Small World? Maybe, Maybe Not.

How does a small IT company get a toehold in a $50 billion market 6,776 miles from home? Acer's Simon Lin explores the unique challenges Asian-based firms face in going global.

In the 1980's comedy hit Romancing the Stone, Michael Douglas shrugs off his broken umbrella with the comment, "Made in Taiwan." The scene summed up the image of Taiwan as the hub of cheap, low-quality manufacturing at the time. Fast forward to 1998, and a scene in the blockbuster Armageddon shows an astronaut banging on a malfunctioning computer system in the spaceship, cursing that "all American computer systems are now made in Taiwan."

While Taiwan is now associated with high-tech systems used in spaceships instead of umbrellas, its global image has not kept pace with the industrial evolution from low-tech to high-tech production. Taiwanese companies have been export-focused for years, yet most of them remain invisible to the world marketplace.

Almost no Taiwanese brand names are recognized around the world, primarily because most companies have been producing on an Original Equipment/Design Manufacturing Basis (OEM/ODM). Few firms have been willing to make that jump from OEM to brand-name marketing or to handle more than just design and manufacturing for their customers. While that's changing in Taiwan, with companies such as Acer, UMAX, and Giant Bicycle starting to make a name in global markets, this is a typical dilemma for most Asian firms, with the exception of Japanese companies.

Moving from a domestic to a global enterprise is a challenge for any organization, but for Asian firms it can be especially difficult. first, with the exceptions of Japan and China, no Asian country has a large enough domestic market to serve as a basis for brand-name development worldwide. Before Toyota or NEC attempted to go global, for example, each built a strong brand equity in its home market.

U.S. companies also enjoy a strong domestic market in which to build a company, product, and brand image, marketing expertise, sales/distribution channels, and other operations that can be applied to a global operation. The U.S. also has the benefit of strong domestic human resources to help manage international offices. Asian firms are struggling to market products or services and operate globally without that home court advantage, the relative experience, or the right people to leverage.

The financial resources a large home market provides are even more crucial. Without big sales at home, a company has limited funds to invest in expanding globally. Some Asian firms try this approach anyway. However, rapid expansion financed by big debt played a large part in the downfalls of many Asian companies recently, especially those in Thailand and South Korea.

Unfortunately, some Asian nations saw this as justification for returning to protectionist policies and closing their borders to foreign competition. But in the long run, this is not the answer. By keeping competitors out, a domestic firm may easily become the leading name in that market, but that's as far as it will ever go. Once the market opens up again - and it will - that company won't be able to compete with the big, world players, who have built up a world image. It's like the old saying of being a "big fish in a little pond." It feels great for a while, but sooner or later you have to hit the open ocean.

For a company from a relatively small Asian country to compete globally against world players it must decide to be global from day one. In Taiwan, other information technology companies have criticized Acer's early determination to be a global company. But many of those same firms are now finding it extremely difficult to apply their Taiwan experience to a world marketplace. As early as 1980, when we had only about 150 employees, we knew we had a tiny market at home and began marketing our products overseas.

Of course, that doesn't mean we went head-on with global market leaders. Since resources were extremely limited at that time, we chose to start by focusing on key global markets, including Belgium, Germany, and Norway. We also simultaneously built market share in emerging technology markets throughout Southeast Asia and Latin America. These smaller markets provided us with valuable logistical, localization, and marketing experience, which we applied when we were ready to jump in the American market.

Asian companies must also be willing to forge strategic alliances, form joint ventures, and hire local distributors. While many Asian bosses don't like to give up total control, it's nearly impossible for Asian companies to go it alone, as most lack the resources and the manpower. Thus, this old paradigm of trying to keep a tight rein while internationalizing just doesn't fit.

Control is not the only issue. There's also the challenge of integrating corporate and cultural values. Take marketing budgets, for example. When Acer America was first starting out, we knew we had to spend more money in that market on promotion and communications. The U.S. management team wanted a big-budget launch, expecting all the money for the year up front. But from our perspective at headquarters, we wanted to give part of the budget, see the results, and then allocate additional funds.

It's like watching two different types of gamblers at a Las Vegas casino. One places all his chips on a single roll in order to get the biggest possible return and the other only bets a quarter of his chips and saves the rest for future bets. Neither approach is right or wrong; the trick is finding a compromise that everyone is happy with. In our case, we met halfway, agreeing to give half the budget for the first phase of promotion but also implementing a system to check results.

Many Western executives have had difficulty understanding the recent problems Asian businesses have been facing. In the West, if a company is suffering, you sell it, merge with another firm, or simply declare bankruptcy. In Asia, a company and your employees are like family. Selling a young company for a big profit after a successful IPO would be like selling out your brother.

It's equally impossible to fire someone, so companies often hold onto unproductive employees. This is why workers in Japan and other parts of Asia have been shocked by - and often unable to cope with - the fact that lifelong employment is no longer guaranteed.

Asian companies also have difficulty recovering from an economic crisis. Hiring a McKinsey & Co. to restructure your operation or selling a money-draining franchise is not standard practice. For a South Korean firm to sell shares or approach international buyers, for example, is an incredible loss of face and break from tradition. However, partly because of the recent economic turmoil and partly because of globalization, many Asian firms are beginning to accept a more Western approach.

Lacking a strong corporate or product identity makes turning around a struggling operation that much harder. When Apple Computer was in a downward spiral, it benefited from one of the most loyal and dedicated consumer bases in the industry. This loyalty, even among analysts, gave them the chance to turn things around and weather abrupt flip-flops in strategy.

This can apply to entire countries. "Made in Japan," for example, brings a distinct set of positive images to consumers' minds around the world, typically great quality and high technology. So, in addition to brand names, such as Toyota or Sony, the country itself enjoys high brand equity.

But no other Asian country has such a distinct image. What does "Made in Malaysia" or "Made in Thailand" really mean? Not only does a company have to develop a global image, so does the country of origin. This takes time. Japan had a huge image deficit after World War II, when it was known as the home of cheap consumer trinkets. It took 20 years to replace that perception with the high-tech, high-quality image Japan has today. Taiwan is on the right path, as are Singapore and South Korea, but we have another five to 10 years to go.

In the meantime, emphasizing country of origin can be more of a liability than an asset. While we don't hide the fact we are a Taiwan firm, we also don't stress it. In the U.S., we promote our products as made in the U.S. and the same is true for our operations throughout Europe.

As one Taiwan executive said recently, "do we want to be a great Taiwan company or a great global company?" Reality dictates you can't be either without a well-known corporate or brand name. Few people know that Taiwan companies make nearly half the desktop and notebook PCs in the world, as well as nearly all the computer monitors, motherboards, scanners, and many other top computer-related components. Taiwan is also home to the biggest pure foundry of semiconductor products in the world.

Customers of Taiwan's IT industry, such as IBM, Compaq, or Dell, know this, but consumers don't. Why? Because they look at the brand name of the product they are buying. But to become one of the top brand names in any industry or product sector is tough. For Asian firms, the best approach is to find a niche product, something unique, or to be first to market with a new product. It only takes success in one product to make it globally. Then, the company can diversify into other areas and products, leveraging its experience, sales/distribution channels, and image.

Building and maintaining an image is the biggest hurdle most Asian firms face. This is an intangible element that most companies in the region don't understand and are unwilling to invest in. Other local firms often criticize Acer for spending millions to build brand equity through ads, sponsorships, promotions, and brandname product marketing. Recently, we were a sponsor and the official computer of the Asian Games held in Bangkok. This type of high-visibility activity is the only way to increase our brand equity.

Only by building a strong image and recognizable brands will Asian countries and companies be able to narrow the gap between reality and perception and make the jump to the global stage. Maybe in the next Bruce Willis action film, a Taiwan-made computer will save the earth from disaster. Of course, in a perfect world, it would have the Acer brand name stamped across it.

Simon Lin is president and chief executive of Acer Corp., a $6.5 billion PC manufacturer.