Proton high-definition televisions are in the vanguard of Taiwan products successfully breaking into the connoisseur market. Like ProKennex tennis rackets, Travel Fox shoes, or the highbrow modernized Chinese furniture created by Darren Arts, Proton has found a niche creating premium products for discriminating buyers worldwide.
Hong Chien-chuan (洪建全) launched the family into audio-visual fame more than thirty years ago. His company’s high-quality electronic goods and home appliances attracted Japanese interest, resulting in a joint venture with Japan’s Matsushita Corp. In 1962, Taiwan Matsushita Electric began producing televisions, refrigerators, washing machines, and other household goods under Panasonic and other Japanese name brands. Reflecting the trend toward original equipment manufacture (OEM) in Taiwan at the time, the factory produced to strict design specifications set overseas.
In 1974, Hong Chien-chuan’s eldest son, Richard, decided he wanted to put new ideas into action faster than the joint venture could accommodate. So, the Hong family formed a second independent company, Proton Electronic Industrial Co. Managers of the two companies now focus on different product lines and use different marketing channels.
Backed by years of industry contacts and OEM experience, Proton quickly began OEM production, mainly in audio components. Profits were invested into developing Proton’s own brand line. The balance has shifted toward company products. High-definition television is its big-ticket item, although Proton also produces stereo products, home appliances, and computer peripherals.
Proton’s annual sales now top US$130 million. Much of the production is sold locally, although U.S. buyers purchase US$30 million worth of products each year. Proton is focusing on developing the U.S. market further, as well as expanding its new presence in Europe.
What launched an unknown Taiwan made television into thousands of the plusher living rooms of North America and Europe? Chief executive officer Frankie Hong (洪敏昌), who took over from his elder brother in 1986, says it started a decade ago when Proton introduced its first high-resolution TV. The new television featured a screen that displayed 450 pixels, or electronic dots, per screen line, while most competitors still displayed 300 dots per line. As with the difference between a laser and a dot matrix printer, the new screen created sharper, clearer images.
In-house research also led Proton to refine the outer appearance of its sets. “We believe people want to see nothing but the picture,” Hong says. So the company developed a sleek, black cabinet that hides the buttons and dials. The effect, Hong says, made the TV tasteful and “humanized,” at a time when most television sets were ugly intruders in a living room. “We set out to be upmarket,” he says. “Without creating a niche, we could not compete with the Japanese.”
In recent years, the company has focused more on marketing, through a combination of consumer research, good press contacts, and well-targeted advertising. Proton invests about US$2 million each year in advertising through U.S.-based electronics trade media and magazines that target the affluent. Hong says it isn’t necessary to advertise more than minimally in Taiwan or Europe, his other key markets. The entire international electronics industry, he says, is influenced by the U.S. electronics media. “We are fortunate in getting good reviews from most of the home audio and video specialty magazines,” he says.
But the company has discovered that niche products do not market well in mass market chain stores. After a failed six-month trial, Proton now depends exclusively on specialty electronics shops where the staff are able to invest the time needed to justify the premium price; Proton televisions retail for US$900 to US$1,900. Dealers also need special incentives to go the extra mile in promoting Proton products.
Four years ago, in a move to strengthen production and distribution ties, Taiwan-based staff and dealers were allowed to buy into the company, reducing Hong family ownership to 72 percent. “We hope it will be a good incentive for quality and for keeping staff and dealers,” Frankie Hong explains. Before the company goes public in another three years, he plans to offer an investment opportunity to all the company’s contributors, including the foreign marketing network. “I don’t want this to be a company run just by me in the future,” he says.
The future area of focus for the company is high-definition television (HDTV), which combines new technology in transmission and image display to create far better screen resolution. Proton is now poised to compete for market leadership in this new field as soon as the U.S. Federal Communications Commission (FCC) selects its HDTV digital television format. The U.S. government’s insistence that HDTV be compatible with conventional televisions puts Japan’s incompatible MUSE system out of the running. “Shortly after the FCC decision, we expect Taiwan to decide,” Hong says. “We think the format will be very close [to the U.S. format]. As soon as the decisions are made, we’ll complete our receivers. We will be 90 percent ready to market HDTV products when the decision is made.”
In the interim, Proton is marketing improved-definition televisions and extended definition televisions scheduled for retail sale later this year. Both JDTV and EDTV are transitional products that give impatient viewers the best available in video quality until the HDTV products hit the market.
Competing for the HDTV market share is a gamble for a 700-employee, Taiwan based company. Despite the market in roads Proton has made, profit from product sales alone cannot fund the R&D needed to compete against the U.S. and Japanese television giants. In a strategic move in 1991, Proton decided it needed to divert some energy away from manufacturing its own brands and to start emphasizing OEM production again. Production for outside manufacturers has now grown to 20 to 30 percent of company revenues, and the goal is to extend this to 50 percent. Says Frankie Hong, “OEM can help us share overhead, which will help us expand. It also puts us in close contact with other manufacturers, so there is the possibility of sharing R&D.” Although he has some concerns about sharing his technology, Hong recognizes that it is difficult to protect technology in this industry. “If you have good ideas, good technology, it is best to share,” he says. “When competitors start chasing you, it makes you run faster.”