A silent revolution is under way among Taiwan's small and medium enterprises, a corporate renewal movement that may determine success or failure in a rapidly changing global environment. Amid all-encompassing change, innovation is the key.

Yeh Yun-lung, director general of the Small and Medium Enterprise Administration under the Ministry of Economic Affairs, observes that Taiwan's SMEs are currently innovating on three fronts: business type, business model, and integration of brick-and-mortar operations with virtual business.

Yeh explains that business type innovation not only means the emergence of new industries such as the creative and the Internet industries, but also transitioning from contract manufacturing to an own-brand strategy. Business model innovation means conventional manufacturing businesses injecting a dose of service industry spirit or conventional industries striving to develop novel products.

In small towns throughout Taiwan, CommonWealth Magazine has discovered an astonishing capacity for innovation among the island's SMEs.

In Zhanghua County's Pitou Rural Township stands a 40-year-old industrial park, the second smallest in Taiwan. Yet despite its modest scale, it boasts incredible innovation density unrivaled by many other industrial parks that were built much later.

Pitou Industrial Park covers 18 hectares, an area smaller than the Da'an Forest Park in Taipei. A single 1.2 km road leads through the park, which is home to 27 companies. Along this road you can find the stories of hidden champions, small companies that thrive selling globally although – or probably because – they chose to defy the manufacturing exodus and have stayed in Taiwan.

Come with us on a tour of this surprising scene, where small companies are producing big innovations.

 

---

I Jang Industrial Co. Ltd.

Turning Storage Racks into Sophisticated Products

When entering the Pitou Industrial Park, the first company that catches one's eye is I Jang Industrial Co. Ltd., Taiwan's largest manufacturer of industrial metal display racks. Once a contract manufacturer of metal furniture for IKEA, I Jang now supplies household hardware to well-known global discount retailers such as Walmart, Costco and Target.

Compared to other plants in the park, I Jang's factory buildings look quite new. I Jang Group CEO Huang Shiu-ying recalls the times when many industry peers decided to relocate production to China, about a decade ago. Instead, I Jang decided to spend NT$700 million on factory expansion in Taiwan, building a five-story office building and a row of white corrugated iron factory halls with domed roofs.

The story of I Jang is typical for many SMEs in Taiwan built by a husband and wife team of self-made entrepreneurs. Huang and her husband Angus Chen founded the company 26 years ago on a 1,800 square meter plot in the Pitou Industrial Park. With Chen in charge of technology and product development and Huang working the sales and marketing fronts, the couple grew the company into Asia's fifth largest maker of metal merchandise racks and shelving. With three factories, the I Jang premises now cover an area of around 3.3 hectares, generating annual revenue of NT$1.1 billion.

The ability to innovate is what has allowed I Jang to prevail as a Taiwan-based manufacturer, despite cut-throat price competition from its Chinese competitors. And the heart and soul of this capacity for innovation is the 53-year-old Chen, whose business ideal is the traditional German company that has been in operation for generations and is known for its high quality craftsmanship and manufacturing. Chen's way of pursuing his entrepreneurial dream is to keep constantly innovating on the technology side.

But how can there be much to innovate in an ordinary metal merchandise rack? A tour of I Jang's vast exhibition floor will surely give you an Aha experience. A dizzying array of more than 1,000 products is on display in a space of some 3,300 square meters. There are elegantly designed wine racks and modern lacquered glass TV stands. It is hard to believe that stainless steel wire and steel pipes can be so versatile.

Huang becomes quite animated as she presents the fruits of her husband's painstaking efforts at innovation. She pauses in front of a merchandise rack that moves on linear guides just like sliding library shelves. She proudly notes that the invention has been granted a patent in the United States and enjoys protection for 20 years.

Good Inventions Gain Worldwide Fame

Chen came up with the idea for the sliding rack when investing NT$5 million in the construction of a half-automated warehouse for his own company. He suddenly thought by himself that storage racks that are light, cheap, and do not damage the floor would surely be a hit with enterprises and private households alike.

Chen spent three years developing and fine-tuning his invention before filing a patent application with the U.S. Patent and Trademark Office, and gained approval after a five-year review process. Ten years ago, Chen's patented "rack with linear guide" went into production. As soon as the rack hit the market, it sold so well in Taiwan and abroad that it became a cash cow for I Jang. Shin Kong Bank and the Taipei and Kaohsiung city governments are all loyal buyers of the rack.

Since I Jang kept moving up the value chain through technological progress, its products were so sought-after that the company could afford to pick its customers. As dependence on orders from a handful of large customers declined, I Jang launched its own brand "Ogee" in 2006.

Five years ago, the company reached a turning point when Chen and Huang decided to end their longstanding cooperation with Swedish furniture giant IKEA to go for higher-end products.

Huang reveals that IKEA orders at one time accounted for as much as 20 percent of I Jang revenue. Yet Huang felt that I Jang's business philosophy was not reconcilable with IKEA's. "I didn't have what they wanted (price), and they didn't want what I had (R&D)," explains Huang. So I Jang had no other choice but to resolutely forge ahead without IKEA.

"If you rely on slashing prices to grab business, you will never beat China," is the firm belief at I Jang. The company has never lost money in its 26-year history, thanks to its relentless innovation and good nose for business trends.

---

Jackson Cutting Board Co. Ltd.

The Unrivaled Cutting Board Champion

Also located in Pitou is Jackson Cutting Board Co. Ltd., another family enterprise that embraces innovation.

The 34-year-old company is a plastics processing company that exclusively makes cutting boards. Company founder Lin Rui-ching originally sold raw materials for plastics and only began to make downstream plastic products at a later stage.

The cement wall enclosing the factory premises has clearly seen better days as the red bricks are visible in many places where the cement coating has crumbled. The lettering with the English company name is so mottled that it is barely legible anymore.

The somewhat dilapidated exterior shows no clue that in fact Jackson Cutting Boards is a hidden champion, with annual revenue in the order of NT$300 million.

That's right: This family enterprise posts NT$300 million in revenue by making nothing but cutting boards. Shipping 800,000 cutting boards per month, Jackson is the largest manufacturer of cutting boards in Asia. The company manufactures for some 300 regular customers around the globe including many large retailers and hypermarts in Europe and the United States.

Trying to unveil the mystery behind Jackson's dominant market position, we step into the production department where plastic granules are turned into cutting boards in an injection molding process. Surprisingly, we are met by a two-meter-tall yellow robot, imported from Germany, which has replaced humans in the front-end process.

"I wanted to see what changes we could make," notes Jackson Lin, who is a son of the company founder and goes by the title of sales manager. When Jackson and his older brother Timothy Lin returned home after studying in Australia 12 years ago, the brothers took over the family business and gradually transformed it.

Crisis Spawns Innovation

Jackson Lin frankly admits that his enthusiasm for change and innovation was partly born from his own embarrassment over the company's products, because most people perceive cutting boards as being cheap. When introducing himself Jackson Lin would therefore not mention cutting boards, but say instead he makes "kitchenware."

Another driving force was the sense of crisis that plagued Lin from day one at the helm of the company.

Given that the technological threshold in the plastics processing industry is low, Lin thought that higher quality products were the way out. He took great pains to persuade his reluctant father to invest more than NT$1 million for the import of a robot.

The two brothers also constantly work on the design of their products. In a bid to appeal to a younger clientele, they designed brightly colored novelty cutting boards in different shapes such as apple, lemon, chicken and pig, adding a fun factor to these common kitchen utensils.

Lately, Lin has started developing plastic cooking utensils other than cutting boards. His newest invention is a stylish vegetable strainer. This new product has already been shipped in small quantities.

The 36-year-old Lin does not stop short at improving production processes and designing new products; he also keeps up with new trends and development by acquiring new knowledge. Currently, he is preparing for the expected boom in 3D printing by attending a weekly course in Zhanghua City to learn to work with 3D sketching software.

The example of Jackson shows that second-generation business leaders have a strong ambition to innovate. They show that innovation is possible also in remote rural areas and in conventional industries that produce mature, low-tech products.

Translated from the Chinese by Susanne Ganz

---

Atlantic Chef

Honing Young Chefs' Futures

When it comes to knives it seems the only name brands that readily come to mind come from either Germany or Japan, giving them premium brand status and allowing them to ask a higher price.

Here in Taiwan there is a brand of knives that over half the young chefs began their careers wielding.

Even as other manufacturers in the industry have packed up and left the island, this company has chosen to remain in Taiwan and redirect its energies towards the niche of professional chefs' knives, putting its mettle to the test against the venerable German brand Zwilling. In the common space outside the company's facility in Taiping, Taichung, high carbon stainless steel – the same material Zwilling uses in their knives – is stacked high.

Inside, a Kuka mechanical arm imported from Germany expertly forges and grinds, while workers wearing protective ear guards and goggles absorb themselves in the task of polishing.

This is Atlantic Chef International, Asia's most advanced maker of knives.

Although it may not ring a bell for the average consumer, Atlantic Chef is a big name among chefs. In fact, for many aspiring new chefs getting into the field, an Atlantic Chef product is their first proper knife.

Surveying the professional knife field, Western cuisine development consultant Hsu Hung-yu avers that Atlantic Chef matches German brands in quality, for just one quarter the price, giving it the highest performance-price ratio around.

Half of Half Price

Hsu Hung-yu, who teaches at a number of vocational high schools and specialty schools, estimates that over half of his own students use an Atlantic Chef knife.

It is no easy feat to earn the attention and fancy of people that speak through their actions with knives.

Established 38 years ago, Atlantic Chef quietly engaged in contract OEM manufacturing until starting its own brand six years ago. Although an upstart, it has boldly gone head-to-head with such venerable century-old brands as Zwilling, Wusthof, and Boker.

"People laugh at us and say we're running into a freight train on a bicycle," Atlantic Chef general manager James Chang says with an ironic smile. However, he also stresses that, like many other small- and medium-sized enterprises, ability has long been a non-issue for Atlantic Chef. "The crucial question is whether you're riding your own bicycle," he says.

James Chang, 44, is a member of Atlantic Chef's second generation. Over the years he has led the company through two major transformations.

The first of these transformations took place following the catastrophic earthquake that struck Taiwan on September 21, 1999. In the wake of the damage to their properties, many smaller enterprises in the affected areas faced with rebuilding in Taiwan or picking up somewhere else decided to make the jump over to China. This way they could get back on their feet while taking advantage of the lower operational costs across the strait. Nevertheless, Atlantic Chef decided to stay in Taiwan.

Chang, who had just left a position at a Taipei accounting firm to return home and help with the family business, recalls that prior to the quake Taiwan had seven companies capable of autonomously forging knives, including his, but that after the quake only Atlantic Chef remained.

"What would happen to our workforce of more than 100 if we left?" Chang, who grew up under the watchful eyes of senior staff, decided to stay in Taiwan for largely sentimental reasons. This helped establish good rapport between himself and the employees. "And ever since that time we have set our sights on going up against the established German knife companies," he says.

The second company transformation occurred in 2007. Confident that the company's craftsmanship was on par with the established German brands, he felt it was time to establish a new brand and play ball with the big boys. The question thus arose, what should be the first step for an old company that had engaged purely in OEM business for three decades?

Chang recalls that he began by inviting consultants from various different fields to give presentations. After one of them, a colleague raised a hand and asked unexpectedly, "What should be the first thing we say when we enter someone's shop?"

A good-natured man, Chang jovially replied, "Hello!" This humorous vignette illustrates the kind of hesitation company staff faced heading to the front lines for the first time.

Always on good terms with company staff, while chatting with employees Chang was hit with the inspiration for the marketing concept, "a chef's first knife." Riding this angle, Atlantic Chef began foraying beyond kitchenware shops onto school campuses.

Innovative ideas must be implemented with an eye on reality. And the nascent Atlantic Chef brand had to pass several barriers before making inroads into traditionally closed campus distribution and sales channels.

James Chang relates that the company targeted schools as a way to rapidly promote Atlantic Chef. Although selling the exact same products, they offered them to students at a 30 percent discount.

In order to avoid disrupting the market, Atlantic Chef took the Microsoft approach and sold knifes to students embossed with the characters "Student Model." However, after rumors began to circulate that "the student model is inferior," it took considerable effort to handle the fallout.

Chang prefers not to discuss the factionalism and personal networking culture that prevails among school sales channels. Sometimes seeing how students buy deliberately packaged Chinese-made products of poor quality yet sell for higher prices than Atlantic Chef's products, "All we can do is blame ourselves for not trying harder with brand marketing," says vice president in charge of sales Julia Lai with a palpable sense of frustration.

Boldly making critical choices at critical junctures, Atlantic Chef, which presently only generates under 20 percent of its turnover from its own brand, is primed and ready to go. Someday soon, we can look forward to the "Zwilling of Taiwan" making its mark on the world stage.

Translated from the Chinese by David Toman