Wed, Jul 18th 2007 6:48am
Despite manufacturing plenty of the most recognizable electronics products in the world, and making plenty of money, the names of most Taiwanese contract manufacturers aren't familiar to consumers. For instance, Hon Hai Precision Industry generated revenues of more than $26 billion last year by making products for Apple, Dell, HP and other companies. But the Taiwanese firms are increasingly trying to leverage their experience and expertise by establishing their own consumer brands and using them to boost their product margins. Contract manufacturing is a low-margin, volume based business: for instance, one analyst says contract manufacturers of laptops have 3-5% margins; compare that to the 40% or more Apple enjoys on iPods. But growing the brands can be a tricky proposition, and not just because the companies are looking to enter new and unfamiliar consumer markets. The problem is that these companies are looking to become competitors to their biggest customers: for instance High Tech Computer, which makes mobile phones for a variety of companies, is building up its HTC consumer brand, and competing with clients like HP and Palm in the process. Some are trying to get around this by splitting off their consumer operations from their contract-manufacturing businesses, such as Acer did successfully several years ago. Still, that's not the only obstacle. Getting the consumer marketing right remains a big issue -- particularly when the new consumer brands are competing against companies for which marketing, not manufacturing, is a specialty.
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