Taiwan's BenQ hopes better designs & marketing will advance its global image

But Siemens merger has led to losses and layoffs

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TAIPEI -- When Taiwanese electronics maker BenQ took over the mobile-phone business of Germany's Siemens AG last year, the Asian firm saw it as a coming-out party, a chance to introduce its name to the world.

The merger made BenQ the sixth-largest handset maker in the world and the largest in Greater China, giving the company a shot at becoming a Taiwanese version of Japan's Sony Corp. or South Korea's Samsung Group. But realizing that goal means beefing up its design capabilities to make more creative hand phones, laptops and LCD monitors, and making its brand recognizable to consumers globally.

The firm has already enjoyed some success. Since it was spun off from Taiwanese computer maker Acer Corp. in 2001, it has picked up more than 130 design awards, including a prestigious 2006 iF International Forum Design Gold Award, and its product design team was featured on the cover of BusinessWeek's issue last year spotlighting Taiwan.

Sharper design
Eye-catching, playful new products include a stylish monitor that folds up like a purse with handles, which was featured on the catwalk in a show on fashion and technology by fashion designer Roberto Cavalli. Another monitor features USB and other connections on cables that swoop around to the front to be easily accessible, like futuristic, e-enabled tentacles. Earlier this week, it rolled out a 37" high-definition LCD TV that automatically adjusts the backlight and lets viewers swivel the set up and down as well as side to side.

Last month, it introduced two mobile-phone models stocked with extras such as 1.3 megapixel cameras that phones will be marketed globally with creative from Leo Burnett, Taipei later this year. The BenQ-Siemens M81 is a sporty, waterproof model made with a mix of high-quality synthetics and rubber, designed to appeal to urban, street-savvy teens, while the Q-fi EF51 is for heavy music users on the move. More MP3 player than mobile communication device, music files can be transferred to the EF51 from a PC or recorded from a built-in FM radio.

Besides above-the-line advertising, BenQ took over Siemens’ sponsorship of the Spanish soccer club Real Madrid, which expired last year. BenQ will sponsor the world’s richest team with star players such as David Beckham, Ronaldo and Zinedine Zidane through 2010 in a deal believed to be worth over $100 million. The team will wear the BenQ-Siemens brand on its jerseys and its logo will be displayed at its Santiago Bernabeu stadium.

Such measures have expanded the company’s global brand image, but it remains better known in corporate circles than among consumers -- at least outside of its Asian base, which is where the acquisition of Siemens's troubled handset business fits in.

BenQ can use the better-known Siemens name to co-brand its phones for five years. Without the German company's history, BenQ calculated it would have taken 10 years for it to develop a worldwide brand name on its own, said Taipei-based Peter Lin, senior manager of the firm's Lifestyle Design Center, a 4-year-old division with 120 designers in Taipei, Munich and cities in mainland China.

“By working with Siemens, we will get there in a much shorter time,” he said. “It's a good opportunity to become an internationally well-known brand. It works. A lot of countries that never heard of BenQ before are familiar with the BenQ brand.”

5% sales drop
Financially speaking, the merger has proven tricky and operational problems have already taken a toll. Earlier this month, BenQ announced that it missed its second quarter sales targets following delays getting the new handsets on store shelves. In the three months leading up to June 30, sales fell 5% from the previous quarter, compared to a forecast three months ago of a 10% rise. Its weak performance has prompted the company to cut nearly 10% of the work force at its handset subsidiary in Germany.

Analysts note other challenges, such as whether the company has the heft to compete with giants like Nokia and Motorola in the tough world of phone manufacturing: “We rate BenQ 'high risk' in view of the extensive losses from the Siemens mergers and integration risks,'' according to CitiGroup analyst Kent Chan in Hong Kong in a report published last May.

Although its performance has improved recently and it could do better if it sells more of its own-brand phones and controls expenses, he also noted that its evolving business model has potential conflicts between its BenQ-branded business, which it wants to grow to 50% of sales from 37% in 2004, and the work it does making products for others.

Gaining visibility with new products
BenQ made a calculated choice to try to make a breakout in the mobile phone market, because unlike its other products, which tend to be used in homes, offices and other private spaces, a mobile phone is used everywhere and is much more visible, said J.C. Pan, a manager in the Lifestyle Design Center. “It's the best carrier for a brand,” he said. “If you have a good cellphone on the market, people see it.”

“Because they are so new, it is really surprising the awareness they have in the market,” said Ralph Wiegmann, managing director of iF International Forum Design, a Hannover, Germany-based consultancy. He is “surprised by how fast they are moving.”

Besides the new MP3-enhanced phones, for example, it has developed monitors with light sensors and built in timers to turn off automatically, so that kids don't hurt their eyes or use their computers more than their parents want them to. It has also come out with document scanners that look like books, playing with the concept of transforming knowledge, and used metal-etching technology to put Chinese calligraphy on one of its higher-end laptops, to give it the appearance of a Chinese book with free flowing characters.

Mr. Lin compared the company's place to that of Taiwanese filmmaker Ang Lee, who won an Oscar this year for directing the cowboy love story ”Brokeback Mountain.”

Like Mr. Lee, he said, the company has its roots in Asia, but it wants to produce things that appeal around the world. With Siemens, it's hoping to meld East and West, to combine the German reputation for quality and functionality with its own attempts at humanizing technology.

But it remains questionable whether BenQ’s aggressive global ambitions will end any happier than Mr. Lee’s poignant film.

Contributing: Normandy Madden in Hong Kong

Q&A with Jeremy Shen, leader of Taiwan's efforts to help its companies build global brands

TAIPEI--BenQ is not the only Taiwanese company striving for worldwide brand recognition. For a decade, other Taiwanese manufacturers like Acer Group computer company and the Giant bicycle company have struggled with the need to move up the manufacturing value chain by improving research and development and establishing recognizable brands. Still, no Taiwanese brands are listed on global branding consultancy Interbrand's list of the world's Top 100 brands.

In early 2006, the country's Ministry of Economic Affairs began coordinating a program to raise brand awareness nationwide and assist companies in branding strategy and promotion. The goal of the program is to have two native Taiwan brands in Interbrand's Top 100 list by 2011, and have five brands with a value of at least $1 billion. Taiwan's most recognizable brand, Acer, has a brand value of about $800 million, according to Interbrand.

Katherine Sima, a correspondent for Plastics News, published Crain Communications like AdAgeChina, recently spoke with Jeremy Shen, director of trade development for the Bureau of Foreign Trade under the Ministry of Economic Affairs, about its branding program.

Plastics News: Why did the government start this branding initiative?

Jeremy Shen: Manufacturing moved to other countries, especially mainland China. In the past we made a lot of effort in R&D, and now we found that R&D is not enough, so now we are making efforts on branding channels, or helping our businessmen if they want to put efforts [on branding].

PN: What can the government do for small and medium enterprises?

Mr. Shen: That's the purpose for setting up a venture capital fund. Funds composed of government and private-sector money. We hope the private sector will take [a bigger] part. Right now, the fund includes 51% private funds and 49% government funds, and has $62.4 million. Acer Group's Stanley Shih took part in organizing the private-sector part. He retired from Acer and started an asset management company. He put in $6.2 million, about 10% of the total, of his own money.

PN: What's the health of the manufacturing industry like now?

Mr. Shen: Judging from trade volumes these days, we are not booming compared to our past record. We are still growing. In 2005, our trade volume equaled 8.5% of our gross national product, but in 2004 it was over 21%, so not as high as we expected, but on the world average it's high. We are a very trade- dependent economy, so it's difficult for us if we grow less than world trade.

PN: What are the best industries for Taiwan to develop brands in?

Mr. Shen: It has to be something that is unique to the country. Tea and orchids came up as possibilities. We have some candidate industries, but not one particular industry we are pushing. We want the market or company to decide.

PN: Do companies see the benefit of brand awareness?

Mr. Shen: A lot of companies develop their brand through technology, so they do more promotion. Some companies have not recognized that their product should be branded to give it a higher value. We're trying to offer some incentives to business circles to recognize branding themselves as a way to move forward. It's a philosophy and an open debate.

This article was also published on www.plasticsnews.com/china.
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