Taiwan Today

At 5:00 a.m. every morning, Peter Lo gets up and straight onto a treadmill for an hour. He has been running this routine for more than 20 years. For the 65-year-old native of Chiayi County, being on the treadmill is both literal and figurative: he is the founder of an enormously successful fitness equipment business, Johnson Health Tech. Co.

Lo, however, had been around the track before he started Johnson. His first job was selling fluorescent lamps door to door to help support his nine siblings and pay his own tuition fees at university. Graduating as an elementary school teacher, he later became a customs officer.

"I wanted to make money to lift myself out of poverty," Lo says frankly when asked about his business beginnings in the 1970s. "I thought international trade would be a good field to get in to." With this in mind he purchased a US corporate directory and started writing to what he thought were potential collaborators, soliciting business opportunities of any sort. Faced with such a thankless and seemingly futile task, he recited the mantra "I can do anything" over and over again.

The Toll of the Barbell

After six months he finally received a US$200 order for 400 barbells. He accepted the deal immediately, even though he did not know what on earth they were or where to get them. After tracking the weights down at several local factories, he was told that the offer was too low for the quantity requested. He had no choice but to buy the raw material and hire an old ironmonger to produce the barbells for him. The US buyer was satisfied with his product quality and placed increasingly large orders with him.

As a result, Lo set up Johnson in 1975 in Taichung County. He next struck a deal with top US barbell maker IVANKO to produce weightlifting equipment on an original-equipment-manufacturing (OEM) basis. Thanks to its strict quality control, the company quickly emerged as the world's largest supplier of weights, accounting for 70 percent of US market share in just three years.

With a view to beefing up his business scope, in 1980 Lo set up a research and development (R&D) team to take on original-design-manufacturing (ODM) as well. Several well-known sports equipment firms in the US, such as Ross, Universal, and Schwinn, became his clients, and both businesses fared pretty well during the 1980s. However, low-price competition from China brought on a downward trend in the 1990s, and in 1996, one of Johnson's big customers, the American Trek Bicycle Co., announced its intention to close down its fitness product division. The projected loss of business from this client alone forced Lo's hand to a make-or-break move--he bought the division, changed its name to Epix Inc. and launched the "Vision" brand to target medium-price specialty dealers in North America.

Flying in the face of commercial logic, Lo then went to the US to find out why the company he had just bought was doing so badly. He discovered two major problems: first, Trek had sold stationary "exercycles" at regular bike stores; and secondly, the exercycles made a racket that seriously deterred potential buyers.

Realizing that he had little knowledge of either the US market or marketing, Lo made himself responsible for product improvement and slashed the number of staff from 15 to four. In addition to retaining the manager of the American business and granting him full operational authority, Lo offered him a three-year contract with generous profit-sharing incentives. The lucrative offer motivated the manager to outperform himself, and Epix's sales jumped from US$4.75 million in its first year of operation to US$12 million in the second year and US$22 million in the third.

In 1999, Lo set up a brand, Horizon Fitness, in the US to venture into the low-price home-use market. And in 2001, he established another one, Matrix Fitness, targeted at the high-end commercial market, while gearing Johnson toward middle-range fitness centers and hotels.

"If you have OEM and ODM businesses, you're always making money for other people--you're likely to end up in price wars and get driven out of the market," Lo says. "To ensure sustainable operations, you need to build your own brand names and sales channels, and respect professionals. These are the real lessons I've learned."

Carrots, Sticks and Success

Johnson Health Tech. has so far founded 19 overseas offices and teamed up with 40 distributors in some 60 countries to sell its brands and services. It has also built two manufacturing bases in China. Currently, the group is the only company of its kind listed on the Taiwan stock market, and it employs more than 6,500 workers worldwide.

Lo's management philosophy is simple. "Set up standards, 100 percent execution and in-time rewards and penalties," he says. "Efficiency comes from discipline; discipline comes from management. Without management, there is no discipline and consequently no efficiency. No efficiency leads to bankruptcy." At Johnson, employees are issued red tickets and fines of NT$1,500 (US$45) for any practice that contravenes company regulations. All staff are required to formulate short, mid and long-term goals for their tasks, and bonuses are given to individuals or departments who perform best. "Management by objective, the profit center and the bonus system are the keys to our group's expanding operations across the globe," he says.

Apart from branding and sales, the fundamental success of a business hinges on the quality, innovation and marketability of its products. Johnson holds more than 50 patents for its fitness equipment, which is certified by the US Food and Drug Administration and has attained ISO 9001 and ISO 14001 certification.

In 2005, the SNEWS Fitness Retail Survey, an annual review of the outdoor and fitness industries, listed Vision treadmills and stationary bikes as the top-selling retail brand in the US. This year, the Matrix hybrid exercise bike was awarded a "Symbol of Excellence" by the Taiwan External Trade Development Council, the seventh time for a Johnson product.

William Poon, sales and marketing manager at Johnson, explains that product design is guided by the requirements of different market segments. For example, commercial equipment buyers prioritize durability over price, while home users are the exact opposite. "Our mission is clear: develop the quietest and most reliable user-friendly fitness products through sophisticated design and technological innovation," he says.

Fitness Now

Johnson's product development currently focuses on software that provides more workout options and levels of progression, as well as more feedback to inform users of their achievements. In addition, entertainment enhancements, such as DVD players and MP3-player connectivity, are being combined with greater lumbar support and elastomer cushioning systems to motivate users to go the extra mile.

Poon credits his company's competitive edge to making good use of different countries' operational advantages. At present, the global fitness equipment market is valued at US$6 billion, with North America accounting for two thirds, so Johnson assigns its R&D center in the US to deal with product looks, functionality and specifications while the Taiwanese team centers its efforts on the electronic, mechanical and production designs. Johnson's factory in Taiwan makes high unit-price models in small quantities, and the Shanghai factory mass-produces economy models. By means of such division of labor, the company is able to offer products at prices 20 percent lower and specifications 20 percent higher than its rivals.

Johnson has also worked on its capability to manufacture key cross-platform components like drive motors and upper and lower boards. This not only facilitates rapid product development, but also enables the company to continually raise quality while lowering costs.

"We've built core competitiveness by internationalizing all our operations," Poon says. "We can now design a new product from scratch, organize effective marketing campaigns and provide efficient after-sales service within six months."

Kuan Cheng-neng, chairman of the Graduate Institute of Industrial Design and Architecture at Shih Chien University, says Johnson shows how a company can increase its potential with market-responsive products and slick management, rather than cutting-edge technologies. "Most people hold the misconception that R&D is all about technical prowess and that only high-tech products can compete in the world market," he says. "But consumer values are changing... they want things that fit into their lifestyles. This calls for an emphasis on design concepts."

In the case of home fitness equipment, these concepts need to not merely address people's enthusiasm to get in shape but also blend in their homes with other furniture. "To be successful, companies must delve into the households, lives and culture of their target consumers, and design products based on this knowledge," says Kuan. "From this perspective, fitness equipment is a cultural industry."

Kuan thinks that Johnson has done well with branding and design and pricing levels for different markets. "Johnson is a model of the traditional Taiwanese manufacturer that has maintained a competitive edge through the integration of brand management, design, production and marketing capabilities," he says.

Now the top supplier in Asia and the fifth largest in the world, Johnson's sales in 2005 leapt 33 percent, well ahead of those of its top four competitors. The company's goal is to become the world's number one vendor by 2008, after which it plans to further diversify its business scope to other wellness-related industries.

The days of poverty long gone, Lo sits in his spacious and elegant office, content but by no means resting on his laurels. "I wouldn't have got where I am today if I didn't take the initiative with brand name products," he says. "Now I'm not so concerned about how much money I make. I want to see my company keep on growing and spreading fitness to improve people's health." What started with simple barbells and cold calls has become an efficient exercise in international business.