Starting Small, a Big Deal for Taiwan’s Economy21-Sep-2016
Having been suffering from stagnation in economy for quite some time, Taiwan needs some uplifting news to kick-start a more promising future. According to a recent report by the Directorate General of Budget, Accounting and Statistics: “Taiwan's economy grew by 0.69% in the second quarter of 2016 from a year earlier” and this finally ends three consecutive quarters of economic contraction. However, struggles remain.
Taiwan’s economy is heavily export-oriented and due to a decrease in export demand, the economy has been seriously affected, so where could we find other opportunities and thrive?
Many agree that “innovation” is the answer, but how do we make innovation more than just a slogan or campaign? Taiwan experienced rapid growth in the latter half of the last century which is commonly known as the “Taiwan Miracle”, and that nurtured the whole manufacturing industry.Based on this advantage, CRE8 DESIGN feels that the future of Taiwan lies in innovative spin-offs and hardware startups. At the end of the Taiwan miracle, a lot of young entrepreneurs are coming of age and if given the chance to link their innovative thinking to the existing supply chain, this may prove to be profoundly successful.
Here we would like to reiterate “if given the chance”. By that we mean independence of creativity, marketing, budget, and sufficient time. In the past, the industry was led by engineers, whose mindset focused mainly on finishing products on time, within budget, and making the products work accurately, but this left little room for innovation. We need to move away from the conventional OEM/ ODM thinking and adapt to a more adventurous mentality.
Undoubtedly the OEM/ODM business model is becoming less and less viable as profit margins keep declining, but recently young entrepreneurs have more worldly views and are willing to take calculated risks. Here we have some substantial suggestions that could be useful for both spin-off and startup companies.
Recommendations for Spin-offs
Independence Wins the Game
While more and more OEM/ODM companies are trying to develop own brands, these brands are still structured under the mother company. They share a common policy and marketing strategy which results in less autonomy. Most mother companies with OEM/ODM background are structured for B2B business, and are not experienced in B2C business interaction. That is why a spin-off needs to be as independent as can be, budget-wise and creativity-wise, to separate its marketing strategy from the parent company while retaining the resources - the “supply chain” advantage. If they just follow the “old business mindset” without creative marketing and budget independence, they start to lose the edge.
Nothing Comes for Free
Chances are that spin-offs’ offering volumes are usually way too low to fit the OEM/ODM business model, so in order to achieve a commercial success, the OEM/ODM mother companies must have a lot of confidence in the product.
One solution is to aim high enough to raise volumes, but this requires vast amounts of monetary investment and effort in marketing and advertising, so you create demand and trustworthy brand visibility; or instead you invest in vast amounts of time. For the latter, there should be well over 5 years of dedicated commitment between the OEM/ODM and the spin-offs, so the supply chain will support the manufacturing for extended period of time however low production volumes are until the spin-off starts to make a profit.
Recommendations for Startups
Taiwan’s Supply Chain, a Startup Dream
Not many countries in the world can compete with Taiwan for the ability to bring a product from the ground up to mass production within a very limited time. With the backup of the supply chain and know-how about design for manufacturability, startups in Taiwan actually enjoy more privilege than in any other country. If given the chance, everything is here to facilitate the development of innovative hardware devices.Like spin-offs, hardware startups should require enough independence from venture capitalists, and have to find “open minded” manufacturing partners that are willing to start at lower production volumes. In our experience, those are usually the OEMs/ODMs that are eager to get into new product categories or those that want to compliment on their aging portfolio with innovative breakthroughs.
When Good Enough is not Good Enough
If you cannot forecast the market needs, then you do not make good products. Coming from an OEM/ODM background, both spin-offs and hardware startups still focus too much on creating a product only. We strongly recommend them to invest resources and money in three things: 1) proper market research: using big data to understand what consumers want, where the market is, and the target audience; 2) strategic design: they should go beyond beautiful looks, but incorporate a user-centered design approach to create a great product experience; 3) branding and marketing: strategy that differentiates the product from its peers. Remember, these days everything works. Therefore just making something that operates well is simply not good enough.
It is not about Building Offices
It is uplifting to see that Taiwan government has already initiated a series of projects to help startups. Recently, Taiwan government is amending the Companies Act in order to facilitate the process for young startups to establish companies and to ameliorate the venture capital environment. Hopefully the amendment will be passed early next year.
Computex Taipei also launched the first edition of Innovex, presenting an array of startups with great potentiality and introducing them to the world. Furthermore there are incubators supported by the government such as Start-Up Hub and Taiwan Startup Stadium. These are evidences that the startups’ ecosystem is changing. But there is still room for improvement.
As We Said, It Takes Time
Taiwan government does offer startups funding for their business, to be exact, more than 200 million NT last year. But the government expects to see fast growth and ignores the fact that it takes a significant amount of time for the trial and error, iteration and adjustment period. In the end, many startups are killed because of the lack of patience.
Give Me Space - Any Space- and I Will BuildThe success of a startup does not lie in how many co-working parks or buildings we construct. There are too many empty spaces already but still not enough good policies and strategies. However, Taiwan government is planning to spend loads of money on building more parks to create an Asian version of Silicon Valley. That is not how you find the startup spirit. Remember, many big-name companies like HP and Apple all started from garages! It would be much more practical to provide a space, in fact, any space, and use the funding to nurture talent and develop a favorable VC environment.
Infuse Entrepreneurship into Education
The responsibility should not fall entirely on the government. Education plays an indispensable role in the ecosystem. Students in Taiwan are usually groomed to follow rather than encouraged to think outside the box. This prevents young people from being innovators. We should encourage students to “find” problems and to “create” solutions. The spirit of wanting to “create” solutions for pressing problems is the startup spirit.
Aim high, be bold, and be confident. These are the qualities that our education system is not geared to provide our students, but they serve as the foundation for entrepreneurship. Teachers, parents, and even society’s culture need to adapt to this new way of thinking, so the younger generation can have the freedom to create, innovate and be successful.
In summary, Taiwan needs startups and spin-offs to trigger innovation and slingshot the country out of recession. No matter you are a spin-off or a startup, independence of budgeting and marketing is essential to success. OEM/ODM companies or VCs should invest either time or money and give enough freedom to young entrepreneurs, while the government should focus less on building glamorous spaces but more on accelerating the ecosystem. Taiwan is geared to become a startup hub. It just takes the right strategy and mindset to make it happen. Good luck to us all!