Acer's mounting losses and declining market share represent not only the tribulations of a single company but a foreboding tale of Taiwan's ability to develop global brands.

"It's over. The branding dream of Taiwan's high-tech companies has come to an end," says the vice president of a branded Taiwanese tech vendor.

This intrepid executive was consumed with branding fever seven years ago when he left a multinational company to join a leading Taiwanese high-tech brand, but his company's recent nosedive triggered a rude awakening.

"Small countries can't develop brands. Without a domestic market, it's really tough," he says. "Look at the Interbrand global brand rankings. How many brands originate from small countries?"

Complicating matters is Taiwan's diplomatic isolation, which has only made it more difficult for Taiwanese brands that are popular at home to gain traction overseas.

Other tech brands that have emerged from the Taiwanese business community with commercial models similar to Acer's, such as monitor maker Viewsonic and TV vendor Vizio, remain strong only in the United States where they got their start, lending further credence to the proposition that brands cannot be developed from small markets.

But the Acer experience is particularly puzzling. The pioneer among Taiwanese companies in internationalizing its operations, Acer first made an overseas acquisition more than two decades ago and has amassed over 20 years of international management experience, yet now appears extremely fragile. Why?

"Taiwan does not have the ability to manage an international company," Jeff Li, former chief strategy officer for the BenQ Group and currently the head of the American Management Association's Taiwan branch, says bluntly.

Taiwan's Achilles' Heel

Li himself has experienced the problem first-hand. He was working for Acer more than 20 years ago when it acquired American computer company Altos. The deal eventually resulted in huge losses for Acer, but important lessons were apparently never learned, because similar fiascos have reoccurred.

"The main factor is that we really don't know how to manage a foreign company because we are not accustomed to systemic management. The same problems cropped up in BenQ's acquisition of Siemens," Li says, referring to the purchase of Siemens' ailing mobile-devices division in 2005.

Taiwan's enterprises, which rely on people-driven rather than system-driven decision making, have never developed international-standard management systems. And Taiwan may not be alone. Studies on acquisition management suggest a relatively low success rate when companies from less-advanced countries acquire enterprises in advanced countries.

Another key capability that Taiwan has been slow to master is accurately gauging customers' wants and needs and creating brand value. Taiwanese companies have never pushed their brands out into the world, relying instead on catch-up speed and pricing to carve out niches. That inability to extend their presence abroad has made it nearly impossible for local companies to get a feel for the huge differentiation in overseas markets, according to Li.

"They basically have no grasp of actual user experiences. Not even HTC does," Li says.

The Shadows behind 'National Champions'

In Interbrand's 2013 ranking of the top 100 global brands, only 10 came from small countries. Among them, H&M and Ikea (Sweden) and Philips (Netherlands) come from developed countries in Europe and have the backing of a unified European Union market with a population of 500 million people.

The only country represented in the brand consultancy's ranking with real parallels to Taiwan is South Korea, which had Samsung, Hyundai and Kia crack the top 100.

The ascension of the three Korean giants into the elite club testifies to the success of South Korea's "national champion" model.

Academia Sinica research fellow Chu Wan-wen, who has long studied Taiwan and South Korea's industrial strategies, says the key concept behind the Korean model is creating an alliance between the country and conglomerates in which the government (and by extension the people) shares the high risk of investing in building a brand.

"Park Chung-hee told the Hyundai Group bluntly, 'I will support you, but you have to deliver,'" Chu says, referring to South Korea's president from 1962-1979.

Taiwan, on the other hand, has never resorted to the high risk, high reward "national champion" strategy. Domestic car maker Yulon Motor Co., for example, wanted to develop its own car-making capabilities in its early years, but it never received the complete support of the government or society.

Debate still rages to this day among scholars and businesspeople whether mobilizing a country's power to cultivate a "national champion" in the ruthless consumer electronics battlefield is worth it or not.

The 'Hidden Champions' of B2B Branding

Because of the challenges of branding and the vagaries of the consumer electronics market, Chu believes that Taiwanese manufacturers and the technologies they have accumulated in recent years are better positioned to compete in the less concentrated but more stable B2B market.

"Taiwan still has a chance to develop so-called industrial brands," Chu says.

The good news for Taiwan is that there is no shortage of successful precedents, either at home or internationally, in transitioning from dealing with consumers to serving industrial clients.

Advantech Co., Ltd., one of Taiwan's leaders in the industrial computer market whose products can be found in bullet train systems, hospitals and factories, serves as a possible model. The company's sales and stock price have both hit record highs this year, and with foreign brokerages setting target prices for Advantech shares at above NT$200, the company's market value has surpassed the NT$100 billion milestone, outpacing contract electronics makers Pegatron Corp. and Wistron Corp. (The stock closed at NT$185 on Nov. 19, up 51 percent from the beginning of the year.)

GPS technology specialist Garmin Ltd., which was co-founded by a Taiwanese expatriate in the United States, made an especially rapid transition to industrial applications after its consumer business built around handheld navigation devices was undermined by Apple and the introduction of the smartphone. As GPS apps for mobile devices proliferated, Garmin's sales contracted rapidly. The company tried to salvage its niche in the consumer electronics market by rolling out a co-branded GPS smartphone with Asustek, but it generated little interest.

His company in jeopardy, Garmin co-founder Min H. Kao, who graduated from National Taiwan University with a degree in electrical engineering five years before Acer chairman and CEO J.T. Wang did, was able to reverse Garmin's fortunes by catering to industrial customers.

Garmin successfully repositioned itself as a supplier of precision instruments for cars and aircraft, and it has also emerged as an important player in the wearable technologies market. Not only have its sales stabilized, its stock price has risen from a low of US$15.02 in February 2009 to US$47.23 on Nov. 18.

No Value without R&D Backing

Garmin was able to react quickly to its predicament because of its technological prowess. Kao, who has a doctoral degree, is known as a technical whiz, and 14 percent of the company's revenues are devoted to research and development. In 2013, Garmin spent nearly US$400 million on R&D.

Acer's investment in R&D is shockingly low in contrast, amounting to only about 1 percent of sales. In dollar terms, Acer's R&D spending is only one-third of Asus's and one-sixth of the Lenovo Group's.

This miserly approach to technology development goes back to when Acer split off its design and manufacturing services business unit into Wistron Corp. Lee Ji-ren, a professor in National Taiwan University's College of Management, said that following the break-up of the group, Acer positioned itself as a "brand marketing company" and naturally paid little attention to R&D.

Ken Hui, a technology analyst with investment bank Jefferies, expects Acer to have a hard time reengineering itself, because it has only limited experience in managing R&D, and while it could consider acquisitions to strengthen its technological capabilities, the price will be steep.

Academia Sinica's Chu said she was not at all surprised by Acer's recent plight. In an article she published in the journal Research Policy in 2009 titled "Can Taiwan's Second Movers Upgrade via Branding?" Chu pointed to the inadequacy of R&D spending among Taiwan's tech brands, led by Acer, and expressed skepticism that a high-tech brand could be run sustainably without the backing of state-of-the-art technology. Her words were prophetic.

"Brands without the backing of R&D can't develop brand value," Chu stresses.

Though Chu was blunt in her analysis of the shortcomings of Taiwan's industrial circles, this veteran economist with a Ph.D. from Stanford University who has studied Taiwan's industrial sector for most of her life still spoke with a heavy heart when discussing Acer's plight.

"Of course I'm sad," Chu says. "Acer has represented Taiwan in the international arena for a long, long time."

To many Taiwanese, Acer embodies more than simply a venerable tech brand. In the diplomatically isolated country, being an "international brand" carries far greater significance than corporate profits.

Many Taiwanese living overseas have seen Acer ads in the New York Times or even spotted Acer products in small electronics stores in rural Italy. These almost routine occurrences can be deeply moving to Taiwanese abroad, who at times have felt as much pride in the Acer brand as in the national flag.

These are all spillover effects created by "brand" companies, which are measured by more than simply earnings and share prices. Yet now that everybody knows the predicament Acer is facing, with the possibility that smartphone maker HTC could be next, Chu asks of those who have basked in the brands' glory, "What are you going to do for them?"

If local authorities emulate the South Korean government and provide interest-free loans to assist Acer, won't it simply be accused, in a Taiwan where dealings between the government and businesses are extremely sensitive, of illicitly favoring a vendor?

That's a huge question that is bound to be debated as Taiwanese brands struggle in the face of fierce global competition.

Translated from the Chinese by Luke Sabatier