Taiwan’s “Hidden Champions” Tapping Niche Markets

The Taiwan government is recognizing and assisting smaller but high-performance companies to help them reach their potential.

As part of its effort to revitalize the economy, the Taiwan government has been seeking to identify – and then encourage and assist – small or midsized companies that have unique, internationally competitive products or services. The aim is to help these companies further develop to reach their full potential, while also holding them out as a model to inspire other domestic enterprises.

Dubbed the Mittelstand (meaning “Medium Enterprise”) Award after a similar initiative in Germany, the program – run by the Ministry of Economic Affairs (MOEA) through its Industrial Development Bureau – was launched in 2012 for an initial three-year term (2012-2014) and featured the annual selection of 10 exemplary companies. It has since been extended to 2023, with 10 to 12 enterprises to be chosen every other year from among applicant companies.

The German program was designed to recognize the importance of “hidden champions” – the relatively small and inconspicuous but highly successful enterprises that form the backbone of the German economy. As defined by Hermann Simon, the German management guru who coined the term, a company must meet three criteria to be considered a hidden champion: ranking among the top three in global market share (or number one within the company’s home continent), annual revenue of less than US$4 billion, and being relatively unknown to the general public.

MOEA regards the program as a means of spurring the growth of companies that have the business scale, technological base, and international competitiveness to stand out among Taiwan’s 1.25 million small and medium enterprises (SMEs), whether in the fields of manufacturing, services, or even agriculture. The ministry is offering assistance in four major areas: cultivation of talent, development or acquisition of technology, acquisition of patents and other intellectual property, and marketing and brand development. For example, MOEA is providing advice and financial subsidies to help award winners set up training programs and recruit talent from overseas. Hidden champions can also qualify to offer R&D positions to young men as a substitute for their compulsory military service, and their R&D programs may also be eligible for subsidies and tax credits.

Marketing assistance includes subsidies for branded marketing and brand promotion, attendance at major international industry fairs, and integrated marketing in emerging markets.

To date, 32 Mittelstand Award winners have been chosen: 10 in 2013, 10 in 2014, and 12 in 2015. Also identified were 186 “potential hidden champions,” including 64 selected this year from among 162 contestants.

Most of these companies are leaders in their niche sectors. One of the 10 winners picked in 2013, for instance, was Hiwin Technologies, whose ball screws and linear guideways are supplied to leading international semiconductor equipment firms, such as ASML, Applied Materials, and Tokyo Electron Limited (TEL).

Another was Giant Manufacturing, the world’s largest bicycle maker, which focuses on the production of high-end bikes. Giant ranks among the top three bicycle brands in the United States and Europe, and is the leading import brand in Japan, Australia, Canada, and Holland.

Also selected in the first batch of winners was TXC Corp., a leading supplier of quartz crystal components for smartphones and other ICT products. It is one of the few manufacturers in the field to possess complete process technology, including slicing, grinding, polishing, and packaging/testing. TXC’s customers include Apple, Samsung, Sony, Nokia, and HTC, as well as Intel, Toshiba, and Cisco.

Through dedicated websites, publication of promotional pamphlets, and the encouragement of media coverage, MOEA has sought to actively publicize the award winners, holding them up as models for emulation by local SMEs. The ministry has also set up a dedicated service window for the award winners and established a service corps consisting of experts in various fields to help the “potential hidden champions” overcome development bottlenecks and improve their operations.

IDB Director-general Wu Ming-ji reports that since the launch of the program, the ministry has invested NT$516 million (about US$17.2 million) to carry out 42 assistance measures in the areas of talent cultivation, technological development, IP acquisition, and brand promotion/marketing for both current and potential hidden champions. According to the IDB, that effort induced the participating companies to invest a total of NT$137.6 billion (US$4.6 billion), leading to the creation of 12,775 jobs.

Subsidies from MOEA, for instance, helped Chroma ATE, a leading supplier of precision testing and measurement instruments (and part of the first batch of Mittelstand winners in 2013), in developing technologies for an automated testing system for SoC chips, power system for electric cars, and efficiency testing equipment for solar cells. Partly as a result of the assistances, the company’s sales grew to NT$10.3 billion in 2014, with after-tax net profit reaching NT$1.52 billion, for earnings per share (EPS) of NT$3.51. In comparison, those figures in 2012 were NT$4.2 billion in sales, net profit of NT$875 million, and EPS of NT$2.52.

The 12 award winners for 2015, announced in March, include 10 manufacturers:

Aten International, a maker of branded KVM (keyboard, video, and mouse) switches used for controlling multiple computers, achieved an extraordinary gross margin of 59% in 2014 on sales of NT$4.9 billion. It was the second-largest brand worldwide in that product segment, accounting for a 13% share, and number one in Asia. The high added-value results from its heavy emphasis on R&D, which is conducted in three R&D centers – in Taiwan, China, and Canada. Expenditure on R&D equals 10% of annual sales. As of mid-2014, the company owned 427 global patents.

Intai Technology takes advantage of its expertise in precision metal processing to produce components and parts for endoscopic-surgery and mini-invasive devices for the medical device industry, industrial precision fasteners, and components and parts for wireless communications systems. The company devotes 10% of the sales value to R&D in order to develop cutting-edge technologies in its field. It holds 26 medical-device patents, and is one of the top five suppliers in the world of metal processing products to leading medical-device firms. In 2014, it recorded sales of NT$1.8 billion, with an EPS of NT$7.87.

Champions_Johnson elliptical trainerJohnson Health Tech, one of the few well-established Taiwanese brands on the global market, supplies fitness equipment based on patented technologies covering such aspects as motors, controllers, meters, and human-machine interface. It markets worldwide under three separate brands: Matrix for fitness centers, Vision for home workouts, and Horizon (sold through hypermarkets and other mass market outlets). Johnson’s global sales channels include 241 dedicated stores. With sales of NT$16.6 billion in 2014, the company is now the world’s third-largest fitness-equipment maker, as well as the leader in Asia.

¦C¦LKMC Chain Industrial is the world’s leading bicycle-chain manufacturer, holding an astounding 73% market share for high-end products. The total length of its chains produced in a year could circle the earth 4.8 times. The company’s chains are 5-10% lighter than counterparts made in Japan and Europe, and last more than twice as long as most other products on the market. The chains’ unique designs, which facilitate changing gears, have won KMC numerous international design awards. Their use by many of the world’s top professional cyclists testifies to their quality. “Uniqueness is a prerequisite for market leadership,” says KMC vice president Wu Hsin-chuan. The company’s 2014 sales reached NT$2.3 billion, with a gross profit margin of over 35%.

Lucidity Enterprise, dedicated to promoting green industry, produces LED auto lights that feature low power factor and long life. Through the addition of 60 new products every year, the company boasts a complete product lineup. The products are exported to Europe, Africa, Oceania, Asia, and Latin America under the two brands of Lucidity and Optronics. Sales in 2013 (the most recent data available) came to NT$2.03 billion, and the EPS was an extraordinary NT$10.96.

Machvision Inc., a specialist in machine vision, is a leading supplier of AOI (automated optical inspection) devices for printed circuit boards (PCBs). Seventy percent of the world’s top 100 PCB manufacturers, including all of the top 10, utilize the company’s AOI devices. Machvision is the leading brand in all three of its major markets: Korea, China, and Taiwan. In 2014, it registered sales of NT$650 million and had an EPS of NT$4.03.

Nanliu Enterprise produces healthcare and medical textiles, including wet towels, facial masks, and surgical gowns, with the help of its advanced nonwoven manufacturing and process technologies. The company is the world’s second-largest supplier of spunlace nonwoven medical fabric, with a 20% global market share that puts it behind only DuPont. Nanliu holds certification based on EU, U.S., and Japanese national standards, and its sales have been growing at an average annual rate of 44% over the past three years. Revenue topped NT$5.3 billion in 2014, with the EPS reaching NT$5.39 in 2013 (the most recent number available).

Pixart Imaging Inc., which specializes in the design of imaging integrated-circuits (ICs), has established a foothold in the emerging Internet-of-Things market by rolling out sensor, radio frequency (RF), and MCU (microcontroller unit) ICs for use in wearables. It aims to become a leader for chips used in the human-machine interface for the Internet of Things, helping customers to develop IoT applications for smart homes, autos, and intelligent automation. A major supplier of CMOS image sensors, the company had sales of NT$4.75 billion in 2014, when profits rose 30% and EPS came to NT$2.95. Thanks to an emphasis on R&D, the company as of last year had obtained 850 patents, both domestically and abroad, or more than eight per employee.

TEXWORLD 40X80cm®ü³ø-Âà¥~®Ø20110824Singtex Industrial, a fabric manufacturer, was deemed a hidden champion thanks to its development of proprietary functional textiles made by blending fabric with coffee grounds. The products feature odor control, UV protection, and fast drying. Its patented S.Cafe brand fabric has been honored with various invention awards, including INPEX in the United States, iENA in Germany, the Geneva International Exhibition of Inventions award, and the National Invention and Creation Award from Taiwan. Singtex, which also sells other functional fabrics and garments, saw sales rise 8% in 2014 to hit NT$1.39 billion, with the EPS reaching NT$2.4.

Yoke Industrial Corp. manufactures hooks for industrial lifting under the “Yoke” brand. Technological breakthroughs in recent years enabled the company to leap from grade 80 for lifting chains and fittings, to grade 100, with products featuring much higher pulling endurance at low temperature. Moreover, it is extending its reach from manufacturing to other specialties, such as offshore engineering. The company’s sales jumped 26% to NT$2.34 billion in 2014, with gross margin reaching 30%.

Two service providers were also among the latest group of Mittelstand winners:

Bright Ideas Design, a pioneer in innovative digital cultural services in Taiwan, utilizes animation and interactive technologies for the digital presentations of museum collections, exhibitions, and historical landmarks, among others. It has played a key role in digitalizing the archives of Taipei’s National Palace Museum, as well as arranging digital exhibitions such as one of Xian’s terracotta warriors and horses and another of Beijing’s Yuanmingyuan (Old Summer Palace) Park. The company’s sales soared 77% to NT$200 million in 2014, 16% of which came from overseas markets, with EPS reaching NT$2.

Galaxy Software Services Corp. (GSS) is a leading provider of solutions for human-resource, document, and knowledge management, among other functions. It is backed by domestic and foreign patented technologies, and its knowledge-management system was recognized by receiving the Taiwan Excellence Award and the 2012 Cloud-End Innovation Award. The company’s HR management and credit-investigation systems hold the largest market share in the domestic banking industry, its knowledge-management system is the first choice of medical centers in Taiwan, and its document-management system is the most widely used by municipal governments on the island.

GSS has established cooperative links with a number of leading foreign information-service firms, including Japan’s Vintage and Orio Global, for joint development of solutions. The company’s sales amounted to NT$740 million in 2013 (last year’s figures were not available), compared with NT$530 million in 2011, representing an 18% compound average growth rate during the 2011-2013 period.

Editorial note: An earlier version of this article mistranslated the term “Middlestand”

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