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Taiwan's New Economy is Sink or Swim

Taiwan's New Economy is Sink or Swim
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For some people the merger between Asus and Gigabyte came as a shock. The two companies have never been close to each other ; in fact, they have been archrivals. Although Asus is considered the number one hardware company, it feels the pressure from Foxconn or ECS, and it has to keep moving. Many others are in danger of being crushed under this competitive pressure. In a market that is mature and largely saturated, the only growth option is to form strategic alliances - or take over your competition.

The Taiwanese companies have been trying to establish their brand names in worldwide markets for several years now. But most of them failed at this task for various reasons, and there are only very few candidates that really have the potential to reach the spheres of a Sony or Samsung. You certainly know about ECS motherboards or Gigabyte graphics cards, but the majority of people wouldn’t know that Asus builds cell phones or that MSI tries to sell MP3 players among motherboards.

Although phones and consumer devices are add-ons to the traditional PC business, the Taiwanese hardware makers face a brand dilemma for their core businesses. The 1st tier players usually have a large OEM business, which means that they manufacture building blocks or PC systems for global players such as HP, Dell, Gateway or others. These customers do not want the PC makers to become their competition, so they cannot go after their own branded business if they want to keep getting large orders. The fact that PCs and the consumer electronics market are melting together makes this situation even worse.

But it’s the large orders that keep the PC makers going. They need the business to purchase components in high quantities and at the lowest cost possible to stay competitive in OEM and retail - economy of scale at its best. In fact, the component market has become so competitive that only the top tier companies can afford to manufacture hardware themselves. Only very few players outside of the top 5 (Asus, Foxconn, ECS, Gigabyte, MSI) still manufacture their own motherboards or graphics cards, and eventually everyone else will shut down the production business, with very few exceptions.

With brand-building being close to impossible, what could be the exit strategy for successful hardware makers ? We only see one feasible way : Giants like Asus, Foxconn or ECS have to become powerful enough to take over a brand that already has worldwide recognition. Buy a PC brand when it’s not doing well and you will be able to charge the premium on products that the former brand owner made money with. But in order to get there, the component business has to excel in quality and production capacities, so you can do business with the best of the best.

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