2010 Most Admired Company Survey shows return of management fundamentals

By David Huang and Benjamin Chiang

As China shifts its economic focus from pushing exports to developing domestic consumption, and per capita income approaches US$4,000, it appears to be on the verge of replicating the high consumption era of Taiwan’s economic boom. The trend has presented Taiwanese non-high-tech companies with an opportunity to reverse their struggles of recent years.

That sense of optimism was reflected in CommonWealth Magazine’s 2010 Most Admired Company Survey, which saw the auto sales and tourism sectors fly up the charts, with more than half of Taiwan’s 10 most promising non-high-tech companies coming from those two sectors for the first time. Not High-tech? Not a Problem This year’s Most Admired Company Survey covered 22 rather than the usual 23 sectors, leaving out the optoelectronics industry. The industry’s leading lights, AU Optronics Corp. and Chi Mei Optoelectronics Corp. (now Chimex Innolux after a merger completed in 2010) both posted losses in 2009, making them ineligible for consideration based on the survey’s criteria. The biggest jump made by any sector was the auto sales and services industry, not only breaking into the top 10 but soaring in the rankings from 20th last year to third in the 2010 survey. Morgan Stanley Taiwan Limited now estimates vehicle sales will grow by 2 percent in Taiwan this year, far better than its original forecast of a 10-percent decline. With Taiwan’s economy projected to grow at a rate of 8-10 percent, the sector’s outlook is promising. According to Enrich Finance Information Co. CEO Frank Kuo, Yulon Motor Co. consumer financing subsidiary Taiwan Acceptance Corp. saw its 2010 first-half revenues grow by NT$3 billion, or 30 percent year-on-year, driven mainly by a boom in new car loans that signaled the automotive market’s vitality. Kim Liang, an assistant professor in Shih Hsin University’s Department of Finance who specializes in financial management and marketing, says China surpassed the United States last year as the world’s largest car market, with 13.6 million cars sold. China’s 12th five-year plan, which takes effect next year, will make raising the wealth of its people a top priority, Liang says, and that new focus, at a time when Taiwan-China relations are improving, will give Taiwanese enterprises an opportunity to capitalize on China’s growing demand for cars. China Steel Back in the Top 10 After a one-year hiatus, China Steel Corp. moved back into the elite club of Taiwan’s 10 most admired companies, while power supply giant Delta Electronics Inc., which squeezed into the top 10 in 2009, continued its rise this year by jumping from eighth to fifth. Smartphone maker HTC Corp. jumped past chip designer MediaTek Inc. into third, behind perennial frontrunners Taiwan Semiconductor Manufacturing Co. and Hon Hai Precision Industry.

China Steel has moved aggressively in recent years to expand its regional presence. In 2008, it completed its takeover of Taiwan-based Dragon Steel Corp. to expand its capacity by 40 percent, bought a 5 percent stake in Formosa Plastics’ steel venture in Vietnam, and joined with Japan’s Sumitomo Metal Industries to set up a cold-rolled steel plant in Vietnam that will have an annual capacity of 1.6 million tons. It then moved into China for the first time this year, buying a 70-percent stake in Changzhou Xinzhong Precision Alloy Forging Products Co. In the 2010 Most Admired Company Survey, China Steel ranked at the top of the metals sector in all 10 indicators, outpacing its rivals by especially wide margins in the categories “finances” and “long-term investment.”

China Steel’s expansion bucked steel industry trends. But in other sectors, where enterprises were frenetically expanding, some of the top companies in the survey had the resolve to resist the temptation of joining the fray and relied on patience and good management to come out ahead.