The industry reacted with little surprise when Staples announced that it had established a joint venture with UB Office Systems, a leading office supplies delivery business in Taiwan.
However, at the global headquarters of Lyreco the news was greeted with surprise as they began to look closely at the strength of their global delivery alliance with the Framingham-based retail giant.
And the question on the lips of Lyreco executives was why Staples would enter into an agreement with another contract delivery business in what is emerging as a crucial developing market.
Jay Baitler, executive vice president of Staples Contract, North American Delivery, moved swiftly to dismiss rumours of a crack in their agreement with their French partners.
He told OPI: "We expect that our alliance with Lyreco is as important now as ever. Both Lyreco and ourselves understand that each of our growth aspirations dictate that we may both end up present in the same markets.
"In practice we have competed fairly with Lyreco in Canada for many years and that has resulted in no negative pressures on the partnership. We know that we will continue to rely on Lyreco and they on us with practical as well as logical adjustments over time."
But OPI understands that while Lyreco was aware of the retail intentions of Staples in Taiwan they were perhaps unaware of the emphasis within UB Office Systems on the contract sector.
And although the JV announcement appeared to typify the stampede to grab market share in the Asia Pacific region, local sources said Staples had been trying for years to enter the local market.
The move, details of which were not fully disclosed, comes almost two years after Staples struck a JV with the Chinese internet and catalogue delivery business OA365.com, which has brought a number of big clients to Staples. The OP giant has also disclosed plans to open office supplies superstores with direct sales in China over the coming months.
With the Taiwan OP market estimated at $2.5 billion, Staples’ logic is clear. Spokesperson Owen Davis explained to OPI: "This joint venture is an efficient way for Staples to develop our capabilities in the market by partnering with local business experts and a leading brand. Staples looks forward to working with the UB Express team including Elton Lin, UB Office Systems chairman and CEO, who is highly regarded for his leadership."
As with Staples’ Chinese partner, UB Express customers place orders via catalogue and online, and include government agencies, large financial institutions and big multi-nationals.
UB Office Systems, established in 1973, is the largest office furniture manufacturer and retailer as well as the leading copy machine distributor serving corporate customers in Taiwan. UB Express was established in 1998 as a business unit of UB Office Systems. According to local sources, the company has been trying to enter the retail chain-stores market for a number of years.
And now the company will start a new era, under the name of UB Staples. "UB is a strong brand name in the Taiwan market," said Davis. "The joint venture will be co-branded UB Staples, leveraging two leading brands.
"Combining UB’s customer base, well-known brand and experienced management team with Staples’ best practices and global procurement power represents a significant opportunity for Staples to grow in the Taiwan market," he added.
Modern Taiwan has a dynamic capitalist economy with a gradually decreasing guidance on investment and foreign trade by government authorities. Privatisation is also progressing at full speed.
The country also has a global manufacturing base that is second to none, and one that is imprinting on the global OP industry more heavily than ever. Stationery exports total around $500 million a year, with the US, China and Hong Kong the biggest markets. At last year’s inaugural Paperworld China, Taiwan made up one of the largest group of foreign exhibitors. And at Paperworld 2006 in Frankfurt, it was the third largest represented country at the show with 217 exhibitors. Furthermore, the tenth Taiwan Stationery Fair in February welcomed around 150,000 visitors.
Donald Mai, chief secretary of the Taiwan Association of Stationery Industries (TASI) was quick to see the sense behind Staples’ move. "There is probably around $10 billion-worth of business a year for stationery and office products here in Taiwan," he said. "That’s why Staples would like to enter this market by working strategically with UB Express… However, there is no evidence their cooperation will go any further."
Mai claims that UB Express’ local knowledge will be crucial for Staples. "The Taiwan market is very similar to that of Japan; we have very strong sales channels and client relationships – new dealers or those without a specialised knowledge cannot approach this market easily," he told OPI.
"And, geographically speaking, Taiwan is a very small island; it is easy to find a stationery retailer," Mai added. "But if Staples can make a successful and convenient shopping model, I think it will be successful working with UB Express. The importance is trying to build up a good relationship with those already in this field including retailers, wholesalers, and even manufacturers."
Some analysts say that the Taiwan market, currently highly fragmented, offers a plethora of opportunities for the big box player. Desmond Wong, president and CEO of Sino Strategies Group and former China expert at Ernst and Young, told OPI: "[This is] a very positive move. Taiwan has a more advanced economy than China and therefore spells greater market potential for office products.
"Staples brings a world-class brand name, product assortment, sourcing, service standards and presumably cutting-edge inventory management expertise to an important economy in the Pacific Rim," he added. "It has teamed up with a strong local partner to kick-start what can be a very significant Staples presence over time."
Gary Balter, research analyst at Credit Suisse, believes that Staples’ international division was a "sore spot" in 2005, but is looking more upbeat, in part due to new ventures such as these. "It is showing signs of life and could be a meaningful contributor to the total results this year even at only 13 percent of total sales." But Dan Binder, SVP of Buckingham Research, warns that Staples’ Taiwan JV will have a limited impact on the bottom line. "The Taiwan JV is a very small venture and we did not issue a note on it. I do not think there are lots of natural synergies outside Staples’ general expertise in running a business and maybe minor synergies on global brands. I do not expect the deal to be meaningful either to Staples sales or over the medium term."
Despite his praise for the move, Wong also expects there to be minor local challenges for Staples in the country. "[There will be] fierce local competition, albeit from fragmented, smaller entities that may not have the resources and scale of economy of a Staples/UB partnership," he said. "Direct linkage with the next-day delivery business offers Staples but one venue to perfect its delivery business model for elsewhere in the world.
"But Staples’ strengths can help overcome local competition," he added.