cwlogo

切換側邊選單 切換搜尋選單

Taiwan's Top 500 Service Companies

Shifting Markets, Going Global

精華簡文

In 2006, Taiwan’s service sector suffered negative revenue growth for the first time in five years. Yet a market shift has begun to favor those enterprises with global reach.

Views

99+

Shifting Markets, Going Global

By Hsiao-Wen Wang
From CommonWealth Magazine (vol. 371 )

In 2006, Taiwan’s service sector began to make a major shift to new markets with greater growth potential. In droves, the nation’s service companies hit distant beachheads in search of markets in new parts of the world.

A look at the overall performance of CommonWealth Magazine’s top 500 service companies in 2006 reveals their combined revenues took a slight dip of NT$65.5 billion from 2005 to NT$5.6978 trillion last year.

The twin forces of a consumer debt crisis, caused by over-issuing of credit and cash cards, and weak domestic demand left an indelible impression of decline on the nation’s service enterprises. The year 2006 was the first in five years the sector had suffered a drop in overall revenues. In the end, a total of 203 enterprises experienced decreases in revenue, the second highest number since a record-high 232 companies suffered losses due to the economic impact of the devastating Jiji earthquake of September 21, 1999.

Profit growth for service companies has stalled, with the sector’s average profit margin remaining at 2005’s level of 4.1 percent.

With revenues in rapid decline and profits stagnant, which companies will be able to turn the tide and take control of the situation?

A closer look at the nation’s 24 service sector industries and top 500 service enterprises reveals clearly that a major shift to new markets with greater growth potential is taking place on both a visible, geographical level and an invisible, psychological one.

The Visible Shift: From Taiwan to the World

An analysis of the service sector’s predicament from the perspective of this visible, geographical shift shows that those industries that make the whole world their markets are he ones experiencing growth. By comparison, those industries focused on the domestic market can only retreat in dejection to the corners of the stage.

The information technology services and marine shipping industries – service industries that are sufficiently large, export-oriented, and positioned around the globe – are performing exceptionally well. On one front, average revenues for enterprises that provide sales and services for information technology equipment grew 13 percent in 2006, while those for distributors of information technology, telecommunications, and integrated circuit products edged up 4.8 percent. These industries have managed to free themselves from the shackles of Taiwan’s economic anemia. The marine shipping industry as well is savoring the sweet taste of expanding revenues, thanks to a major rise in demand for raw materials in China. Achieving average net profits of NT$1.35 billion in 2006, this industry is ranked third among the most profitable industries in Taiwan.

Turning to those service industries that are holding down the fort within Taiwan’s borders, the advertising, auto sales, and consumer goods sectors – long the three main forces driving the nation’s domestic demand – are in fact now the service sector’s leading losers. Average revenues for these three industries plunged 76.4%, 27%, and 22%, respectively, in 2006.

The auto sales and maintenance sector experienced the greatest total revenue losses in the service industry in 2006. Encumbered by the credit and cash card debt crisis and shrinking consumer spending, auto companies watched as NT$121.5 billion vaporized from the industry’s total sales and service income compared to 2005.

The evolution of Taiwan’s service sector can be observed from the changes taking place among the ten leading service industries.

“Industries reliant on domestic demand have abdicated their market leadership, while global markets have sprung to the forefront,” says Victor Tsan, general director of the Institute for Information Industry’s Market Intelligence Center. Tsan points out that, when fully state-run enterprises are excluded, only China Airlines and Evergreen Marine Corp. have ranked consistently among the ten leading service enterprises in Taiwan over the last decade. He says this trend is the necessary consequence of globalization.

The ten top service companies in Taiwan in 2006 were Taiwan Power Co., Acer Inc., Samsung Electronics Taiwan, Taiwan Toshiba International Procurement Corp., Chunghwa Telecom Co., Evergreen Marine Corp., Synnex Technology International Corp., President Chain Store Corp., China Airlines, and WPG Holdings Ltd. Chunghwa Telecom’s slip down two rungs to fifth place stands out as the largest change among the top ten.

Though domestic demand is on the decline in Taiwan, global markets are currently on the rise.

Acer, which celebrated its 30th anniversary and racked up revenues of NT$369 billion in 2006, is without a doubt the Taiwanese service company most successful at pursuing globalization.

As Dell Computer’s direct sales model broke down around the world, Acer aggressively pursued a local dealer system, expanding throughout Europe and reaping rewards in the United States in the process. Acer’s after-tax net profits reached NT$10.22 billion in 2006, growing 20.5 percent compared to 2005 and topping NT$10 billion for the first time. When IT market research firm Gartner released its survey for the first quarter of this year, Acer’s 6.8 percent global market share placed it ahead of Lenovo Group, which took 6.3 percent of the world market. This marked the early fulfillment of Acer chairman J.T. Wang’s promise to make Acer the third largest global computer brand.

The Invisible Shift: Polarizing Markets

From the angle of the invisible, psychological shift in markets, the middle class, which once fattened the center of the class pyramid, is eroding rapidly and it is increasingly apparent that the lower and upper ends of the market are diverging in separate currents. Growth potential will come from enterprises that cultivate the polarized ends of this “M-shaped market.”

The construction industry, the only domestic-demand industry to enjoy significant growth, has evidently gained a bit of an understanding of consumption at the ends of the M-shaped market.

In 2006, the greater Taipei area witnessed this phenomenon of a two-ended market as luxury and studio apartments emerged as the main growth drivers in the construction sector. Hung Sheng Construction Co., relying solely on income from its luxury apartment project Treasure Palace, saw its revenues skyrocket 244.8 percent last year. This astonishing growth placed the firm sixth on the list of the fifty fastest-growing service-sector enterprises. Similarly, luxury and studio apartment projects in Taipei and Taichung allowed Highwealth Construction Corp., Shining Building Business Co., and Huang Hsiang Construction Co. to achieve their own impressive revenue growth of 138%, 99.9%, and 91.8%, respectively, and assume their spots among the service industry’s fifty growth leaders for 2006.

The most exceptional growth in the tourism and restaurant sector came from Comestibles Master Co.’s careful cultivation of the low-end market with its Cafe 85 Degrees Celsius.

This chain cafe, having positioned itself as a fine cakes shop offering budget-priced coffee, posted total revenues of NT$1.9 billion in 2006. Catching everyone by surprise with its incredible annual revenue growth of 298.3 percent, it outdid the established leaders of the tourism and restaurant sector and relished the glory of claiming the fourth highest position among the 500 fastest growing service enterprises.

While most companies are capable of focusing only on one section of the market, those enterprises with sufficient brains and budgets are doing their best to grab customers from both ends of the M-shaped market.

Taiwan’s premier hotelier, Formosa International Hotels Corp., stands out as the best example of such an approach. Whereas, on the upper end of the market, the company has bolstered its high-class status as a five-star hotel by completing a major renovation of Grand Formosa Taroko in Hualian County and enhancing services at Grand Formosa Regent Taipei, it has, conversely, on the lower end, acquired the island’s Domino’s Pizza franchise in order to grab a share of the popular chain restaurant market. Commenting on this polarized development strategy, with its radically divergent market positions, Formosa International Hotels chairman Steven Pan explains, “If you want, go for the top end, or, if you want, go for the popular market, but the middle is being reduced and there is no profit to be had there.”

Even in the flagging advertising and retail sectors, there is still some good news amidst the bad news.

Although at present Internet advertising and e-commerce account for only 5 percent and 2 percent of the overall advertising and retail markets respectively, the growth outlook for the Internet economy could be described as a hot geyser shooting forth from ice.

From Real World to Virtual

Taiwan’s advertising industry is certainly suffering these days. Yet Internet advertising, which grew 21.8 percent in Taiwan in 2006, is outshining all other areas of this sector. Moreover, following Google’s entrance into the Taiwanese market this year, the Internet advertising market is projected to expand by 30.6 percent to NT$4.896 billion.

A survey conducted earlier this year by Taiwan’s largest portal website, Yahoo! Taiwan, reveals that 75.62 percent of Taiwanese enterprises have decided to invest some of their marketing budgets in Internet-based initiatives. The advertising pie is not getting bigger, but, with over 70 percent of enterprises planning to reallocate portions of their marketing budgets from traditional media to the Internet, priorities are shifting.

The sudden rise of virtual distribution is also being witnessed in the consumer goods sector, which ranks third for declining average revenues.

As consumer goods revenues plummet and mega retailers engage in cut-throat competition, Internet-based business, with its ability to transcend the limits of time and space, is rich in growth potential. As cases in point, the e-commerce companies Pay East Digital Integration Co. and Monday Technology Co. attained annual revenue growth of 107.2 percent and 82.5 percent, respectively, in 2006. This pair of dark horses thus managed to gallop into their places among Taiwan’s top-twenty expanding service enterprises.

The growth of Monday Technology stands as the most fitting footnote to the development of long-tail niche markets via the Internet in Taiwan. Though this Internet company employs a staff of under 300 and occupies a headquarters of less than 3,600 square feet, it still succeeded in accumulating 2,500 clients and 270,000 products over the short course of just three years. This little giant’s revenues reached NT$4.93 billion in 2006, an amount that exceeds the total sales volume of Taipei 101 in its first year of operation.

With visiblegeographical shifts and invisible psychological reorientations, as well as newly emerging Internet markets, the driving forces of growth are changing dramatically.

For a business to rise to prominence among the ranks of Taiwan’s 500 leading service enterprises in the future, establishing strongholds on the Internet and in global markets is clearly the path to greatness.

Translated by Stan Blewett


Chinese Version: 版圖轉移 搶灘全球市場

Keywords:

好友人數