No design, no profit. From motorcycles and tennis rackets to PCs and fine glass, Taiwan's industrial design is slowly winning international attention. But what more has to happen if the island is to become truly competitive?
By an ironic coincidence, the Acer Group's North American subsidiary came up with a final figure for its 1996 losses on the Aspire home computer just a couple of days before Christmas. It was US$200 million all told, taking account of dramatic cuts in the price of the new product and the cost of remaindering stock.
This sad story actually began in 1994, when Acer laid out no less than US$1 million in design fees, the most it had ever paid, for imaging its new Aspire home computer. When the PC model was introduced to the American market, at first everything went smoothly. Aspire was the first computer in the world to combine a PC, monitor, and speakers all in one, and the initial response was incredible. One CNN report even said that Aspire had given the concept of home computers a whole new meaning.
But the golden days did not last long. Sales fell quickly, dropping from the heights to the depths in less than one year. The story going around the trade was that Aspire might be beautifully packaged as far as design went, but the machine was not user-friendly. "American sales didn't come out as expected, resulting in huge stocks of unwanted Aspires," says Huang Shao-hua (黃少華), deputy general manager of the Acer Group. Huang attributes the failure to a sharp fall in the price of just one component needed to make semi-conductors, which Acer had bought at the top of the market. The result--a US$200 million loss.
But the Aspire experience in North America, however disastrous it may have been in financial terms, carried a significant and very different message for many of Taiwan's computer companies. Acer had somehow managed to find a niche in the American market, which in the trade is viewed as the hardest of all to penetrate. Acer had become, after Kennex tennis rackets, Giant bicycles, and Proton TV sets, another brand name from Taiwan that was going to stay lodged in the American consumer consciousness.
That was all thanks to Stan Shih (施振榮), chairman of the Acer Group, who has always made the creation of original designs his chief priority. As he points out, "Before, Taiwan wasn't able to compete with other countries in terms of product quality, design, image, internationalization, or marketing, and that was due to lack of sophisticated expertise. But there is still room for Taiwan to improve its production values, and this must be carried out through long-term planning." In fact, part of the advice that Shih likes to give with regard to upgrading Taiwan's competitive advantage is that the island should move into higher value-added production, because it can no longer afford to finance outrageous land prices and growing labor costs.
It is true that high production costs have sapped Taiwan industry's strength when it comes to competing with other industrial nations. From January to November in 1995, Taiwan's growth in exports--3.2 percent--ranked last among the four "Asian Dragons." (The corresponding figures were 6.5 percent in Singapore, 4.6 percent in South Korea, and 3.9 percent in Hong Kong.) The 1996 unemployment rate was the highest ever, forcing Taiwan to question its rosy image as an island enjoying an economic miracle made possible by successful export-oriented industry in the 1980s and among the largest foreign-currency reserves in the world.
In December the same year, BusinessWeek went so far as to issue a warning to Asian countries, saying that the lurking worry for them had to be their heavy reliance on cheap labor to attract foreign currency, together with lack of consistent productivity and R&D capability. The only way for these countries to become winners, the magazine concluded, was through enhanced design capabilities.
If Taiwan's design aptitude can be improved, it will greatly help upgrade the image of its products, which has been a serious weakness when competing with other nations. "Before we can improve the image of MIT [Made in Taiwan] products, we must improve design," points out Cheng Yuan-chin (鄭源錦), director of the Center for Design and Development under the China External Trade Development Council (CETRA). According to Cheng, design and local brand names would do much to increase products' added value.
The problem is a serious one. According to a recent report on national product image by the US-based marketing research company Gallup, more than 45 percent of 20,000 consumers from nineteen countries surveyed have a negative impression of MIT products, and only 7.6 percent have a positive one. In another section of the report, Taiwan's product image ranks tenth among fourteen countries studied, lagging far behind even mainland China.
If those production industries that are still active in Taiwan continue to neglect design, they will eventually become sunset industries, like most shoe, garment, and furniture manufacturers. Such MIT products have lost their competitive edge, whereas in Italy--the seventh largest industrial nation in the world--they are major exports. Brand-name Italian products like Valentino, Giorgio Armani, and Nino Cerruti clothes, Cassina and B&B furniture, and shoes by Bruno Magli and Salvadore Ferragamo, have been leading the world in design for a long time. But as in Taiwan, most of the businesses responsible are small- and medium-sized enterprises, usually run by families. Taiwan and Italy share certain business philosophies, but the two countries have expressed them differently.
The key issue is that Italy boasts not only its own very special concept of design, but also innumerable brand names. Taiwan has all too few.
No design, no profit; that is a fact of life. Wang Cheng-ming (王正明), vice general manager of computer-manufacturer UMAX, cites his own company as an example. About 80 percent of UMAX products are designed in-house and carry the company's own brand name. "Currently our company's profit margin with ODM [original design manufacturer] products has increased to 10 percent, which is considerably higher than the industry average," he says. "About 3 to 4 percent of that profit comes from production techniques, and the remaining 6 to 7 percent is mainly achieved through research, development, and design."
Kuan Cheng-neng (官政能), chairman of the Department of Industrial Design at Shih Chien College, believes that Taiwan excels in the realms of technical skills, productivity, and equipment, but is slow to grasp changes in consumer tastes, social values, and market trends, and lacks the ability to combine all of these into original designs with distinctive characteristics.
But while most Taiwan industries were still taking great pride in their low production costs, others were already reaching out to meet the challenges of more complex design and brand-name enhancement. The success stories of Grand Crystal Co., Sanyang Industrial Co., and UMAX computers have all proved to the world how good at design Taiwan can be. The road these companies have chosen to take is long and difficult, but it will provide an enduring competitive edge that will not easily be blunted by rising labor and land costs.
Take glass production, for instance. "Now there are only a few glass factories left in Hsinchu," says Heinrich Wang (王俠軍), founder of Grand Crystal Co., which produces Taiwan's finest decorative glass. According to Wang, thousands of workers in hundreds of glass factories in Hsinchu once worked day in and day out just to produce, package, and export glass products to deadlines set by overseas clients. About 60 percent of the products they manufactured were glass animal figurines, all made without any original creative input. It was a case of easy pickings. "All you had to do was hire a couple of assistants, build a furnace, and there you had a business," Wang says. But factories like those failed to establish a solid manufacturing base for Taiwan.
Wang believes that success in glassmaking comes from education and persistence. They, together with sophisticated techniques and original designs, have enabled him to create his own world of glass, which has become the envy of other famed glass factories outside Taiwan. Over the past ten years, he has not only introduced new production techniques, he has also sent more than twenty of his craftsmen to learn what is happening in major glass production countries like the United States, France, Italy, Holland, and the Czech Republic.
At the same time, Wang's company has been keeping close contact with other renowned glass studios around the world to exchange ideas. "Taiwan's productivity is high, but that alone cannot produce works of high quality," he says. "All artistic creativity and life are interrelated. To cultivate awareness of the beauty and value of glass in Taiwan, we need to start with education."
Taiwan's motorcycle industry was once dominated by the Japanese. Sanyang, Kuang Yang, and Yamaha, the island's three major manufacturers, had to rely on Japan for specialized techniques for many years, doing little more than original equipment manufacture (OEM). "It's difficult to learn from the Japanese, because they're so reluctant to pass on techniques," says Huang Kuang-wu (黃光武), Sanyang's vice general manager. In an attempt to overcome this problem, Sanyang staff went to Europe to study. Once back in Taiwan, they set to work in conjunction with local technological institutes. "To study Japanese techniques, we stripped the machines down to the last bolt and then reassembled them piece by piece," Huang says.
Sanyang now is fully aware of the importance of research and development. Each year it spends NT$600 million (US$21.8 million) on R&D, which absorbs about 2.6 percent of the company's annual revenues. But it also retains the Nova Design company, at an annual cost of NT$6 million (US$218,200), to design a product identity for its motorcycles. Sanyang now controls 99 percent of the production process, putting its own SYM brand name on export machines. In the eleven months to November 1995, Sanyang's sales surpassed those of Yamaha, giving it 33 percent of the local market and thereby making SYM the top brand name in Taiwan. Sanyang motorcycles are now even sold in mainland China.
Other growth areas are the information industry and domestic electrical products. In one recent exhibition intended to boost high- quality MIT products, more than half of the items on display fell into one or other of those two categories. The establishment of the I+U Strategic Design & Development Network by Daniel Koo (顧明德) has played a key role in changing attitudes to project design in Taiwan's information industry.
Koo points out that many founders of computer companies have gained work experience in multinational companies, so they are aware of the value of product design. They realize that the issue has to be addressed before a product is actually developed. "The real markets for Taiwan's computer products are outside of Taiwan," Koo says. "Taiwan does have price and quality advantages, but if it's to compete internationally it also needs to catch up with its design capability." I+U's clients now include the Acer Group, Microtech International Inc., and Kimpo Electronic Inc.
But outside this select handful of industries, which do give serious priority to product design, Taiwan still has a long way to go if it wants to shift the emphasis from OEM-oriented industries to ODM manufacturing. What exactly is product design? How to apply it? And what is holding things up?
"Design isn't just about creating nice-looking things," says Ho Yung-hua (何永華), former head of Acer's industrial design department. "It's the result of combining art, engineering, and originality with mass production." Ho sees a big difference between pure artistic creation and mass-produced goods in need of industrial design, in other words.
Yeh Ming-feng, deputy manager of Sanyang's industrial management division, points out that in the motorcycle business, where the technology is becoming daily more sophisticated, design is an evermore crucial factor in the success of a product. For today's youth, a motorcycle is much more than a necessity, a simple transportation tool; it reflects a trend. Take Sanyang's Jet50, selected by CETRA as one of the best industrial products of 1996. The design incorporates a racing car's back rest, bat-shaped tail wings, and post- modern tail lights--a model specifically fashioned to appeal to the fashionable young market.
For Taiwan to break through its industrial-design bottleneck, mindsets will have to change. Wang Cheih-chiu (王介丘), manager of Acer's industrial design department, thinks he knows what the problem is. "Decision-makers lack confidence in their own companies' design skills and cannot make up their minds how far they want to use original design concepts," he says. "So they end up just telling their people to copy the Japanese model."
Chen Wen-lung (陳文龍), general manager of Hao-han Design, thinks the problem with Taiwan's industrial design shows up in the apparent lack of a comprehensive grasp of sales, marketing, and access. Either enterprises do not feel comfortable with their own designs, or the people at the top rely too heavily on design. In the latter case the result is that they often blame poor design when products fail to do well in the market.
Does Taiwan have any real talent for industrial design? During the OEM heyday, the island's factories used to churn out whatever they were told to make. When finally they came around to the idea of developing own-brand names, they were brought up short by a chronic shortage of design talent. Not only that--most people think Taiwan's designers lack originality. One of the reasons is that design courses are frequently to be found only in technical colleges, whereas other countries train their designers in arts and humanities schools. "Taiwan's industrial designers are good at solving production and engineering problems," says Kuan Cheng-neng, who teaches industrial design at Shih Chien. "They just don't have sufficient artistic originality."
Good design has its roots in art, culture, the local lifestyle, and a determination to pursue better taste. "Design is indispensable to our generation," says Ho Yung-hua, an industrial designer. "For those who were raised without TV, the priority was just to feed themselves. We can only look to the generations that grew up after Taiwan became affluent to improve design capability, because they are the people who understand quality of life and good taste."
To upgrade Taiwan's economic status, the island needs to move away from OEM-oriented industries and start manufacturing products that carry domestically created brand names and original designs. It will be difficult, but it must be done if Taiwan's competitive edge is to be rendered less vulnerable to countries where production costs are still low.
-------------------------------------------------------------------------------
Adapted from Common Wealth Monthly, January 1997, pp.130-136