and Hong Kong, possibly for language reasons—they assume people in those areas speak better English. In fact, people in Taiwan are very Westernized. Also, we have the advantage of understanding Chinese culture well. This is a great advantage.
In addition, Taiwan’s hardware industry is ranked fourth in the world. We can enjoy this advantage, too. There should be closer cooperation between the hardware and software industries—they can benefit each other.
Virus Busters
Trend Micro Devices holds 30 percent of the U.S. market for anti-virus programs.
When Trend Micro Devices Inc. was founded seven years ago, few computer users realized the value of its product. “At that time, most people regarded computer viruses as a practical joke,” says company president Daniel Chiang (姜豐年). “The attitude was: Who really gets infected, anyhow?”
But “Michelangelo” and other global computer viruses have made the problem a worldwide concern. “Now it has become the major threat to computer security,” Chiang says. “No computer user can continue to treat anti-virus products as an unnecessary extra.” Chiang cites a recent report by the U.S.-based research firm Dataquest which found that 63 percent of users surveyed had experienced at least one computer virus.
Trend’s business has grown thanks to names like the “Kennedy” virus, which strikes computers around the globe on June 6; “Fish,” which takes action on the 1st, 11th, 21st, and 31st of each month; and “Sunday,” which attacks on the first day of the week. In July alone, there are five known viruses expected to strike—one each on the 4th, the 13th, and the 26th, and two that can hit on any day from July 1 to the end of the year. Symptoms of infection range from a sudden slowing of computer functions or a mysterious garbling of files to a total system crash.
Trend founder Chang Ming-cheng (張明正) set up the company in Los Angeles in 1988. After graduating from Lehigh University in Pennsylvania with a degree in computer science, he spent two years as a systems designer for Sparc Software House in White Plains, New York, then four years with Hewlett Packard back in Taiwan. After six years of experience, Chang decided to open his own company. He spent the first year in southern California gathering information on anti-virus technology and market demands, then moved the company head quarters to Taipei.
Trend quickly developed a global network. By 1994, in addition to its offices near Los Angeles, it had branches in Singapore, Hong Kong, Beijing, Shanghai, and Chiasso, Switzerland. It also took over a Japanese software firm to form Trend Micro Devices, Japan. All told, the company has more than one hundred employees, half working in R&D, and now brings in annual revenues ofUS$15 million.
Unlike most Taiwan software companies, Trend went straight into marketing its own brand-name products rather than developing OEM (original equipment manufacture) items for sale under the name of a better known international firm. Its first item was PC-Rx, a basic virus protection system for personal computers that is compatible with IBM and Windows systems. Today, ten versions of PC-Rx, or its sister product, PC-cillin, have been developed and sold to a total of seven hundred thousand users in fifty countries. This year, Trend expects to sell an additional forty thousand sets.
Trend’s brand-name products have benefited from the company’s agreement with Intel, which has provided technological training and insights into the U.S. market.
In Taiwan, PC-cillin captured 70 percent of the anti-virus market in 1994 and was the top-selling single packaged software product, beating even Microsoft items. Alex Jiang (江志祥), director of sales and marketing, attributes the strong sales to aggressive marketing. In addition to advertising, the company has emphasized public education. “We take every opportunity to talk about viruses,” Jiang says. “We provide computer cram schools with anti-virus information, holding about two hundred seminars a year. Sometimes we also send speakers to give lectures. We send information to columnists at major papers in Taiwan, and we grant interviews.”
Even more impressive has been Trend’s success in the hard-to-crack U.S. market. To break in, the company took advantage of its office near Los Angeles, a major market for software. Rather than throwing money into high cost, risky promotions, the staff made direct calls on corporations to arrange demonstrations of PC-Rx. The timing was good; by late 1988, U.S. companies were beginning to take the threat of computer viruses seriously. After securing accounts with large organizations such as DuPont and the Federal Reserve Bank, they were able to gain more business through word of mouth.
But like other local firms, Trend got its big boost in Western markets by teaming up with a big-name U.S. computer firm. In 1992, the company formed a cooperative agreement with CPU maker Intel. Under it, Trend produced an anti-virus product for “local area networks” (LAN), or small-scale networks of interlinked computers within a company, for sale under Intel’s globally recognized name. Intel pays royalties to Trend for sales of LANDesk Virus Protect in the United States and Europe, while Trend pays royalties to Intel for sales in Asia. In 1993, the U.S. computer firm Norvell began bundling the product with its network operating system, leading to another increase in sales. Today, LANDesk Virus Protect sells 75,000 million units per year worldwide.
In the seven years since Trend began marketing overseas, exports have increased from 30 percent of company revenues to 50 percent. Although sales are growing in Asia and Europe, most exports go to the United States, where the company now holds 30 to 40 percent of the anti-virus software market.
Chiang attributes much of the success of overseas marketing to the Intel agreement. “By cooperating with an international partner, you can upgrade your product and glean precious know-how, especially in market testing,” he says. “One of the main benefits of working with Intel has been its assistance in testing the user-friendliness of products in the U.S. market.”
Will Trend begin marketing LANDesk under its own name after its five-year contract with Intel expires in 1996? Chiang is still undecided, and the company is researching which path has the best profit potential. In the meantime, the company has developed several new security products for sale under its own name. Station Lock is a combination anti-virus and file protection system, and T-Lock is an anti-piracy device. The latest addition is Mobile Protect, an anti-virus product especially designed for notebook computers.
One negative side to the popularity of Trend’s products is piracy, especially in Asian markets. Alex Jiang estimates that Trend lost US$175,000 in the first six months of 1995 to illegal copying in Taiwan alone, and that losses are even greater in Thailand. The problem costs the company in man-hours as well as dollars. A number of the local customers who phone Trend’s hotline with questions on PC-cillin packages are actually using counterfeit software unknowingly. Like many firms, Trend has joined an anti-piracy league that helps companies take legal action against pirates.
But Trend faces greater threats than pirates. Chiang says the company is under constant pressure to stay a step ahead of the competition in R&D. The process starts by choosing qualified researchers. Among the twenty-five engineers at the Taiwan headquarters, half have master’s degrees or higher, and half have been trained overseas. To keep its researchers happy, in addition to offering high salaries and the latest hardware systems, Trend regularly sends the staff to its research center in Provo, Utah. There, the company has a cooperative agreement with Intel to provide training in technology and market testing.
Such efforts are a necessity. “Our products must be updated constantly,” says Daniel Chiang. “Whenever a new virus surfaces, our engineers have to find a solution right away. There are hundreds of viruses out there and variations and new types come out almost daily. We can’t afford to become complacent. Companies such as [U.S. anti-virus firms] Norton and MacFee have larger scales of operation, and new companies keep popping up. Every day is a battle with the competition. If we don’t stay on top, we can be replaced overnight.”
Winning in the Game Market
Softstar Information Co., Taiwan’s biggest maker of PC games, has built up a solid local following despite heavy competition from foreign brands.
After a perusal of Taiwan’s top computer entertainment magazines, one might think that local game-maker Softstar Information Co. either must have a lot of friends among reporters or it must be giving gifts to the magazine publishers. The Softstar name appears again and again in surveys of the island’s top-selling games, published in Style Game Magazine, Amazing Computer Entertainment, and Soft World Magazine. In a typical month, Softstar claims three of the top five slots, and five of the top ten. Most often the company’s products even outsell new releases from top-name international game producers such as the Japanese maker Koei.
Softstar’s success is real. But Eric Lee (李勇進), founder and president of the company, stresses that he is proud simply that the company is still operating, let alone turning a profit, given the difficulties that local companies face in breaking into this business. When Softstar was founded in 1988, it was the first local company to produce games played on personal computers. “At that time, Taiwan didn’t have PC game professionals,” Lee says. “We had to nurture and develop talent on our own. We trained our crew on the job. For the first three years the company was in debt. It was really tough.”
Softstar’s first products did not sell well. In 1989, when the company launched Destroy, an action game in which players manipulate a hero who takes on a stone-throwing giant and other evildoers, it was a difficult time for a locally made game to attract customers. The market was flooded with pirated copies of U.S. and Japanese games, and the counterfeits were selling for about US$3 per disk, or US$7 for a three-disk game. Destroy, which came with four disks, sold for more than US$15. “At that price, we couldn’t beat the foreign games,” Lee says.
It wasn’t until 1990, Lee says, that the market for local products began taking shape. Two factors helped improve the situation. Under pressure from international trade partners, the ROC government cracked down on pirated games. Meanwhile, some of the initial interest in foreign computer games had worn off, and users were tiring of muddling through English or Japanese versions.
Softstar’s big breakthrough came with its twenty-third game, The Legend of Zyca, introduced in 1990. The company spent US$120,000 and organized a major research effort for the project. “We threw lots of resources into developing this product,” Lee says. “We knew from the beginning that we wouldn’t break even, but I just wanted to prove we had reached international standards in computer game circles. After three years, our R&D team had matured.”
The result was a state-of-the-art action game featuring three-dimensional graphics, high-grade animation, and advanced sound effects. Players manipulate the hero through a range of landscapes including villages, forests, mountains, and an underground maze in an effort to save the earth by destroying the evil God of Destruction, Zyca. When the game made its debut, Lee says the technology incorporated into it was new even on the international market.
Softstar’s strategy worked. The money and effort put into the Legend of Zyca finally won critical exposure for the company. “This product established Soft star as a leader in the field,” Lee says. The game sold nearly twenty thousand units in the first few years. The success of Zyca also led to increased competition. “It was after this product that Taiwan entrepreneurs saw what they could do and the market began to look attractive,” Lee says. “People then started jumping into the business.”
But the increased competition has not hurt Softstar. Since 1991, sales have nearly doubled every year, reaching US$3.9 million in 1994. The top-selling product among its fifty games is Millionaire, a computer board game based on the Chinese version of Monopoly. The second generation, which features color graphics, has been on the market for two years and has sold more than fifty thousand units. The third generation incorporates stocks and lottery tickets into the plot and will be launched in 1996.
Lee attributes much of the company’s success to his team of engineers. Among Softstar’s seventy-five employees, fifty are researchers. The atmosphere at the R&D center in Taipei reflects the spirit of the company’s products. The average age of the engineers is twenty-five (Lee himself is thirty-six). Most of them dress in jeans, and many of the men sport long hair. The main room includes several cots with sleeping bags for engineers unwilling to go home when on a late-night creative roll.
The engineers are divided into R&D teams. Each team has a name, such as Domo or Crazy Guys, and spends eight months to a year developing the programming, graphics, sound, and special effects for a single game. In this way, Softstar turns out eight to ten titles per year. Lee believes this labor-intensive method is best for developing games that perform well on the market. In 1994 alone, he says, two hundred and forty PC games competed in the Taiwan market. Each sold an average of three thousand to five thousand sets. “But on average, Softstar products sell fifteen thousand sets, and our best products sell more than thirty thousand,” Lee says.
To date, Softstar’s products have all been sold on floppy disk, but the company is now developing TV and CD-ROM versions. It also has a new team working on a set of computer-aided instruction products designed to assist users in learning the Japanese language.
Currently, 90 percent of the company’s products are sold in Taiwan, where Lee says the company can outsell foreign makers because of its cultural advantage. “We don’t have to overcome the language barrier and we know users’ tastes better,” he says. Still, Lee is looking ahead to expanding exports. Hong Kong and Singapore have made up the main market for Softstar’s overseas sales to date, but the company is now switching its emphasis to Japan. Softstar first entered that market in September 1994 with localized, Japanese language versions of several games. Lee stresses that success there will give the company international credibility. “Japan sets the standards in Asia,” he says. In addition, it offers the attractions of a large user base, high retail prices, and an appreciating currency.
Although Softstar has not yet begun retailing in mainland China, pirated versions of several games have already appeared across the Straits. Lee plans to begin selling there later this year. Within two years, he hopes to enter the U.S. and European markets. The company is now seeking cooperative agreements with Western game producers.
Lee is optimistic about the future of Taiwan-made computer games, stressing that it is one of the most promising sectors of the software industry. “Several years ago, the Institute for Information Industry predicted that by 2000, Taiwan’s software industry would reach total sales of US$6.8 billion,” Lee says. “Most people didn’t think it possible then. But now, looking at the evolution of game products, many say games are the hope of the industry—that half of the US$6.8 billion goal could be met by games, and the rest by other multimedia products.” Lee has faith in the prediction. He stresses that Taiwan has for years been exposed to a wide variety of international games. “A talented engineer who grows up in such an environment has a great advantage over even an American game designer,” he says. “With our internationalism plus our grasp of Chinese culture, we can create excellent games for many markets.”
Fonts With Finesse
By combining the art of calligraphy with the science of computer languages, DynaLab Inc. has become the number one Taiwan software exporter to Japan.
The research phase for many of the products developed by DynaLab Inc. starts with one of China’s oldest visual arts. The maker of Chinese and Japanese font programs begins the process of designing its more stylized products by looking for seasoned calligraphers, most often from Mainland China. “These people have been doing calligraphy for decades,” says DynaLab’s assistant marketing manager Jamie Yang (楊秀真). “They’ve got style.”
Yang explains that when developing fonts such as the cursive-looking “running” script, the company first commissions an artist to do a set of about one thousand characters. Next, DynaLab’s designers in Taipei adapt these into a full set of five thousand to thirteen thousand characters, which is then used to create a software font. “It’s a combination of technology and art,” says Steve Wei (魏裕屏), assistant vice president of the technical development division. “We wed modern technologies and traditional aesthetic values.”
Consider that there are more than ten thousand commonly used Chinese characters, compared with the twenty-six letter English alphabet, and that most characters are comprised of between five and twenty strokes. To create a font, each character must be transformed into a computer language that is easily accessible to users via a Romanized keyboard. Each DynaLab font set includes between five thousand and thirteen thousand characters.
Since its founding in 1987, DynaLab has set its goal at creating the world’s largest font library of Chinese and Japanese characters. In 1988, it marketed its first product, the Golden Dragon Card, containing three sets of Chinese scripts: one in a standard, textbook style; a thinner, more graceful style; and a boldfaced, modernized one. Since then, it has added sixty character sets, including highly stylized versions such as the rounded, handwritten “teenage girl style” and the “old style” set, which looks like a woodcut print.
Initially, DynaLab had to import Japanese font technology. Today, it sells its own font programs to Japan. Says one proud executive, “I guess it proves we have achieved their standard.”
DynaLab’s products quickly gained market acceptance in Taiwan, and currently hold 60 percent of the island’s market for Chinese font systems. But the company began expanding into exports in 1990. “Selling only within the tiny Taiwan market restricts a company’s growth,” says Steven Wei. “The company has always sought to target the regional market, with an emphasis on Japan.”
Why the Japanese market? “It’s a pioneer in font development,” Wei says. He adds that because the Japanese language is also based on ideograms and shares many of the same Chinese characters, Japan has become a testing ground for ideographic design. Another motivation, Wei says, is that Japan’s printing industry is far more advanced than Taiwan’s. “Japan has developed much faster than we have in this field,” he says. He points out that many local designers rely on Japanese-made Chinese fonts. Even DynaLab did so initially. This makes Wei especially proud that his products are now selling well in Japan. “I guess it proves we have achieved their standard,” he says.
Wei remembers the difficulties of DynaLab’s initial export ventures. First there were technical challenges in designing a character system in Japanese. Then came less tangible differences. “Japanese tastes in fonts differ from ours,” he says. “We had to rely heavily on Japanese advisors.”
But DynaLab developed a careful strategy. It began its export foray by selling under OEM (original equipment manufacture) agreements with Japanese computer makers Sharp and Matsushita, which embedded the font sets into their computer hard disks. After two years of healthy sales, the company began marketing free-standing products under the DynaFont name. In 1993, it set up a subsidiary in Tokyo, DynaLab Japan Ltd., to handle customer service and promotions. Although OEM sales still account for the bulk of export revenues, the company hopes brand-name sales will account for 50 percent this year.
DynaLab has developed thirty-four sets of Japanese fonts, and pulled in export sales of US$9.9 million in 1993 and US$11.8 million last year. Nearly 95 percent of revenues came from Japan, making the company the top local software exporter to that country last year. The remaining export sales came from Hong Kong, South Korea, and Mainland China, where DynaLab sells its regular products as well as Korean fonts and a line of programs using the simplified characters used in Mainland China. The firm established a Hong Kong office in 1989.
In 1993, DynaLab decided to diversify into another area of the printing business. It launched a second product line: pre-press software systems used by magazines and book publishers to ready text, graphics, and photographs for printing. The company began by becoming the local representative for U.S.-made pre-press products by Quark and Live Picture, and creating localized, Chinese language versions of these products. DynaLab then developed a Raster-Image-Processor, a hardware system that creates a blueprint used to print the finished product. Combining this with the imported software systems, the company sells complete software and hardware packages under the trade names DynaRIP and DesignerRIP. Today, DynaLab serves as a clearinghouse for pre-press software and hardware, and has added a successful sideline as a consultant and equipment supplier to magazines and publishers. Its client list now includes the local editions of People, Elle, and Car and Driver.
DynaLab has also developed a network of franchised pre-press processing centers equipped with all the hardware and software needed to create brochures, posters, advertisements, and other printed materials on a case-by-case basis for companies that do not need their own in-house pre-press system. Four centers operate in Taiwan, two in Tokyo, and one each in Osaka, Beijing, Shanghai, Guangzhou, Hong Kong, and San Francisco. All told, sales from pre-press software and services now account for 20 percent of DynaLab’ s revenues.
The next frontier for DynaLab is cyberspace. The company is now putting the finishing touches on a Chinese language online databank with consumer information such as weather reports, news, entertainment information, and computer versions of local magazines. Customers can sign up to be linked into the network via home or office PCs, somewhat similar to the U.S.-based CompuServe. DynaLab points out that al though Taiwan users have had access to the Internet since 1990, the Chinese-language files have so far been limited. The company expects demand for its databank to grow quickly after it is test marketed late this summer. Steve Wei believes the market will eventually extend beyond Taiwan to Chinese speakers throughout Asia. “The Chinese language has a billion users,” he says. “It’s not a small market at all.”
The Right Image
Ulead Systems Inc. broke into the tough European and U.S. markets with its image-processing software by first forming cooperative agreements with Western firms.
In the spring of 1991, the managers at Ulead Systems Inc. in Taipei celebrated a major breakthrough in selling their image-processing software in the U.S. market. During the company’s first three years, they had targeted North America as a primary market, but were still searching for a channel for attracting large-scale sales. “The States is the greatest birthplace and the biggest market for software products,” says Lotus Chen (陳學群), the company’s senior vice president and chief engineer. “It’s the testing ground and the main entry channel for anyone eyeing the global market.”
Like many other Taiwan software firms, Ulead got its foot in the door by selling the marketing rights to its products to well-known U.S. makers, capitalizing on the name recognition of the bigger companies among American consumers. Its first products, La Palette and iPhoto, were bundled and sold with foreign-made scanners. Later, new video- and audio- processing products were also sold under OEM (original equipment manufacture) agreements.
But in 1991, the company landed its largest cooperative agreement with an American firm. Aldus Corp., one of the best-known U.S. page-design software firms, agreed to market Ulead’s PhotoStyler, a high-grade software system for editing photos and readying them for publishing. For three-and-a-half years, the arrangement went smoothly. By the end of 1993, sales of PhotoStyler had reached five hundred thousand internationally. As sales climbed, Ulead’s name was rapidly being established in markets it had previously been unable to crack.
Ulead soon discovered that OEM agreements can lead to unforeseen pit falls. In September 1994, Aldus was acquired by a competing page-design firm, Adobe Systems Inc. The contract for PhotoStyler was discontinued since Adobe had a competing product. Under the agreement, Ulead did not even have the option of continuing the product under its own name.
“We were sorry to have to terminate such a productive relationship, and we were also sad to see our brainchild [PhotoStyler] disappear from the market,” says Danielle Liao (廖信伶), director of the international marketing and sales division for Ulead. But she adds that the loss of the agreement with Aldus pushed the company to be more aggressive about marketing its own products. “By that time, we had grown to more than one hundred employees—we were ready to start marketing our own name-brand products,” she says. “The timing was right.”
Liao says working with Aldus helped ready Ulead for the transition into marketing its own brands. “We benefited a lot from our cooperation with them, and not just in the sense of moneymaking,” she says. “We learned from them how to produce an international standard product. We learned how to look at the market with vision. We learned to be aggressive—an international company always wants to be number one or two in the field, unlike most Taiwan companies who just want to do OEM work for international companies.”
Although sales through OEM or other cooperative agreements still account for 60 to 70 percent of revenues, Ulead’s own products are gaining strength in international markets. The company’s best-selling product is ImagePals, a software package that allows users to scan, enhance, edit, and store color photos and illustrations. Developed in 1992, the product now sells two hundred thousand units annually worldwide.
When Ulead lost a major contract with a U.S. software firm in 1994, the company overcame the setback by beginning to build up to its own brand name products.
Ulead is now focusing on multimedia products. In 1994, it launched Media Studio, which allows users to combine and edit video, photographs, graphics, animation, and sound. Its latest product, InstaMedia, is a home-entertainment component that attaches to a PC to allow users to watch movies, listen to music, or sing karaoke. “It’s very user-friendly,” says Lotus Chen. “If you can use a CD player, you can use this software program.”
One strategy the company has employed to build sales of its products is to seek publicity through the U.S. software publications. ImagePals, for example, has won several honors from prominent U.S. computer magazines. It received the 1992 BYTE magazine Award of Merit, a four-star evaluation in both 1992 and 1994 from Publish! magazine, and a Buyers’ Assurance Seal in both 1993 and 1994 from InfoWorld.
The company has also worked to diversify its markets beyond the United States. In addition to its U.S. office, opened in 1990 in Torrance, California, it set up shop in Dusseldorf in August 1994 and in Paris in March 1995. Today, about 95 percent of its products are exported, half to the United States and half to Europe. Germany and France account for most European sales, but Ulead is also expanding into Italy and Scandinavia.
Another factor helping with overseas marketing is Ulead’s reliance on its foreign staff. Lotus Chen has made it company policy to use full-time foreign employees to create localized versions of company promotional and marketing materials for sale in specific overseas markets. He says many Taiwan software firms compromise the quality of their marketing campaigns because they either use Taiwan staff or contract freelancers to do such work.
Today, despite the setbacks it has faced, Ulead has stabilized its position in the global software industry. In its six-year history, it has grown from eighteen to one hundred twenty employees. Last year, its sales doubled, from US$3.9 million in 1993 to US$7.9 million.
Chen says the key to succeeding in software is to aim high. "From the very beginning, we targeted the global market," he says. "We didn't confine ourselves to a smaller domestic or regional market first, then hope to enter the international market later. The original design of the company, the scale and strategies, all were created with the ambition of becoming an international company."