"Russia is a big country with a large population, but not many computers. It's a market with great potential," says Paul Liu (劉山根), chairman of Aquarius Systems Inc., a Taiwan computer manufacturer. Aquarius has the distinction of being the only Taiwan company so far to have formed joint ventures with companies in both eastern Germany and Russia.
Liu ran a travel agency for years before he entered the computer business. In 1983, at the age of thirty-five, he and his brother, who is now the general manager of Aquarius-Robotron Systems GmbH in eastern Germany, started a small trading company with US$80,000 in capital investment. They exported mostly microcomputers and peripherals. But Liu was constantly beset with problems: either his suppliers failed to deliver on time or his buyers bypassed him and went directly to the manufacturers. "Since assembly work is not really difficult, we decided to do it ourselves," Liu recalls.
In 1984, Aquarius opened its first factory in Taipei, transforming the trading company into a manufacturer. The company started with five employees and had modest first-year earnings. Five years later, the company's third and largest plant opened in Taoyuan county. The factory is capable of producing up to 20,000 microcomputers and 40,000 add on cards per month. This year, local revenues will likely reach US$100 million and international revenues will be around US$400 million. Today, Aquarius has 220 local employees and another 550 overseas. More than 93 percent of its production is exported, with 60 percent of all shipments going to Western Europe, 15 percent to Eastern Europe, 18 percent to Australia and other overseas markets, and the remaining 7 percent to local buyers. "We will remain an export-oriented manufacturer," Liu says.
From the beginning, Aquarius decided to avoid the crowded U.S. market. Instead, they targeted Western Europe, because the pattern of consumption among European buyers—small-quantity orders for high-quality products— offered high profit margins. In 1983, the company went to West Germany in search of buyers. Today, in Germany alone, Aquarius has more than 150 distributors and an annual turnover exceeding DM$400 million (US$266 million), a record for brand-name computer products from Taiwan.
In 1984, Liu formed a business association with Janos Bocsanczy to market computers in Eastern Europe. Through Bocsanczy, Liu learned that there was a great demand for computers in Hungary. Aquarius began exporting computer products, but soon found the market filled with competitors from Taiwan. So Liu began looking elsewhere for markets. When other Eastern European nations began opening up in 1989, Aquarius was quick to step in.
In October 1989, Aquarius formed a joint venture, Aquarius Systems International GmbH (ASI-G) in Bad Homburg. The company was established in western Germany to forestall possible import restrictions from the future single European market. The company is responsible for marketing, reinvestment, and after-sales service. Liu put up 25 percent of the capital while Winifried Hoffmann and Rolf Wiehe, two high-flying executives from Commodore, the largest selling computer company in Germany, put up 34 percent and 14 percent respectively. Bocsanczy and another Hungarian partner each contributed 13.5 percent.
The announcement of the company's founding was somewhat of a media event in Germany, especially given the reputations of Hoffmann and Wiehe. Hoffmann had been in charge of Commodore's Central European market, which accounts for 70 percent of the company's sales. He decided to join ASI-G because he wanted a freer hand in management. Extensive media coverage of the event gave Aquarius a great deal of publicity on the German market.
Hoffmann and Wiehe were instrumental in paving the way for Aquarius's entry into eastern Germany. At the Cebit computer show in Hannover in March 1990, ASI-G and Robotron signed a letter of intent, and negotiations were concluded in June. The two firms signed a joint venture agreement forming Aquarius-Robotron Systems GmbH, in Soemmerda, Thuringen, to assemble PCs from components supplied by Aquarius. Robotron was one of the largest industrial conglomerates in eastern Germany and the largest producer of PCs, printers, and household electrical appliances. The conglomerate consisted of twenty-three companies employing 72,000 workers.
After the computers are assembled by Aquarius-Robotron, they are marketed by company representatives in western Germany. Because the factory is set up in one of Germany's new federal states, it is eligible for preferential tax incentives from the German government which saves the company 16 percent on production costs. The joint venture company is now the biggest contributor to the growth in Aquarius' sales.
Aquarius-Robotron had only twenty employees when it opened in 1990. Currently, a new 16,200-square-meter factory is under construction. The German government helped Aquarius-Robotron acquire the necessary land and has also transferred unemployment relief funds to the company to help construct the new factory and upgrade equipment. The new facility will provide five hundred jobs. According to Liu, the German government welcomes such investment in the eastern part of the country. The major buyers of the products are schools and state-owned organizations. "We tell them that we are selling computers made in Germany and that by buying them, they will help the country's economy. That works," Liu says.
But few Taiwan businesses have been successful in eastern Germany. "It's a long process," Liu says. "You must have a strong team that is knowledgeable about the situation and able to negotiate forcefully. Many Taiwan business people just lack the energy."
Liu is equally enthusiastic about the Russian market. The company's entry into Russia was facilitated by his long-time associate Janos Bocsanczy, who is fluent in Russian and familiar with both the free-market system and the Soviet central-planning system. Liu and Bocsanczy gained a foothold in Russia when they met Tamilon Gasanov, the owner of a Russian trading company. In September 1990, the three agreed to open Aquarius Systems Integral, a franchise computer manufacturing company, in Shuja, 230 miles north of Moscow. The 12,960-square-meter plant can produce 10,000 PCs per month. The company's principle clients are government agencies and state-owned enterprises.
In the venture, ASI-G imports components from Taipei for the Russian plant to assemble. The Taipei company has no capital invested in the project but is responsible for providing the brand name, management skills, personnel training, and technological assistance on the production line. ASI-G is responsible for issuing letters of credit and handles barter trade with Russia. The Russians supply land and labor. Thus, Liu's personal liability is reduced. And he does not have to get involved in the barter trade.
Although the risks involved in barter trade are worrisome, Liu still thinks it is the best way for Taiwan companies to do business with Russia and the other Commonwealth members. But he prefers to go through a third country rather than trade directly. This way, he can maximize profits with the lowest risk. "Germany is the best choice because it is the largest trading partner of the CIS," Liu says. "And Germany has a lot of experience in barter trade with the Commonwealth. Although going through a third country cuts into profits, the third country is responsible for the financial and exchange-rate risks. It is still the best way." The venture has not been without problems. Last year, due to a serious shortage of hard currency, the factory reduced production volume. But Liu remains confident. "I still think this market has great potential," he says. ▪