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2009 Most Admired Company Survey

Thriving in Turbulent Times


Thriving in Turbulent Times


Six industry leaders among the most admired in 23 sectors were dislodged from their perches in 2009 by more agile competitors who found ways to overcome the global economic slump.



Thriving in Turbulent Times

By Ching-Hsuan Huang
From CommonWealth Magazine (vol. 433 )

This was the 15th year CommonWealth Magazine has conducted its Most Admired Company survey, and it turned out to be the rockiest for local enterprises. In the past year, the financial crisis that exploded in the United States and Europe resulted in the most serious global economic downturn since the conclusion of World War II. The resulting volatile business environment underwent major changes, as did the results of the survey.

Financial Tsunami Sweeps in New Lineup

The biggest surprise of this year's survey is that Quanta Computer supplanted Hon Hai Precision, Taiwan's biggest company and a mainstay among the most admired for eight consecutive years, as the new benchmark company in the computer sector. (see table)

Outside observers have described in vivid detail the story of the competitive relationship between Quanta chairman Barry Lam and Hon Hai Group chairman Terry Gou, from stealing each other's employees and orders, to seeing their friendship turn into enmity. Quanta Computer has now upped the ante by beating out Hon Hai in the Most Admired Company survey. 

Quanta was finally able to top Hon Hai Precision mainly because it found an opportune time to successfully remake itself. In the past, Quanta has been methodically low-key, but this year, it seems to have suddenly picked up the pace, accelerating its efforts to integrate vertically.

Predominantly an ODM in the past, the company has set its sights on becoming the world's biggest 3C company, providing solutions in line with Barry Lam's new 3Cs -- cloud computing, connectivity, and client devices. By changing its focus from R&D to applications, Quanta has repositioned itself in the market.

The financial service sector was the hardest hit by the global financial crunch, but the Fubon Group not only was not swept away by the turbulence, it took advantage of it to overtake the Cathay Group and climb to the top of the financial holdings and insurance sectors. Cathay Financial and Cathay Life had dominated the two categories for three consecutive years, but by posting its first loss in 47 years last year, Cathay Life undercut the performance of the entire group, creating openings for Fubon Financial and Fubon Life.

The Fubon Group successfully steered its way through the financial storm in no small part because of the company's "mixed blood team." The group was able to retain and assimilate professional managers recruited from outside the group, enabling the corporate culture to gradually become more diversified. The Fubon Group's strong ambition in securing M&A opportunities also helped it through the market turbulence.

ABS giant Chi Mei Corporation, which had been the benchmark company in the petrochemical sector for nine consecutive years, suffered a fate similar to that of the Cathay Group. After recognizing without warning a massive loss in its investment in Chi Mei Optoelectronics in the fourth quarter, Chi Mei Corporation posted its first loss ever and was supplanted by the Formosa Plastics Group, even though infighting over the estate of the Formosa Plastics Group's late founder Wang Yung-ching continues unabated. The group's "Big Four" swept the four top spots in the petrochemical industry.

During the economic turmoil of the past year, some companies suffered a heavy jolt while others displayed a flair for crisis management, even bucking the depressed environment to grow and position themselves for the future.

Donald Sull, a London Business School professor and expert on managing in turbulent markets, stresses in his recently released book Upside of Turbulence that "turbulence produces not only risks, but also opportunities."

Even though 3C distributor Synnex Technology has posted a net margin of less than 2 percent recently, it proactively confronted the storm and used its agility and staying-power to discover opportunities amid the turmoil.  

Synnex: Expanding its Reach through Flexibility

Synnex once again was cited as the most admired company in the IT distribution sector, largely because it is not afraid to try different businesses. It is the only IT products distributor with nationwide coverage in China that has also developed a foothold in the communications sector. From PCs to mobile phones, it now has the distribution rights to more than 40 international brands.

Since the beginning of the year, its monthly revenue has repeatedly set historical highs, and its consolidated revenue for the previous three quarters actually grew 17 percent compared to the same period a year earlier despite the economic downturn. Communication product sales alone grew 42 percent, leaving Synnex looking down on its competitors in China.

Synnex's success stems in part from its agility in moving beyond traditional distribution channels to a sector its competitors look at with disdain and could not in any case manage competently: televised home shopping. The major challenge lies in being able to deliver goods to individual consumers rather than to distribution points and deal with rejected merchandise. Although televised home shopping accounts for only 30 million renminbi of Synnex's overall monthly sales in China of 3 billion renminbi, it is a business with such potential that the company refuses to abandon it.

And with direct sales gradually gaining momentum in China, Synnex has assisted large 3C retailers such as Suning Appliance and Gome Electrical Appliances in delivering merchandise directly to the customer's door.

Compared to integrated IT service provider Digital China Holdings, which primarily distributes goods to wholesalers, "Synnex is much more flexible in this area," says May Lin, Equity Research Analyst in Yuanta Research.

A Complete Logistics Network

Synnex's flexibility originates from its densely woven, high efficient logistics network.

The company has 53 operations centers servicing more than 21,000 distributors in 1,500 cities in China. Including even the lowest "fifth-tier" cities, Synnex's covers 84 percent of China's county-level and higher cities.

Even as the global economy was suffering a major slump and international companies were curtailing their capital expenditure, Synnex invested nearly NT$3 billion to continue expanding their logistics network. By 2012, the company expects to deploy logistics centers in 20 new locations. Once its network is completed, it will not only be able to replenish stocks around the country but also handle any product line at will, enabling it to secure distribution rights to even more brands and items.

 "Buying land and building operations centers ourselves is in preparation for our development 10 to 20 years down the road. They're not needed now, but they will be very much necessary 10 years from now," says Synnex Technology's general manager for China Wang Shun-sheng.

PC penetration in China remains below 10 percent at present, while mobile phone penetration is under 50 percent. In the future, the country's widespread agricultural villages especially will be the most important growth segment for 3C products, and through its preparations, Synnex is the distributor best positioned to capitalize on the opportunity.

As early as next year, Synnex could even surpass local stalwart Digital China as China's biggest IT distributor.

Google Taiwan: ‘Transformer-like' Agility and Flexibility

Grabbed the top spot in the software sector in the first year that it was even named to the top five in the category, Google relied on its flexible business model, organization and strategy to get through the financial storm without any major hiccups.

On Oct. 15, Google released its third quarter financial results and reported that overall Q3 revenue grew 7 percent and net income grew 27 percent from the same period a year earlier. It was a sign that online advertising spending is on the road to recovery.

When Lee-Feng Chien took over as director of Google Taiwan last September, he was immediately faced with the global financial storm. Over the past year, however, he has made timely and deft adjustments to the organization. From January to October, the growth in traffic on Google's advertising platform AdSense Taiwan has more than doubled.

After Google's 31 percent growth in 2008 had fallen to 7 percent in the third quarter this year, the search engine giant adjusted its strategic objectives, raising mobility and the mobile Internet to one of its top two priorities. The work objectives of Google Taiwan engineers, located in a global IT hardware hotspot, changed accordingly. The company originally hired electrical engineering graduates highly skilled in hardware applications to conduct intensive research on search engine innovations. This past March, the focus changed to developing Google's Android mobile operating system platform, forcing many of its engineers to brush up on their mobile phone hardware and software knowledge.

Always Planning for New Demand

Chien has also helped Google Taiwan build up or eliminate technologies as needed. At the same time as he built a core team for the Android platform, he canceled without hesitation 3D, Notes, and other development plans that were relatively unrelated to Google's core businesses.

"The delayering of the organization has allowed us to quickly adjust our development plans. Even during the global financial crunch, product development never stopped," Chien says.

One Google Taiwan engineer, for example, who frequently commutes between Taiwan and the United States and often has to check information on restaurants, ATM machines and movie theaters, devoted 20 percent of his time on the job to developing a "Place Directory," a project that was not originally planned. It took the engineer two months to develop the directory, and once it was introduced to the global Android market (in smart phone Android platform online software stores), it became the most downloaded software in the Android market within less than a week.

Google Taiwan's experience reminds enterprises that as long as an organization is flexible enough and resources are re-allocated to businesses with good prospects, new demand can be mined and new products can be developed even during an economic downturn when it presents an opportunity for a company to leave close competitors behind.    

Want Want China Holdings: Planting Roots in the Countryside

Want Want China Holdings, which issued Taiwan Depositary Receipts (TDR) in April as a sign of optimism in Taiwan, cracked the most admired company list for the first time, and catapulted to second in the food processing category behind only perennial powerhouse Uni-President Enterprises.

Want Want China also did not become passive when confronted with the past year's economic turbulence, instead capitalizing on its "Sending Want Want to the Countryside" plan to plant the roots of its next engine of growth.

 "In the past, we didn't think we had to meticulously cultivate distribution channels in every market because we felt it was a strategy that wasted manpower, money and resources," says Chu Chi-wen, executive director and chief financial officer of Want Want China. "Later, we realized the potential of China's market. If we didn't move right away, we would lose our competitive edge over the medium and long term."

As a result, beginning in 2006, Want Want China added more manufacturing locations and then expanded its sales network.

Once it geared its distribution strategy toward cultivating direct retailers rather than wholesalers, Want Want China's sales force doubled from just over 5,000 to 10,000 in a mere three years. Gaining an in with medium and small retailers and even mom-and-pop shops ignored by traditional wholesale networks enhanced the company's sensitivity to its distribution network and consumers.

"We needed to ensure that our products be placed precisely in every small store," Chu says. "In the past, the distribution and handling of our products was completely in the hands of the wholesalers."

Covering Half of China

Of China's 2,400 county-level cities, Want Want China currently has sales people selling directly to customers in 1,300 of them.

Although Want Want China's personnel and distribution costs (such as promotional advertising and freight) rose 30 percent in the first half of the year, the benefits of its sustained campaign to sell its products in the countryside have become quickly apparent. From 2006 to last year, the company's revenue posted a compound average growth rate of 28 percent.

Want Want China's high brand awareness and its determination to cultivate new distribution channels are likely to guarantee growth over the next 30 years.

Synnex, Google, Want Want China and others were cited as benchmark companies largely because of their ability to not only survive but thrive in turbulent times. Their ability to create new sources of growth, even as others held back on investment projects, has left them well-positioned as the global economy slowly pulls itself out of its long slump.

Translated from the Chinese by Luke Sabatier