Designing success

A prize-winning work from the China Automobile Model Design Competition is on display in Wuxi, Jiangsu Province. Photo: CFP

By Chen Yang

Facing the challenges of ramping up from contractual manufacturing, many Chinese companies are investing in industrial design services to boost their business and create original brands.

It's all about ramping up from original equipment manufacturing (OEM) and original design manufacturing (ODM) to becoming an own brand manufacturer (OBM).

"Industrial design is the best solution for manufacturers in the Pearl River Delta area to achieve an industrial upgrade," said Wong Wing-chen, director of Hong Kong Innovation and Technology Commission, at China Hi-tech Fair held in Shenzhen, Guang-dong Province last week.

Yang Xiangdong, dean of the Guangdong South China Institute of Industrial Design, said at the same fair that original designs have helped companies in Dongguan, Guangdong Province gain new opportunities and profits.

"We provided about 200 industrial design plans to 111 companies in the Pearl River Delta area in 2008 and many designs have become commercially successful," Yang said.

Designing success

Singfo Electrical Device Engineer, a supplier of diesel generator sets, benefited from developing original products. The move raised its domestic and overseas orders fivefold after redesigning their products last year, and resulted in an additional 180 million yuan ($26.4 million).

Guangdong Xinbao Electrical Appliances Holdings was an early design success story. It started its OEM business in the 1990s, but invested in design services and concentrated on its own brand Donlim in 2001. As a result, its revenue has experienced a 50 percent annual growth, according to the company's website.

The company's domestic sales reached 150 million yuan ($22 million) in 2008, a 100 percent growth year-on-year, partly due to large sales of its original fruit juice and soybean milk making machine.

"Investing in design costs money, and a lot of people think it is an extra cost. Actually statistics tell us companies that invest in design always perform better than their competitors," said Nick Vasiljevic, managing director of Pilotfish, a design and technology development consulting agency with offices in Munich, Taipei and Amsterdam.

Vasiljevic said mainland manufacturing companies would do well to follow examples of Taiwan companies Acer and ASUS, which have gone from OEM and ODM status to OBM.

Acer, an IT company established in 1976, provided contract manufacturing and design services for international brands such as Dell but in 2001 it spun off its OEM and ODM units and renamed them Wistron and BenQ.

ASUS produces components for other manufacturers such as Apple and Sony. The company also spun off its contract manufacturing services in 2007, due to the fast growth of its own brand, which is valued at $1.32 billion according to the 2008 Taiwan Top 10 Global Brands survey.

"If you are OEM or ODM, the only thing you can compete on is price, and only one company could win from the competition. If you are OBM, you can compete in design as well," Vasiljevic said.

Investing in the future

Zhang Wendong, chairman of Edifier Technology, a private audio system company established in 2001, said his company started with contract manufacturing and then realized that without original technology and design they would face fiercer competition from other manufacturers.

"Industrial design is an investment rather than a cost and helps companies build brands and attract more customers," said Zhang at Icograda World Design Congress 2009 held in Beijing last month.

Edifer set up a design team in 2004 and poured money into research and development to build its own brands, Edifer and Xemal.

The efforts and expenses paid off. Edifier's audio speakers, Luna 2 and MP300 Plus, have won international design awards including Red Dot Design Awards and iF Design Awards, and its own brand sales now far outweigh those of its OEM and ODM products.

Edifier's current OEM and ODM services for overseas clients include Switzerland's Logitech, South Korea's Britz, Japan's Hokusai and Tesco International Sourcing, generating a revenue of 6.27 billion yuan ($918.6 million) in the first half of the year.

But its revenue generated from its own brands reached 330.9 billion yuan ($48.5 billion) during the period, according to its prospectus for an IPO plan for the Shenzhen board. The plan was approved by China Securities Regulatory Commission on November 13. It plans to issue a maximum of 37 million shares to expand its production capacity.

Zhu Tao, director of China Industrial Design Association, said at Icograda World Design Congress that financing difficulties, a lack of talent and protection of intellectual property rights (IPR) are main factors that hinder the development of industrial design services.

But Vasiljevic is optimistic about the prospect of industrial design services in the country.

"Some multinational companies may have worries about IPR problems, but China is a big market and the risk of IPR problems is less than 20 years ago, because China is a member of the World Trade Organization and should comply with international laws and regulations," he said.
 

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