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Top Service Enterprises 2013

The Big Crossover


The Big Crossover


Striving to carve out bigger slices of the same consumer pie, retailers expanded into one another's territories, brick-and-mortar stores went virtual, and hoteliers put on the glitz for top tourist dollars.



The Big Crossover

By Margaret Pai
From CommonWealth Magazine (vol. 522 )

Against the backdrop of 2012 with its meager 1.26 percent annual economic growth rate, Taiwan's 650 largest service enterprises fought for their survival.

Last year total revenue growth in the service industry increased by NT$221.5 billion, but average profitability slipped from 3.1 percent to 2.7 percent year-on-year. Compared to 2011, 84 more companies joined the ranks of enterprises with shrinking revenue. Total net earnings also continued their downward trend, declining to NT$240 billion from NT$360 billion in 2010.

Amid a lackluster economy, the service industry experienced revenue growth, yet its profit margins were hammered thin. An indication that competition has gotten fiercer for a slice of a pie that has not grown.

In 2012 very little reshuffling took place among Taiwan's top ten service enterprises. But backed by strong innovation, R&D and design capacities and helped by the craze for tablet computers, Asus (Asustek Computer Inc.) posted record high revenue and profits, climbing past rival computer maker Acer to take second place. The Mercuries Group, a conglomerate with interests in retail, financial services, pharmaceuticals and chain restaurants, made it into the top ten, mainly because group member Simple-Mart has continued to expand, while Mercuries Life Insurance listed on the Taiwan Stock Exchange last December.

Boundaries in the retail sector become increasingly blurred. Consumers can now go to the convenience store to do their laundry and buy fresh produce, or have freshly made Sushi and buy medicine at the supermarket. At hypermarkets, they can pay their bills (a service long provided at Taiwanese convenience stores) and also purchase computers or other electronics. The boundaries between once well-defined market sectors have begun to vanish as companies try to grab market share by venturing into product lines and services outside their traditional fields of business.

Department store, wholesale and retail operators, meanwhile, have had a hard time generating new revenue. Revenue growth in this sector shrank to 5.83 percent last year from 11 percent in 2011. The two largest department store chains, Shin Kong Mitsukoshi and Pacific Sogo, both posted negative revenue growth in 2012. Far Eastern Department Stores were able to post 10 percent revenue growth because the company opened two new large department stores in Banqiao and Hsinchu.

Two Thirds of Consumers Tighten Purse Strings

Bie Lien-Ti, a professor at National Chengchi University's Department of Business Administration and head of research at online consumer trend consultancy Eastern Online Co. Ltd., observes that private consumption has become more discerning because the economy failed to take an upswing last year. Not only has the number of customers at anniversary sales plummeted, but people are also spending less per single purchase. Moreover, two thirds of consumers have curtailed their spending.

In contrast, Taiwan's two largest convenience store operators, President Chain Store Corp. (7-Eleven) and Taiwan Family Mart Co. Ltd., last year posted double-digit revenue growth. "Taiwan's convenience store operators are 'Transformers.' There's nothing they won't sell. But the department stores depend on anniversary sales to boost turnover. The convenience store chains use a broader and more diverse array of marketing tools and product lines," notes Chu Hsun-chi, researcher at the Commerce Development Research Institute (CDRI).

The battle between real-world shops and virtual vendors is also getting fiercer. Although even online vendors no longer boast the growth rates of 20 to 30 percent they enjoyed in the past, Taiwan's electronic commerce still posted 17 percent growth last year, according to the Institute for Information Industry (III).

ADDCN Technology Co. Ltd., which is trading as an emerging stock and runs online real estate brokerage, registered an astonishing 40 percent growth rate. Group buying website Gomaji also ranks among the fastest growing service industry enterprises.

"Last year, online shopping further matured and became richer in content," observes Jacky Wang, store marketplace group director for Yahoo Taiwan Holdings Limited.

Virtual sales channels now exist not only for fresh produce and food products, but also high-end jewelry brands such as Emphasis (Chow Sang Sang Holdings International Ltd.) and Sophia (Sophia Jewellery Co. Ltd.). In 2012, brick-and-mortar stores accounted for as high as 40 percent of all members selling virtually on Yahoo Taiwan's online marketplace.

Notable are the new business opportunities created by shopping via mobile devices. Wang reveals that 9 percent of Yahoo Taiwan's online marketplace revenue in the fourth quarter of 2012 came from mobile shopping. In the first quarter of this year revenue from purchases made on mobile devices doubled.

The winners are those companies that are able to feel the pulse of booming industries.

Chinese, Japanese Travelers Swamp Taiwan

Amid intense competition, the tourism and hospitality industries last year still managed to post robust growth, with revenue growth averaging 13.9 percent. As many as 7.2 million tourists visited Taiwan last year, a historic high, according to Tourism Bureau statistics. Chinese visitors accounted for the steepest increase, with 40 percent more arrivals.

Ting Yu, marketing communication manager at the Sheraton Grande Taipei Hotel, points out that aside from a great increase in Chinese guests, the number of Japanese tourists, which plummeted in the wake of the devastating Tohoku earthquake two years ago, is steadily recovering.

The Sheraton Taipei registered occupancy of 80 percent last year. "Competition is very fierce in the hotel industry given that even more international hotels are entering Taiwan and domestic hotel chains continue to expand," notes Yu.

Two more luxury hotels, the Eslite Hotel and the Mandarin Oriental, are to open in Taipei this year. Within the past five years, 24 more tourist hotels have opened up in Taiwan.

The food and beverage industry is also sizzling. Aggregate revenue grew to NT$385 billion for an annual increase of 3 percent last year, a historic high, according to statistics by the Ministry of Economic Affairs.

Taiwan's leading restaurant chains have expanded not only domestically, but also worldwide. Presently, at least 33 Taiwanese restaurant chain operators are active globally, running a total of more than 5,600 outlets abroad. Shin Yeh Restaurant Group CEO Steve Shih believes that Taiwanese cuisine stands a great chance to make it internationally with a distinct profile. Aside from pushing quantity by opening more restaurants, many restaurant chain operators have moved up the value chain with higher quality.

Taiwan's leading restaurant empire, the Wowprime Group, again got an excellent report card with revenue growth of nearly 60 percent. The profitability of Wowprime's Chinese operations has risen, and the hotpot chain 12 Sabu, which it launched three years ago, is also making stable profits. Two other of the group's restaurant brands, Tasty Steak and Taoban new style Japanese cuisine, are expanding their presence in Taiwan's smaller cities, etching out more room for profit growth.

In the wake of last year's economic slump, service industry results lagged behind expectations in the first quarter of this year, which means companies will have to work on gradually consolidating business.

Customer experience is crucial in the service industry. Service before, during and after a purchase must meet customer expectations. If service lapses at just one point in the sales process, customers will change their perception of a company, turn their backs on the service provider and go somewhere else next time.

"The service industry needs to devote more thinking to understanding the customer. Always resorting to rebates doesn't work," avers Yeh Huey-jiuan, director of the Cross Disciplinary Research Group at the Industrial Economics and Knowledge Center of the Industrial Technology Research Institute (ITRI) and an expert on the service sector. Service enterprises can only build innovative capacity if they are able to understand their customers, an endeavor which requires the ability to adequately analyze big data on business transactions and customer interactions. The smart way that a winner can rise above a lackluster economy is not just to seize a bigger market share or strive for innovation, but to capture the hearts of consumers and provide better value.

Translated from the Chinese by Susanne Ganz