CAD software in Taiwan

Disclaimer: This document was created in 2000; the data is provided 'as-is' with no warranty implied or otherwise.

i. Initial Objectives

The Taiwanese market is clearly approaching a peak growth phase as the deregulation of the state controlled Chunghwa Telecom opens the door for cost competition and rapid deployment of broadband networks. The impressive growth of Kimo.com (*2004 note - kimo.com was subsequently acquired by Yahoo) from scratch to #1 personal portal in 2½ years proves the growth of the personal consumer sector: the adoption of Internet technology in the manufacturing sector seems more conservative with most companies preferring to trust their Web presence to one of the specialist B2B exchanges. This situation is likely to change rapidly as broadband access costs reduce cost of participation.

One fact of the Taiwanese market that becomes very clear through continual analysis of Taiwanese Web sites is the incredibly competitive nature of Taiwanese companies. If a select group of manufacturers can be encouraged to use an ASP CAD service and can demonstrate success, especially in a reduction of lead-time, a snowball effect will occur as other manufacturers race to join the game.

Being convinced of the potential of the market, the question turns to one of entry strategy. Most Taiwanese market entries by foreign companies seem to be made through the creation of joint-partnerships with, or acquisition of, Taiwanese companies. While the former may be the most practical short-term solution, I am generally skeptical of joint-ventures without local presence (i.e. at least a representative office) of the foreign supplier as foreign suppliers inevitably tend to be exploited by local distributors. I would want a local full-time manager based in Taiwan to manage the relationships as they are created. The cost will be more than offset by the benefits.

The immediate objective for a new entrant must be to secure a position in Taiwan's ASP CAD market before a competitor realizes the inherent opportunity. Early positioning will also secure rapid growth during the next two years to become the dominant player in Taiwan's imminent broadband e-commerce era.

ii. Entry tactics

The initial understanding of the Taiwanese Internet market dynamics gained from a systematic and exhaustive analysis of relevant Web sites allows a reasonably accurate estimate of its present state of evolution: it is also possible to form reasonably accurate impressions of the general attitude of the Taiwanese manufacturing world to the Internet's possibilities.

My recommendations for initial entry into Taiwan's ASP CAD market are:

• Perform an exploratory visit (or visits) to meet with representatives of each of the key groups. In Asia key academics, government officials and officials of industry associations tend to be particularly well connected and one hour with the right academic or official can often save weeks of wasted effort. The purpose will be to fill in the knowledge gaps and make the initial contacts with potential partners.
• Identify a local, or at least Asian, resident (i.e. Hong Kong, Japan, Singapore) candidate, individual or corporate, to manage the market entry activities.
• Create a series of partnerships with local Taiwanese companies to provide initial positioning and market presence.
• Dependent upon initial results, plan to create a wholly owned or majority controlled subsidiary within two years.

iii. Potential Partners

The obvious partners for an ASP CAD solution in Taiwan are Mold.net and its subdomain CAD CAM Online. Both these players have the necessary pre-requisites of dominant Web presence, existing and very relevant content and a well-established subscription user base. The number of manufacturing companies that use Mold.Net's Web page virtual hosting service further evidences Mold.Net's pervasion of the Taiwan manufacturing.

The next most likely partner maybe CADMEN. The difficulty is to understand CADMEN's plan for the site (much of which seems to be under construction). The site is well designed but low on non-sales content: CADMEN seem to be a major distributor of CAD CAM software. It is not clear whether CADMEN intends to become a true portal with registration and forum areas or whether they will simply use their Web site as an online sales catalog. Still, in the business of selling multiple CAD CAM systems ASP-CAD must be relevant to CADMEN's business.

Two other possibilities to explore are firstly that of creating a direct partnership with one or more e-aware manufacturers such as Pyramids Technology or RichSign or secondly to create a partnership with one or more of the local CAD developers. In the latter scenario R.A.T., already having a sophisticated Web and consulting presence may be partner of choice followed by RITI, TCAM or Di Han.

iv. Potential Competitors

The most likely competitors to ASP-CAD in Taiwan are likely to be either of R.A.T., CAD CAM Online or Mold.net if their future growth plans call for them to expand out of the pure portal/online community and into the ASP space. I think this is unlikely for the basic reason that, although there is some advanced 3D modeling being performed at the National Taiwan University, there is generally no critical mass of modeling expertise in Taiwan. Further, the major competitors (ITI/FEGS and VDS) do not have direct presence in the Taiwan market. Again the most likely competitor would result from a similar analysis of the Taiwanese market by a US competitor. This is unlikely in the short-term because most US companies (fortunately) now tend to immediately and mistakenly consider China when looking to first enter the Asian market and bypass Taiwan.

v. Potential Allies

Potential allies differ from potential partners because their support and encouragement tends to be motivated by personal interest (the gratification of contributing to, or being seen to have influence on, the general advancement of industry/technology) as opposed to pure corporate profit. Typically these allies or champions will be academics, press editors, government officials, officials of industry organizations and very often users

Strong relationships need to be built with the useful members of this group. Successfull business in Japan, particularly in the early years, can often be traced directly to the involvement of allies/champions and the same is likely in other Asian markets (and elsewhere).

vi. Potential Customers

The analysis so far indicates that there are at least 3,100 potential customers just in the Taiwanese mold and die industry: add to that 30,000 manufacturing companies, 80% of which are SMEs with less than 100 (typically 20) employees and you have a market waiting to be exploited by a fast moving ASP CAD vendor with the right product mix. More research into typical model sizes, frequency of model interaction etc. need to be completed before putting a value to this market, but, with broadband technology permeating a true "point and click" mentality where Internet access speed begins to match low-end (10Mbps) LAN performance, a simple ASP model with a conservative (for the Internet market) take-up rate of 10%/year should be capable of generating $2m - $5m within two years of startup.

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