The advent of the smart car era is providing an overtaking opportunity for latecomers that can master domain know-how at the client end and know how to develop profitable product design, packaging and sales models based on the latest market trends, according to Wu Hsueh-liang, professor with the Department of International Business at National Taiwan University.
Wu told Digitimes in a recent interview that the communication industry used to be dominated by telecom operators, but later a forked way emerged to allow entry by IT firms. Likewise, smart cars, autonomous cars or electric vehicles have allowed many non-car players to enter the traditionally closed auto market.
Wu said that some of his former students in the display industry used to see their companies devote much effort to supplying ever-larger panels for computer and TV applications, but they later turned to developing small-size, car-use LCD panels that can withstand high in-car temperatures of 70-80 degrees Celsius following 7-8 hours of sunlight exposure, which is hard to achieve with larger panels.
Among similar niche products, industrial PCs see only a few makers in Taiwan as such PCs involve a certain technological threshold. For an enterprise, Wu indicated, whatever it wants to sell, such as solutions, products, components or raw materials, will entail different business models that are closely associated with profitability, strategies and organizations.
Three major elements for solutions
Many think selling solutions will involve higher gross margins than selling components, but they may not know well what constitutes the solutions. Basically, solutions represent a close integration of hardware, software and domain know-how, with none of them dispensable. Among them, domain know-how associated with the client end is the most difficult to grasp. Those who possess domain know-how certainly know well where the solutions will be applied - hospitals, supermarket chains, or transportation systems - as well as the habits of users and their usage environments. Accordingly, they will know how to tune up related hardware and software to achieve the best user interface and experience, as well as operating efficiency, according to Wu.
Many Taiwan tech firms tend to supply standardized modules to system integrators, enabling the latter to sell integrated solutions to terminal customers for much higher gross margins. This in turn has prompted the tech firms to transform their business into offering solutions, but the lack of domain know-how has made the transformation a difficult job, particularly for suppliers of IT components. But if led by system integrators, the transformation will become more feasible. Taiwan's Yulon Motor, for instance, can lead some component makers from the electronics and other industries to develop smart cars for global sales, and this will be a more feasible way Yulon can take toward the production of smart cars, Wu commented.
For outsiders, Wu opined, the development of new products such as new airplanes will provide the best timing for them to tap into the supply chains as long as they possess leading engine or electrical control technologies and become members of the new plane development alliance.
Likewise, Wu noted businesses will have a very good chance of joining smart car development alliances initiated by first-tier automakers once they have unique technologies and boast high international recognition.
Front-stage operation capability
In the PC era, Taiwan's manufacturers got accustomed to backstage-driven business models, thus developing strong backstage operation capability and high operating efficiency. But in the mobile network era, they have suddenly lost the shelter of major brand vendors, having little idea about where to go due to their weak front-stage operation capability, according to Wu.
Wu said that a US documentary film titled "The Merchants of Cool" can present lessons for Taiwan enterprises concerning how to carry out front-stage operations. The film features success stories of some famous US brands such as Nike and Sprite versed in grasping market trends and turning abstract concepts into concrete products. The brands have succeeded in analyzing the consumer trends implied in the catchword "cool" popular with the young generation in accordance with diverse data, and finally turning the trends into highly profitable product design, packaging and sales modes.
If Taiwan firms can switch part of their massive investment in backstage operations to market research to learn the "pain and gain" factors of customers, they can start to accumulate domain know-how and know what customers actually need and why.