Taiwan-based Lighting Makers Shift Focus From Export to China Market

An increasing number of Taiwan-based lighting manufacturers operating in mainland China who used to depend on exporting to the West and other global markets have, after suffering steadily declining export due to soaring Chinese yuan (RMB) against the greenback, lingering sub-prime mortgage loan crisis stateside, spiraling oil and commodity prices, as well as downturns in the British banking sector, housing markets and waning consumer confidence in Germany, France etc., recently been forced to try wooing consumers in the China market.

One such firm is Albright International Group, who has turned to increasing sales of its Alart-branded Euro-flavor lighting fixtures in China beginning this year in light of the appreciating yuan, which has risen approximately 20% over the past year, as well as China's policy to bolster domestic consumption.

The company has been for years a contract supplier of lighting products and furniture to international retail chains such as Wal-Mart, Target and Pottery Barn.

Albright chairman, S.M. Lin, notes that corporate exports have not only shrunk but also become less profitable over the past two years. "Besides migrating overseas or inner provinces, tapping the domestic China market has become another choice for most Taiwanese manufacturers here to turn business around," Lin says.

Distribution Network

Lin's first step to break into the mainland's domestic market is to establish a distribution network: April this year his company opened retailers in Guangzhou and Dongguan, two main cities with considerable affluent consumers. Two months later, his company spent RMB500,000 (US$65,000 at US$1:RMB7.6) on a promotional presentation to show dealers its upmarket products, as well as publicize its strategy to target the mainland market. Mainland dealers at the promotion were very responsive to Albright's upscale Euro-flavor lights. Planning to open flagship stores soon in major cities in China, Lin moved production to China in 1992 and began testing such market around five years ago.

Lin also has an aggressive idea-opening a showroom in Dongguan to let Taiwanese lighting manufacturers display products. "We can make such showroom a key channel into the mainland's domestic market," he says.

Backed by 30-plus years of experience in this line, Lin comments: "Tapping the China market is much harder than promoting exports for it's formidable to establish a nationwide dealership network and the costs for inventory and marketing are pretty high. So, forget about stepping into this market without having solid capital."

However, he estimates domestic sales to offer 10% more profit than exports on average, after deducting overhead and inventory, due to 30-50% higher retail prices than that for export. "You must set up production lines and designs specifically for domestic and overseas markets to stay profitable in both segments," Lin says.

Shifting Marketing Focus

Another firm that is shifting emphasis from export to domestic sales is Bright International Group Ltd., who vows to boost sales in China to account for 50% from 10% of total sales over next few years, with sales in China turning profitable last year. "We've begun refocusing marketing from export to China, as well as promoting the 'Bright' brand," says company general manager C.H. Chen.

Founded in 1983 in Taiwan and opened a factory three years later in China, Bright International launched initial public offering (IPO) in Hong Kong in 1999, when its staff totaled over 3,000. The company has headquartered its domestic market operations in an eight-floor tower it acquired in Shanghai, in which the company has also opened an illumination-application unit, a lighting museum and a designer club, showing its determination to build the mainland market. The company operates eight branches worldwide, half of which in the mainland.

With the Expo 2010 to be held in Shanghai and the recently ended 2008 Olympics in Beijing, the company is bullish about the mainland's lighting market. "We are eyeing the huge potential business opportunities incurred by the 2008 Beijing Olympics and 2010 Expo in Shanghai," said John Pak, sales and marketing director, before the sporting event. Pak says his company will step up marketing in China by working with 155 chain stores, having already promoted hotel and commercial lighting last year at the Hong Kong International Lighting Fair.

Noticing the recent developments, some Taiwan-based industry watchers warn of the considerable risks in the vast Chinese lighting market, an infamous paradise for copycats. They note that China is gradually transforming into a "world market" from a "world factory," one that entices not only foreign sellers but also local ones.

Paying Heavy Tuition

Most of the heavyweight Taiwan-based lighting manufacturers tapping the China market, like Bright and Albright, say that massive capital has been paid to learn to set up distribution channels, with such tuition being worthwhile only if lessons are learnt via failures. Bright International is an example, finally breaking even with its mainland operations by adjusting its lineup; while Albright has been courting for some time its mainland dealers, smoothing its road into the local market.

Clustered in Guzhen, Guangdong

Having chosen Guzhen of Guangdong Province as a popular first-stop in setting up operations in China, tens of thousands of Taiwanese lighting manufacturers are clustered in the small town promoting mid- and low-grade products.

After the pioneering days in Guzhen, Taiwanese lighting manufacturers today are focused on serving upscale markets, which enables differentiation from their mainland counterparts. However, Taiwanese suppliers' facility to access European and American markets do not guarantee the duplication of such marketing feat in China with the same products designed for the West. A keen market sense, domestic market analysts say, is necessary to effectively tap the China market. In other words, successful Taiwanese lighting makers are the ones who can deliver products that appeal to local taste.