Office politics



There is a statistic that Taiwanese companies export something like 99 per cent of their entire product. Urban myth or not, it is pretty accurate. And for Chinese companies, the figure is similar too.
The incentive of course is obvious. Western markets are willing to pay a relatively high price for quality goods. Mainland companies in particular, because of their unique competitive advantages stemming from low cost labour and cheap land, can therefore make significant margins. And, despite the growth of the Chinese middle class, they are still not prepared to put brand before price en masse as consumers in the developed world do. Hence, the lure of the foreign dollar.
It’s hardly rocket science of course and it is a competitive environment that many companies in the office products sector in China and Taiwan have been making hay from for the best part of a decade. Moreover, for the vast majority, the means and tools of marketing are also readily available and easy to utilise.
Thus, while some of the international fairs – SHOPA particularly springs to mind – have suffered relatively indifferent attendances in recent years, the contingent from South East Asia has been a major crumb of comfort. For Paperworld too, the influx of companies from China, Taiwan and Hong Kong has also been a major public relations boost in recent years. At this January’s show, they provided a combined total of 694, more even than Germany’s 589 and way ahead of the combined totals of countries such as the UK and Italy, despite the fact that they are on Frankfurt’s doorstep.
Indeed, it was no big surprise that Paperworld decided to take its franchise to Shanghai in November 2005 in recognition of the massive impact that Chinese and Taiwanese companies have had on its attendance figures.
Little wonder that president of event owner Messe Frankfurt told OPI after the Shanghai event: "The total number of attendees always tends to be significantly higher at Chinese shows."
Clearly the Chinese love exhibitions. And it is of course not the only means of marketing available to them. Press advertising, editorial public relations, glossy websites, conferences – with all their many networking opportunities – OEM relationships and a whole variety of other marketing tools seemingly provide them with all the necessary tools to go to market.
A spokesperson for Taiwanese printer stamps manufacturer Shiny neatly sums it up. She says: "We feel that current technology has allowed us to operate and communicate fairly well and easily in the international market, and we are pleased with the existing market methods. This is the reason why we do not see the need to set up an office outside Taiwan at this stage."
Case closed wouldn’t you say? The expense of establishing an office abroad as well as dealing with all the cultural, legal and logistical factors seems to dictate a more cautious strategy.
And yet, companies frequently do set up international offices or seek international partners. That being so, when exactly do you set up an office? And what possible benefits can it deliver to a company?
Brand awareness
Taiwanese manufacturer Beautone has annual sales of $35 million, all of which is generated by the export market. It is a remarkable achievement based on a staff of just 23. And while it relies on all the traditional tools of marketing including a heavy presence at exhibitions, it also has subsidiaries in Japan and the US.
President Jimmy Ho explains why. He says: "In the era of globalisation, an international office plays a very important role in promoting our business globally. An international office strengthens our brand awareness worldwide and creates new business opportunities from different sources and different areas."
Branding is of course an issue that Taiwanese and Hong Kong companies in particular have been paying significant attention to for at least the best part of a decade.
Union Technology International (UTec) for example, specialises in the production of printer consumables and has put in place extremely tight quality controls at its partner factory in Zhuhai on the Chinese mainland. The branding benefits have been enormous as the Hong Kong-based company, which employs approximately 300 people at its head quarters, has gone on to grab a lucrative global share of the ever increasing remanufacturing market. And, it too has gone on to establish international representation in a number of markets including Canada, the UK, the US, Taiwan and Japan.
Director Iris Ngo explains why. "These are major markets for printer consumables and demand is growing. We and our partners provide complementary services to fit the requirements of different customer groups. We serve key customers who buy in container size and would like to deal direct with the production source."
Clearly customer-focus and brand-strengthening appears to be the key. Although UTec does not actually have international offices, it does have international partners in whom it trusts and which pass its strict control procedures. That can be significant when it comes to dealing with specific, local requirements.
Ngo says: "Customers who are buying in smaller quantity and can wait two months for goods to arrive will be served by our overseas business partners. Moreover, customers like retail chains, which have strict requirements on delivery lead time and other local services, will also be handled by our overseas business partners."
Beifa is another major office products manufacturer employing more than 5,000 staff with offices in international locations such as Russia, the Middle East, Latin America and the US. The Ningbo-based manufacturer, which has annual sales of $120 million and export sales of $110 million, largely corroborates UTec’s experience.
Spokesperson Arthur Li says: "Beifa started its business from the low end product range with the result that we got a big increase in business in Russia, Middle East, Latin America.
"Our experience with our customers has demonstrated to us that we need to localise our marketing behaviour in different markets, which has been very helpful in enabling us to cover the market properly."
He continues: "Our local offices have been highly beneficial in developing our business in those areas and for giving us a better understanding of local market requirements. Overall, we have found having a local office has definitely proved to be better than relying on the normal methods of business communication."
Like UTec, it has also treated the massively important north American retail market as a unique phenomena.
Li says: "When we started the business aimed at the high-end market, we opened an office in the USA mainly for the retailing market."
It is not hard to see why. The business generated by the likes of Staples, OfficeMax, Office Depot and Wal-Mart alone is on such a massive scale that it seems to place an onus on companies to open up a branch in the US, presuming of course, the resources to do so are there.
The experience of all three companies seems clear – timing and responsiveness to the different needs of local clients has been of the absolute essence. Having local partners in a variety of strategic locations has enabled Beautone, UTec and Beifa to service its customers quickly and effectively where the need has arisen.
European Union
That is not to say of course that every international market is an attractive one, even if the target market is a huge one. The European Union (EU) is an obvious case in point. It, in particular, is a stickler for environmental and workplace requirements.
Whereas there may be a more haphazard attitude towards health and safety in the workplace on the Chinese mainland as the almost monthly stories of coal mining disasters and fatalities would seem to indicate, it is not permissible within the EU.
While an office environment is of course a long way removed from a coal mine or even a factory floor, it still presents a possible minefield to companies unfamiliar with such issues.
Beautone’s Ho is consequently sceptical about opening an office in the EU. He says: "All these factors definitely pose as obstacles to establishing an international office there."
Beifa too, despite the fact that a significant proportion of its exports go to the EU has thus far not only shied away from opening an office there, it also adds that for the foreseeable future, it can not see circumstances in which it would open an office on the continent.
Li says: "As far as the EU is concerned, the demands are quite different in terms of different countries."
Ngo meanwhile, takes a pragmatic stance. She says: "When we set up an operation in a particular overseas country, all these issues will be duly considered. If the potential business from the market is not sufficient to support a profitable operation, we may decide not to set up the operation."
She adds, however: "In any case, if all players in the market are under the same operating environment, we should not be in a disadvantageous position compared to our competitors."
Does that mean companies should shy away completely from the European continent? Not so according to Atrium Incorporators Luis Correra, which helps non EU companies establish branches so that they can do business throughout the 25 member states.
It helps to set up companies on the Portuguese island of Madeira, which benefits from relatively low VAT rates. He points out that, although the procedure of setting up a branch or office has become quite complicated since new EU legislation in July 2003, it is by no means insurmountable.
"Prior to July 2003 a vendor from outside of the European Union did not have to charge VAT on services provided from outside of the European Union into the European Union," he says. "However, suppliers within the European Union did have to charge VAT. This was obviously not equitable and was the reason for a change in the rules."
"As from 1st July 2003 a non-European Union vendor must register in one of the member states of the European Union. All VAT remittances and compliance are to be organised through the country in which the seller is registered. The country of registration will then remit-on the tax it collects to other EU states in which the sales have been made."
It is, as Correra points out, both an advantage and a disadvantage. Companies seeking to export their products are charged at the rate of VAT from the originating country, not the destination country as a consequence of the July 2003 legislation. In effect, it places a premium on companies to seek out the best rates of VAT and make their location decisions at least in part on that basis. In other words, those who do their homework are likely to get the best environment from which to attack the European market.
He says: "Simplification of the issues relating to the requirement to register for VAT may well be achieved by opting for the registration of a subsidiary company in Madeira, where the VAT rate is one of the lowest within the EU."
It is an important consideration. Rates vary from as low as Madeira’s 15 per cent, which is matched by Cyprus and Luxembourg to as high as 25 per cent in the likes of Sweden, Hungary and Denmark.
As Correra points out, a low cost VAT environment could be critical when real estate costs, workplace legislation and tax and environmental issues are factored in.
"[Low VAT] enables a supplier to retain an ongoing competitive advantage over other local EU suppliers. Madeira’s special tax regime would enable the profits within the company operating in Portugal to be sheltered from any corporate tax and any withholding tax on distribution of profit."
UTec’s take seems to be to look upon such issues as a challenge rather than an obstacle.
Ngo says: "We face different types of problems in different countries, primarily due to different pricing structures, user expectations, import and environmental regulations, and other special features of the local consumable market.
"One example is the restriction on the import of used goods by some countries, which creates problem for selling remanufactured cartridges into these markets. The recent increase in import duties on compatible printer consumables in Russia is another example."
But it doesn’t seem to put off the thrusting Hong Kong manufacturer. Indeed, so well has the UTec business model worked so far that Ngo doesn’t rule out the possibility of further market entries in the future.
She says: "We would set up similar operations/partnership in markets where conditions such as the right kind of market size are favourable. One of the central and eastern European countries might be attractive."
She adds nevertheless that such countries may only enjoy a temporary advantage. "It may be cheaper now but we believe in a few years time the gap will be reduced. Moreover, the support in terms of infrastructure and the availability of experienced staff are not as good as in Western Europe."
What is clear is that for UTec, and indeed Beautone and Beifa, setting up international offices, subsidiaries and partnerships has been highly effective.
The key component seems to be achieving the right kind of critical mass from a volume and sales perspective to make the whole venture worthwhile, knowing how that office will help develop the strength of brand, and finally ensuring that the focus on the customer in that target market is effectively enhanced by the whole procedure.
Given their relative success, it is no doubt something other Taiwanese and Chinese companies will be mulling over in the coming five years.