England football captain David Beckham has probably never heard of BenQ. Nor, in all likelihood, has French midfield star Zinedine Zidane or Spanish striker Raul. But when they and their peers from 16 nations gather in Portugal this summer to compete in the UEFA European Football Championships, the brand name “BenQ” should have stuck firmly in their minds, along with the minds of millions of fans all over the world.
That, at least, is the hope of Eric Yu. As CFO of BenQ (pronounced ben-cue), he signed off on a multimillion-dollar contract last November making his electronics company one of the main sponsors of Euro 2004. “We have big expectations,” enthuses Yu.
What makes the deal interesting is that, up until 2002, Taiwan-based BenQ operated solely as a contract manufacturer, churning out cheap mobile phones, digital cameras, and other electronics on behalf of brand-name clients. Today that’s all changing. For two years now, BenQ has been pursuing a bold new strategy to build its own brand. And as its involvement in European football demonstrates, the NT$109 billion (US$3.3 billion) firm has global aspirations.
The company isn’t alone. Thanks to falling trade barriers, globalization, and ever more cut-throat competition, companies across Asia are seeing their margins squeezed to the floor. As a result, many are turning to branding, both as a way to survive and as a way to expand into new markets. Of course, Asia has nurtured many famous brands already, and the likes of Singapore Airlines, Toyota, and HSBC need no introduction. But now more than ever in Asia, it seems, brands are seen as essential to a company’s future health.
The logic is simple: for consumers, brands promise consistency and quality and often reinforce a personal sense of self. In return, the loyalty of customers to a particular brand gives companies more secure revenue streams, lets them charge higher prices, and enables them to expand more easily into new lines of business. But, while the benefits of brands are easily grasped, the science of creating and managing brands can be anything but. For CFOs in Asia, the challenge is working out how best to get involved in building and overseeing these intractable intangible assets.
Value Chain Pain
At BenQ, Yu recalls that the decision to build a brand was simple enough. “We felt that the value-add in [contract manufacturing] was getting smaller and smaller,” he says. “When we looked at the big-name brand companies like Sony and Samsung, we saw that they were enjoying very healthy gross margins.”
Benny Lo, an analyst at Primasia Securities in Taipei, puts it more bluntly. “BenQ really had no choice,” he says. With contract manufacturing getting ever more competitive thanks to the influence of China, “building its own brand was the only way for BenQ to survive.”
Not that the company has abandoned its original business, which Yu reckons will grow by 30 percent this year. But the company is focusing most heavily on building its brand, with sales forecast to rise 100 percent during 2004 and accounting for 40 percent of group turnover.