The current issue and full text archive of this journal is available at

www.emeraldinsight.com/0955-534X.htm

Innovation
Entrepreneurship and innovation process in the
process in the health industry health industry
in Taiwan
453
Benjamin Jian Chung Yuan, Chun Yi Liu,
Kun Ming Kao and Ying Che Hsu
Institute of Management of Technology, National Chiao Tung University,
Hsinchu, Taiwan, Republic of China

Abstract
Purpose The purpose of this paper is to analyze the development of body fitness equipment in
Taiwan from the viewpoint of innovation and the factor of success for innovation.
Design/methodology/approach The research methods include a literature study and a case
study. In addition, the innovation activity of an enterprise is based on the viewpoint of procedure
(input-process-output). The innovation activity of an enterprise is separated into three phases:
innovation motivation, innovation process, and innovation performance.
Findings The enterprises competitive advantage and efficiency can clearly be seen, and the reason
for the enterprises success can easily be identified through a structural analysis of the innovation
process. The research results indicate four factors for the success of Johnson: mastering technology,
good management, employment of diversified talents, and clear brand positioning.
Research limitations/implications The innovation research model provides a comprehensive
summary of the innovation process, stressing innovation activity. The study of the factors of success
does not establish quantified or non-quantified innovation indicators.
Practical implications The factor of success of innovation is not exactly the same for every
company. Sorting and analyzing the individual cases can serve as a basis of reference and act as a
guidepost for other companies in similar industries during their business development.
Originality/value The analysis model of innovation activity can clearly explore the development
process of the innovation success of an enterprise. Simultaneously, this research can serve as a role
model for other companies when they innovate.
Keywords Entrepreneurialism, Innovation, Fitness centres, Brands, Public health, Taiwan
Paper type Case study

Introduction
Small-medium enterprises in Taiwan are a major source of economic development for
Taiwan. Most were based on the manufacturing industry. However, following a change
in the economic environment, the original cost advantages were lost and these
small-medium enterprises were forced to transform and develop in the high value-added
direction to survive. However, among from many small-medium enterprises, several
companies transformed themselves through the innovation process into large
enterprises with internationally famous brands. Amongst these, Johnson Health Tech.
Corp., specializing in the manufacture of body fitness equipment and sporting goods,
was a successful role model for innovation and its innovation process could serve as a European Business Review
Vol. 21 No. 5, 2009
guidepost of transformation for small-medium enterprises. pp. 453-471
As being healthy becomes a more and more popular concept, people take more q Emerald Group Publishing Limited
0955-534X
and more care of their physical health. Such a trend for being healthy is helpful DOI 10.1108/09555340910986673
EBR in developing the industry for fitness equipment. Taiwan enterprises are present in the
21,5 world fitness equipment market and have also been silently developing this field.
The most popular fitness equipment brand in Taiwan is Johnson. Currently, Johnson is
the worlds fourth largest supplier of fitness equipment, behind Icon Health & Fitness,
Nautilus Group and Life Fitness. The sales statistics from these companies show their
revenue in the past two years has been growing. Although becoming what Johnson is
454 now is not an easy task (it started as a small-medium enterprise) the success of this
company can be an example for other fitness companies.
The highest demand for indoor fitness equipment is in America, Europe, Japan, and
Asia, and among these areas, the American market is the biggest. The global fitness
equipment market represents US$6 billion, and Americas market represents US$4
billion. The rest of the world represents the remaining US$2 billion. When observing
market development in America from 1999 to 2006, the market has been growing every
year. At a more detailed level of analysis, annual growth is also noted in the
household-use market and business-use market. A slow-down in growth has only been
predicted in the household-use market, meaning the household-use market for fitness
equipment is entering the maturity phase, but growth in the business-use market is still
predicted. Annual growth is also expected in Europe and Asia.
Around 70 percent of the global fitness equipment market is in America, the
European Union and Japan, therefore the global fitness equipment market is quite
concentrated in these areas. Such a situation makes competition between the brands of
fitness equipment even more intense. This study establishes a new model of innovation
procedure to analyze Johnsons success, which is the major contribution and primary
value of this paper. The analysis model of innovation activity could clearly explore the
development process of the innovation success of enterprise. Simultaneously, this
research could serve as a subsequent role model for other companies when they want to
be innovative.
Based on Johnsons success in developing a brand name in the fitness equipment
market, this study uses the structural analysis of innovation procedure combined with a
case study to fully explore the companys development history. This paper aims to find
the reasons for Johnsons success in the current Taiwan fitness equipment environment,
so other companies in the same industry could use it as an example.
The sporting goods manufacturing industry in Taiwan has been developing for more
than 20 years. During this period, most of the small-medium enterprises engaged
themselves in the operation model of OEM. For example, Pou Chen manufactured
sporting shoes for the famous international sport brand Nike and O-Ta Precision
Industry manufactured golf clubs. Owing to low wages in Taiwan in the early stage and
the entrepreneur spirit of small-medium enterprises, large overseas OEM orders rushed
in, resulting in the prosperity of the sporting goods manufacturing industry at that time.
However, following the emergence of a more cheaply priced OEM industry in
mainland China, the manufacturing advantage of Taiwan progressively declined.
Some Taiwan enterprises went to mainland China to set up factories and continued to
engage in price competition. However, some enterprises changed focus to develop
research and design for the road or for private brands such as the bicycles of Giant and
the body fitness equipment of Johnson. The growth processes of these enterprises that
developed their own private brands are worth studying so that the results can be
provided to other enterprises during the development of their own private brands.
Literature study Innovation
Innovation comes from the Latin word innovare. It means to make something new, process in the
which means to create a new thing. The word innovation is one of the most popular
words these days. Many scholars followed Schumpeters lead after he proposed the health industry
concept of innovation, and each succeeded in producing their own interpretation and
point of view of the concept of innovation. Therefore, this research stands for the idea
that innovation is a new meaning of a product, service and concept that is able to satisfy 455
current needs and benefit the firm.
Another group of scholars interpreted innovation from different perspectives so
people could clearly understand the definition of innovation. Schumpeter (1943) first
proposed five categories of innovation, including new products, new methods
of production, new source of supply, the exploitation of new markets, and new
ways to organize business. Daft (1978) divided innovation into two: technical
innovation and administrative innovation. There were three kinds of innovation
model: radical-incremental innovation model, Abernathy and Clarks (1985) innovation
model, and Henderson and Clarks (1990) innovation model.
Enterprises all expect to see results when they innovate, but there are many kinds of
innovation, and each has different influences. Therefore, there is not a unique
measurement indicator that could act as the standard. However, there are still scholars
who continue to research the measurement of innovation performance. Listed below are
the opinions of a few scholars. They suggested five evaluation indicators for innovation
performance:
(1) financial performance: such as revenue growth rate, net profit ratio, return on
assets, earning per share, cash flow and market share, etc.;
(2) organizational efficiency: solving the enterprises obstacle in reaching its goal;
(3) organizational performance: besides financial performance, it also includes
operational performance such as the market share of product and product
quality;
(4) human resource standard: average asset of each employee, average profit of
each employee; and
(5) other non-financial indicators: employees satisfaction, customers satisfaction.

Research method and research model

This research adopts a literature study and case study as its research methods. From the
previous literature analysis, it is clear that the innovation capability of an enterprise
includes many aspects. This research on the innovation activity of enterprise was
conducted based on the viewpoint of procedure (input-process-output) and separated the
innovation activity of enterprises into three phases including innovation motivation,
innovation process and innovation performance. Each phase added evaluation items
and a concrete explanation according to the literature analysis. In innovation
motivation, this research contended that the origin of enterprise innovation came from
whether the enterprise had innovative strategy and management, a new operation
model, developing a new channel/market or finding a more encouraging system or
management. Formulating the innovative strategy required considering the internal and
external environment that enterprises will face.
EBR The analysis of the internal and external environment could be separated into
21,5 competitor analysis, consumer analysis and analysis of the acquisition of the source of
new information or new product, etc. In the innovation process phase, this research
was described according to three aspects: manufacturing process innovation, product
innovation, and marketing innovation:
(1) Product innovation. Improvement of a current product, besides the present
456 functions, new functions will be added; developing new products that do not yet
exist on the market.
(2) Manufacturing process innovation. Introduce a new approach for the
manufacturing process. It helps in improving production speed and quality of
product, and lowers production cost.
(3) Marketing innovation. Develop new markets and new channels; find new ways
to promote the new product.

In this phase, the enterprise could select to proceed according to its planning and the
three aspects did not have to be carried out simultaneously. By devoting an enormous
amount of resources to innovation, the purpose of enterprise was nothing but to enable
the enterprise to obtain profit. Therefore, after the second phase, enterprise had to
know whether the innovation being carried out was effective. For the innovation result
in the third phase, financial indicators and new market development were used to
measure the final result of innovation carried out by the enterprise:
.
Financial indicators: gross margin, turnover, earnings per share, net profit,
return on shareholders equity, net margin.
.
Developing new markets: to develop new channels or launch a new product.

Another factor affecting the success of innovation of the organization could be separated
into internal and external factors. The external factor was the industrys competitive
environment and the internal factor was in the enterprise itself including the organizational
culture, entrepreneurship, business philosophy, and vision of the enterprise operator. These
two factors would decide whether the enterprise would have successful innovation
performance and the research model is shown in Figure 1. This research follows this model
to analyze a companys performance in innovation. The following is an explanation of the
structure of the research model and the factors influencing it.

Company introduction
Johnson is a company engaging in body fitness equipment and rehabilitation medical
equipment. The development of this company can be separated into three stages:
(1) From 1975 to 1980 (OEM period). Johnson was founded in 1974. At the
beginning of its development, the company was not in the body fitness
equipment business and instead was producing dumb-bells and weighlifting
equipment. It became the number one dumb-bells supplier in 1978. However,
because of low cost manufacturing and cheap labor in mainland China and as
the technical threshold for dumb-bells was not high, the company stopped
producing dumb-bells and entered its first transformation stage.
(2) From 1980 to 1996 (ODM period). Because the low-cost manufacturing
advantage was lost to mainland China, the company established a research and
 External environment
Innovation
process in the
Organizational culture health industry

Innovation
motivation
Innovation process Innovation
performance
457
Innovative Manufacturing New market
strategy process innovation development
Innovative Product innovation Financial
management Marketing innovation indicators

Entrepreneurship, business
philosophy and vision
Figure 1.
Research model
Source: This study

development (R&D) team to design and manufacture body fitness equipment

and started developing their R&D ability. The ROSS fan stationary bike was
the first body fitness equipment they developed. Obtaining a $1 million order
from the brand Tunturi was the start of Johnsons ODM business for the next
16 years. During this period, the products of world-famous body fitness
equipment companies, including Universal, Schwinn, True, Omron, and
Mizuno, were all designed and manufactured by Johnson. However, because of
the growing sales prospect, manufacturers in mainland China started to join the
competition. So, again, Johnson had to contend with a low price competition
problem. Finally, the leader of the company decided not to compete on price but
once more create its own private brand. Therefore, Johnson conducted another
enterprise transformation.
(3) From 1996-to date (OBM period). When Johnson was pondering how to
recreate its brand, a customer of Johnson, Trek Fitness, closed. Johnson took
this opportunity to buy Trek Fitness, changed the name to EPIX and
established the first Johnson brand, called Vision. From then on, Johnson
started creating its own private brand. According to the different characteristics
of customers in the body fitness market, Johnson divided the market into two
large markets: the commercial market and the home market. They developed
four brands named Johnson, Matrix, Vision, and Horizon. Markets were
distinguished as the commercial market, medical rehabilitation market, and
high and low rank home market.

Johnsons product range could be divided into two categories of CPR resuscitator and
weight training machine. The product range includes treadmills, stationary bikes,
elliptical trainers, polar heart rhythm meters, massage chairs, health preservation
products, and body fitness products, etc. The scope of its products is wide and its
product combination is rich with the flexibility to satisfy the requirements of different
EBR consumers in the market. In addition, the private brand was introduced to enhance the
21,5 impressions of consumers and increase the visibility of its products.

Innovation motivation
Strategy innovation. For an industry in the mature period, the characteristics of
products will be similar and the most commonly used competition is low price.
458 However, this is not the best strategy because in the minds of consumers, the product
becomes a low price product. Therefore, scholars suggested that enterprises should not
continue to compete on price but instead they should enhance the enterprise value
using the Blue Ocean Strategy promoted by Professors W. Chan Kim and Renee
Mauborgne.
Johnsons success was to break away from price competition and integrate the value
chain. Johnson made two strategy changes. The first was transformation from OEM to
ODM and the second was from ODM to OBM. Executing this strategy enabled an
increase in Johnsons value. Currently, Johnson has a 97 percent key component R&D
ability and self-production rate. After almost 20 years, Johnson continues to develop its
strength in R&D, to develop its private brand and to establish its own channel. To build
brands successfully, the operator uses the practice of temple building theory.
Headquarters is responsible for configuring all the needs of the overseas subsidiaries
and locals are employed to run the company. For all international subsidiaries, locals are
employed as general managers. Top management believes that local people can
understand the local market best and therefore the chance of success is higher. The
results show that Johnson expanded quickly in the market in various places and obtains
good results. Top management also uses the grafting theory to expand their scale by
acquisition. With rich R&D ability and multiple connections with overseas channels,
Johnson can expand to various places in the world.
Simultaneously, as Johnson continues to expand its scale, top management conducts
a strategy of vertical division of labor. China is responsible for the manufacturing of
medium- to low-end body fitness equipment and the Taiwan headquarters is responsible
for researching and developing key components. The factory in Taiwan is responsible
for manufacturing high-end body fitness equipment. The R&D center in the North
American District works on product specification and outer appearance design. The
entire value chain design, R&D, manufacture and marketing can be covered, and the
value chain is fully integrated. As a result, the cost of Johnson products can be lower than
those of competitors, the product can be of higher quality, and the profitability of
Johnson is thus higher than its peer companies.
Management innovation. The management system Johnson practises is based on
daily management, management by objectives, performance system and profit centre
and it also carries out sort, set, shine, standard, and sustain (5S) to set up the standard
operation procedure for various work stations in various departments. The production
area is executed 100 percent based on SOP. Various units will implement autonomous
checks and audit checks are conducted by the general management department. Upon
finding a unit with a defect, a red slip will be issued and NT$1,500 performance reward
will be deducted and the three levels will be duly punished. The daily management
achievement prize is issued at the monthly meeting.
For management goal setting, medium- to long-term goals and strategies are
stipulated as well as the yearly goal and work plan. During review, the group operation
will process quarterly review meetings and a yearly review meeting. Various business Innovation
units will conduct weekly reports and monthly operations meetings. Various process in the
departments will provide daily reports and weekly reports. The company operation is
combined with individual performance and salary remuneration. For reward allocation health industry
method, the manufacturing department will provide 20 percent of profit after tax as an
employee performance reward. The marketing department will provide 15 percent of
profit after tax as an employee performance reward. 459
Innovation process
Product innovation. In terms of product innovation and for new products in the home
market Johnson will bring out new body fitness products within one to two years and
for the commercial market new products will only be brought out after two years. For
the present products, styles will change every year and, currently, new products placed
in the market within a three-year period are the main source of income for Johnson.
In addition, some prizes are also established to encourage employees, such as the
innovation and invention prize, first prize, and the maximum contribution prize. These
are separated into an individual prize and a team prize. The reward is between
US$10,000 and 30,000 to boost the morale of employees.
Manufacturing process innovation. Key components of body fitness equipment
mastered by Johnson include electronic meters, controllers and motors, etc. produced
by the company. In this way, the company can master the control of product quality
and cost. The company set up a factory in Shanghai in 2001 that is chiefly engaged in
manufacturing family use body fitness equipment for the medium- to low-end market.
The factory in Taiwan manufactures body fitness equipment for the commercial
market with higher added value. As the scale of Johnson continues to grow, it is
expected the production volume in the China factory will also increase and the
production value can reach NT$5-6 billion. Adjustment has been made to how the
factory is utilized. The original factory manufactured stationary bikes, elliptical
trainers and weight training products. The new factory manufactures electric
treadmills and now the time for bringing new products into the market has accelerated
to twice a year from once a year. Thus, the number of products has doubled.
Currently, there are over 300 R&D staff worldwide and investment in R&D is
maintained at a certain percentage every year (Table I).
Johnson helps its suppliers to carry out the manufacturer refinement project by
transplanting its successful management model. Internal staffs act as seed trainers. By
working with various suppliers, they refit the factory plan to the production flow line,

2008
(the first
2003 2004 2005 2006 2007 half year)

R&D expenses 164,424 193,760 304,575 282,759 401,614 191,099

Net sales 4,868,447 6,701,138 8,541,120 11,321,209 11,809,140 4,844,341
R&D expenses to
net sales (%) 3.38 2.89 3.56 2.50 3.40 3.94 Table I.
Johnsons R&D
Note: Unit: NT$ 1,000 investment and
Source: Market Observation Post System, Taiwan Stock Exchange (2008) proportion
EBR and establish the work standard procedure and the 5S work rules. A joint training
21,5 result development meeting is conducted every month to assess coordinating
manufacturers. Good manufacturers will be rewarded with additional orders. For
manufacturers not reaching the standard, more guidance is given and through this kind
of project a win-win situation is created. The profits of suppliers increase, the quality of
the component is improved, and the material management cost to Johnson is reduced.
460 Marketing innovation. Currently Johnson has four brands Vision, Horizon,
Matrix, and Johnson. A separate explanation is provided for these four brands. For a
detailed introduction, see Table II:
(1) Vision. This brand was established in 1996 and was the first brand established
by Johnson in the USA. The market for this brand is focused on the home
market and its product position is medium to high end. The sales channel is
mainly body fitness equipment specialty stores, and the target customer group
of that brand is focused on white collar consumers who have used fitness
equipment before.
(2) Horizon. In 1998, Johnson established one marketing company called Horizon
Fitness and also established the brand Horizon. The distinguishing feature of
this brand is it is aimed at the home market and focuses on medium- to low-end
body fitness equipment. The main sales channels include sporting goods chain
stores, department stores, large discount stores, and mass merchandising stores.
(3) Matrix. The overall layout of the channel for Johnsons home market had been
nearing completion following the roll-out of the first two brands. Then Johnson
began to enter the commercial market for body fitness equipment. The Matrix
Fitness marketing company was founded in 2001 and the commercial brand
Matrix was also established. This brand aimed at the medium- to high-end
commercial market and the channels for the products were health clubs
and fitness centers in high class hotels, etc.

Brand Market segmentation Product positioning Sales target

Johnson Medium- to low-end commercial Exquisite appearance Body fitness club

Matrix market Simple operation Five-star hotel
Medium- to high-end commercial interface Hotel
market Stylishness Medical center
Reliability School
Usability
Vision High-end home market Easy to operate Small scale club
Smooth and Sporting equipment specialty
comfortable store
Trustworthy
Horizon General home market Full-featured Mass merchandising store
Outstanding Department store
performance Discount store
Table II. New style Sporting goods chain store
The market and product Reasonable price
positioning of Johnsons
four brands Source: This study
 (4) Johnson. This brand focuses on the commercial market and its product Innovation
positioning is medium- to low-end products with the main sales region being process in the
Asia. This is the only brand of the four that is not on sale in the USA but it is
expected to become an international brand. health industry
Looking at the sequence of development of the various brands, it can be seen that the
market aimed at by Johnson is the home market. The reason is that the home market is 461
the largest for body fitness equipment and occupies about a half of the entire body
fitness equipment market. In addition, Johnson focuses on medium- to high-end
products in the home market (Figure 2). The medium- to high-end product is the
market segment with the highest profit. The sporting equipment specialty store has a
selling price between US$1,600 and 5,000. The selling price of the Vision brand product
is between US$1,299 and 5,000. This pricing method is more or less the same as that of
competitors, however, owing to the superior manufacturing ability of Johnsons profit
can be several times more than that of its competitors. Therefore, this has established
Johnsons position in the home market.
In the USA, each channel has different characteristics, such as product quality and
product pricing, etc. and its differentiation is very clear. Therefore, the brand Horizon
is focused on the medium- to low-end home market and the product pricing is low. The
production pricing of Horizon is from US$199 to 1,499.
A detailed study was undertaken to understand the brand strategy of Johnson in the
home market. From the pricing of the two brands, Vision and Horizon, one can learn
that these two brands partially overlap. That is, the lower end of the product line of
brand Vision will partially overlap the upper end of the product line of Horizon. In this
way, the customer group of the Horizon brand can use low prices to buy higher value
products. Therefore, customers feel they are getting good value for money. Table III
shows that the market share for Vision is higher than for Horizon. This is because
when the brand Horizon first began, the channel was only limited to sporting
equipment chain stores. Therefore, Johnson began to develop channels, including
department stores, mass merchandising stores, etc. and entered the largest department
store, SEARS, in the USA. For deployment in Europe, in 2006 Johnson successfully
gained entry into the large chain store channel in Europe, such as ECI in Spain,

Commercial
market
US$800m (20%)
Matrix, Johnson

High end home market

US$650m (16%), Vision

General home market horizon

US$2,550m (64%), Horizon Figure 2.
The market share for each
of Johnsons brands
Source: Johnson Health Tech. Co. Ltd. website (2008)
EBR
Brand Vision Horizon
21,5
Price range (US$) 1,299-5,000 199-1,499
Market share (%) 16.11 5.74
Proportion to total revenue (%) 28.30 46.8
Channel OMNI Chain store
462 Busy Body The top five sporting goods chain stores in the USA
Department store
Sears in Canada, sears in the USA, Sports Authority
(384 stores), Canadian Tire, Dicks, ECI in Spain,
Karstadt in Germany, Decathlon in France, John
Lewis in the UK
Competitor True Icon
Schwinn Bowflex
Table III. Tunturi
Comparison of the two Schuwinn
brands Vision and
Horizon Source: Johnson Health Tech. Co. Ltd web site (2008)

Karstadt, Sport 2000, Kaufhof, Intersport in Germany, Decathlon in France and John
Lewis, JJB, and Argos in the UK. For mass merchandising stores, the company entered
the supply chain system of Wal-Mart and Kmart. Therefore, the successful entry of the
Horizon brand into the new channel boosted the profitability and growth of Johnson.
The Matrix brand was developed because the characteristics of the commercial
market and home market differ. Customers in the commercial market are large-scale
institutions like hospitals, hotels, body fitness centers, etc. These customers have the
common characteristic of brand loyalty. Once they take up a certain brand it is not easy
for them to change to another. Take the sale of products to clubs or high-class body
fitness centers as an example: the body fitness product has to conform to three
essentials of durability, precision, and stylishness. Therefore, compared with the home
market, the commercial market is more difficult to develop. Consequently, the
expectations of the future growth of Johnson and Matrix are reasonable (Table IV).
Johnson set up an individual marketing company to manage the four brands and the
company also entered the international market in the form of a sole proprietorship. The
method involved establishing marketing subsidiaries in the main areas including
American Vision fitness, Horizon fitness, Matrix fitness, Style Germany, Style France,
Style Spain, Style Japan, etc. and for less important areas to be handed over to an agent
or local distributor who would sell the products.

Brand Price range (US$) Proportion to total revenue (%) Channel Competitor

Matrix 3,000-10,000 9.9 Golds Gym Life

Hyatt Hotel Precor Cyber
Nautilus
Startrac
StairMasterCybex
Table IV. Technogym
Comparison of the two Johnson 3,000-6,000 11.4
brands Matrix and
Johnson Source: Johnson Health Tech. Co. Ltd web site (2008)
Until 2007, there were 20 marketing subsidiaries and 70 plus distribution networks in Innovation
60 countries. As a result, products could be sold in the market promptly and brand process in the
name recognition and market share could be expanded. By comparison with famous
body fitness equipment companies worldwide (Table V), the marketing operation base health industry
established in the world is broader than that of competitors. In respect of geographical
area, Johnson set up marketing operation bases in Asia, Europe, America, and Latin
America. For the first three large competitors, apart from Life, which was already 463
established in Asia, both Icon and Nautilus concentrate on Europe and the USA and do
not pay much attention to the Asian market. This clearly benefits Johnson. Europe and
the USA are developed countries and put more emphasis on health and health
preservation than Asia. Therefore, the speed of development and growth of the
European and US markets is comparatively fast. However, the speed of growth is
slowing. In Asia, many countries are at the economic growth stage and the income
standard of consumers is steadily increasing. When income standard reaches a certain
level, according to the experience of development in Europe and the USA, the concept
of sport and body fitness in Asia will be emphasized and accepted by consumers,
especially in China. Therefore, if Johnson can begin development in this area and
obtain recognition from consumers, this will be helpful in gaining advantage by being
a developer. By 2001, Johnson had already entered China and set up a marketing
company. Currently, there are 50 directly operated stores and 400 plus franchise stores
and Johnson is now the top brand for home body fitness equipment in China.

Innovation performance
New market development. The home market is the main market and for many years the
operating revenue performance of the two home brands, Vision and Horizon, has been
excellent.
However, the home market is reaching saturation point and may even be declining.
Faced with this challenge, Johnson has adopted the strategy of active development of
the high priced and high-gross margin commercial market.
In the future, Johnson will develop new products, such as massage chairs, aimed at the
Asian market. Asian consumers prefer to do very little exercise in order to obtain body
health and Europeans and Americans view massage chairs as being for people who need
physical therapy. Future competitors in this area will mainly be Japanese manufacturers.

South
Region Asia Europe America America

Iconu France, Italy, Germany, England USA

Nautilus Switzerland, France, Italy, Germany, USA
England
Life China, Japan, Hong Kong The Netherlands, Italy, Spain, Austria, USA Brazil
Germany, England
Johnson China, Japan, Thailand, Switzerland, The Netherlands, France, USA Brazil
Hong Kong, Taiwan, Italy, Spain, Germany, England Table V.
Malaysia, Singapore Distribution of
international marketing
Source: Johnson Health Tech. Co. Ltd web site (2008) operation bases
EBR Financial indicators. Since 2002, Johnsons combined revenue has continued to
21,5 increase. The combined revenue from 2002 to 2007 grew about 70 percent (Figure 3).
The net profit after tax is also on an upward trend (Figure 4). The main reason for
the increase in 2005 and 2006 was from the increased operating revenue of the Matrix
brand in the US commercial market and the sales growth of products in small-scale
clubs. Another source was from the growth of the commercial market in Germany,
464 Italy, France, Japan, and China. The main source of the yearly sales growth came from
the commercial market, demonstrating that the brand effect of Matrix and Johnson in
the commercial market has developed progressively. It can be expected that the main
source of growth in the future will come from the commercial market.
The benefit of new products is normally based on gross margin as the measurement
indicator (Figure 5). High-gross margin means the company has unique core ability
such as mastering technology, product innovation or new channels, etc. Therefore,
higher gross margins point out that the benefit of the new product of that company is
greater. The gross margin of Johnson over the past few years has been increasing. In
developing new channels, the company entered famous sport chain stores in the USA,
including the Sports Authority and Dicks Sporting Goods, and as a result shipments of
the Horizon brand increased. In 2006, the company also entered sears. The number of

500

400 362
Unit: US$ millions

348

300 267 272

210
200
142
108
100

0
Figure 3. 2002 2003 2004 2005 2006 2007 2008 (from
Johnsons combined January to September)
revenue from 2002 to 2008
Source: Market observation post system, Taiwan stock exchange (2008)

60,000 Net profits

52,524
unit: US$
50,000 thousands

40,000 38,100

30,000
21,543
19,500
20,000 16,693
13,160
10,000 7,047
Figure 4.
0
Johnsons net profits 2001 2002 2003 2004 2005 2006 2007
from 2002 to 2007
Source: Market observation post system, Taiwan stock exchange (2008)
 65 Innovation
Johnson
60
ICON Nautilus
process in the
Life fitness Precor Cybex health industry
55

50

45
465
%

40

35

30

25 Figure 5.
The gross margin
20 performance of Johnson
2001 2002 2003 2004 2005 2006
from 2000 to 2006
Source: Yuan Ta securities research center (2008)

models of Horizon electric treadmills and elliptical trainers grew from 3-4 to 12-15 and
the shipment volume significantly increased. Therefore, the gross margin for 2006 was
especially high and was higher than that of competitors.
Owing to the emergence of the effect of vertical integration and the increase in the
self-production rate of key components, Johnson has a significant advantage in
production cost compared with its competitors and product price is more competitive.
In addition, because of the continual expansion in channels, the performance of the
sales growth rate has clearly been better than its competitors in recent years. Figure 6
shows the sales growth rates of various competitors.
Looking from the scale of operating revenue, there is an increase from 2005 to 2006.
Exploring the source of operating revenue in detail reveals a phenomenon of obvious

70
Johnson ICON Nautilus
60 Life fitness Precor Cybex

50

40

30
%

20

10

0
2002 2003 2004 2005 2006
10 Figure 6.
Comparison of growth rate
20 with competitors
Source: Yuan Ta securities research center (2008)
EBR expansion on the low price channel, including sporting goods chain stores, and
21,5 department stores. However, there has been a sales decline in sporting goods specialty
stores caused by the weaker global economy. This is because the brand positioning of
Vision tends towards middle class pricing and is therefore affected by global economic
conditions. With the disappearance of middle class salary earners, sales of Vision
might slow in the future. However, the prospects of brand Horizon are encouraging as
466 consumers tend towards low priced products and such brands can meet the needs of
the general public. Therefore, this will be the main source of sales in the future. In
respect of the commercial market, as this will not be affected by the economy, market
penetration into the commercial field is another major area of development for Johnson
in the future.
Moreover, the profitability of Johnson shows a good result as measured by other
indicators. Whether it is net profit margin or earning per share, or even the equity rate
of return, there is an upward trend from 2003 to 2007. However, there is a decline in
2007 and 2008 because of the overall economic environment and also factors such as
rising oil and other raw material prices (Table VI).
Management system and enterprise culture. Johnsons management system can
be separated into three major parts including goal management, performance system,
and profit center system. For the daily management of the company, the general
management office is assigned to assess various departments each month to enable
competition between various departments. Because of clear rewards and punishments
for management, the employees are all disciplined. The company operation
management philosophy is efficiency comes from discipline and discipline comes
from management.
Regarding the requirements for employee discipline, apart from the standard
rewards and punishments for the daily management, special attention is paid to the
importance of the operation philosophy and enterprise culture. The operation
philosophy is health, value, co-sharing and the enterprise culture is sincerity,
professional, ambition. Further, the operation philosophy and the enterprise culture
are committed to memory by every worker and examinations are conducted. Especially,
in the global operation team meeting, each general manager is required to write out the
enterprise culture and operation philosophy. The purpose is to enable employees to
understand the core of the business operation so the staff can be more united.
The method of goal management is to let each business unit formulate a medium- to
long-term strategy. In the yearly plan for a given year, the yearly, monthly, weekly, and
daily plans are also stipulated, so every employee knows what to do at any moment.

Year
Item 2003 2004 2005 2006 2007 2008 (the first half year)
a
Net margin (%) 15.93 16.93 27.86 87.14 24.50 2 9.66
Earnings per share (NT$)b 6.84 7.26 9.76 11.00 3.00 2 0.73
Return on equity (%)c 35.25 35.6 41.06 39.56 10.97
Notes: aNet margin Net income/Net sales; bearnings per share (Net income 2 Preferred stock
Table VI. dividend)/Weighted average number of shares outstanding; creturn on equity Net income/Average
Profitability performance shareholders equity
from 2003 to 2008 Source: Johnson Health Tech. Co. Ltd web site (2008)
Then, based on the plan, do, check, action management tool, the original and complete Innovation
plan will be assessed and modified. process in the
Johnson also established a performance reward system and a profit center system
according to goal management: 80 percent of the performance rewards will be issued to health industry
the first 20 percent of employees with good performance. Aiming at overseas branches,
a competition model has been established and ranking is conducted based on various
areas where the number of branches is more than three. By acquiring local distributors 467
and establishing a sales team, Johnson established marketing subsidiaries in major
markets and distribution companies in secondary markets to expand its international
business. Currently, there are 21 marketing subsidiaries.
Johnson now has marketing companies in America, Europe, and Asia and there are
more than three branches in these areas. For example, there are seven branches in
Europe. In Asia, branch companies like Taiwan, Japan, Mainland, and Malaysia
compete with one another and a comparison is conducted of the sales growth rate,
profitability rate, management performance, innovation research, development, etc.

Summary and conclusions

The reason Johnson succeeded from the beginning of its creation is because it decided
to establish a brand name. Since fitness equipment is an industry highly affected by its
raw materials, and if the company is only an original equipment manufacturer, then
the impact on price change will be even more direct, and its profit margin will be
seriously damaged. But in Johnsons case, raw material price fluctuations do not affect
the company as much because it owns its own brand; on the other hand, it enables it to
regulate product price to compete with opponents. Creating a brand name allowed
Johnson to be on the right path, and listed as follows are the important factors of
success:
.
Full product line. Aiming at the characteristics of the body fitness equipment
market, Johnson utilizes the multi-brand strategy to satisfy the requirements of
various medium- to low-end consumers in the commercial and home market.
Therefore, fitness equipment needs to diversify itself to satisfy the needs of the
customers. The products Johnson provides include electrical treadmills,
vertical fitness machines, horizontal fitness machines, elliptical trainers,
thigh trainers, and rowing machines and other weight training machines.
Each product has different product series, different functions and selling prices
to cover the maximum body fitness equipment market and to obtain the highest
possible market share.
.
Deep R&D and manufacturing ability. The R&D strength of Johnson forms a
complete product line. Apart from the R&D ability gained during its OEM
period, the company also adopted division of R&D labor in America, Taiwan,
and China. The R&D center in the USA is responsible for front-end marketing
survey research, stipulating product specification design, and the marketing
plan. Taiwan is responsible for developing the high-end market products and
key components in the commercial market. China is responsible for home market
R&D and manufacture of home-body fitness equipment. Also, there are key
components factories specializing in manufacturing key components. Weight
training equipment is also made in China, and the advantage of vertical work
division is fully utilized.
EBR .
Appointment of overseas professional people. Another important factor in the
21,5 successful development of its brand is that the general managers of overseas
subsidiaries are all locals. This can speed up local market knowledge and allow
responsive measures to be effectively and rapidly put into action when facing
challenges.
.
Successful utilization of goal management, performance system and profit center.
468 Implementing goal management allows every employee to understand their job
responsibilities and be clear about their goals. In addition, the profit center
characteristic is used and is supplemented with performance reward. As a result,
managers will strive to market the company brand and sell products in the hope
of obtaining high bonuses. This is also the reason various brands can be
developed rapidly and successfully. Figure 7 shows the key factors of Johnsons
success.

Management Product

Performance Temple Weight

system building training Treadmill
theory machine
Management Plate loaded
by objectives Stepper
Multi-station
Profit center Cycles
Elliptical trainer
Medical center Brand

Johnson
Hotel
Club Matrix Johnson

Mass Horizon Vision

merchandising Specialty
store store
R&D
team Appointment of overseas
Department professional talent
Large discount
store Controllers
store
Merger and
Educational institution Patents acquisition

Establish
Marketing
subsidiaries
Channel Motors
Authorization

Electronic
meter Internationalization

Figure 7.
The key factors of Technology
Johnsons success
Source: This study
There is an ongoing global trend for launching a brand name, and each government Innovation
keeps on encouraging its enterprises to move towards products with high added value, process in the
focusing on R&D, design or even creating a brand name specific to the company itself,
combining venture capital companies and government subsidies. However, this paper health industry
has found both technology development and international marketing skills are
essential for a brand name to succeed. It is not difficult for a Taiwanese firm to find
labor specializing in product design with its long experience of being other foreign 469
brands OEM: the only resource it lacks is people specializing in international
marketing. If this shortage is to be filled, the government should put more effort into
educating marketing people. Most enterprises in Taiwan used to be original equipment
manufacturers for other foreign brands. They therefore lack people who know about
marketing; this is why education must be provided with industry-academia
cooperation so that practical experience can be strengthened in those who are being
trained and thus make the training even more complete.
On the issue of international management personnel, the interviewee in this study
mentioned that it is not easy to make business representatives of the companys foreign
subsidiaries act as the headquarter requires them to. Especially, in this era of
globalization, enterprises keep on establishing foreign bases, and they therefore have
to deal with foreign subsidiaries representatives who have various cultural
backgrounds. Thus, management becomes even more important. Taiwan enterprises
lack such people, and the government should help in solving this problem. For those
wishing to study this issue further, it is suggested researching into how other
enterprises in transition develop their own brand and manage to educate their
international marketing and management people. The innovation research model of
this study has been put together from the literature of other scholars and therefore
gaps might be found. Those who do a follow-up study on this issue could use this
study as a starting point to develop an even better analysis model.

References
Abernathy, W. and Clark, K.B. (1985), Innovation: mapping the winds of creative destruction,
Research Management, Vol. 14 No. 1, p. 3.
Daft, R.L. (1978), A dual-core model of organizational innovation, Academy of Management
Journal, Vol. 21 No. 2, pp. 193-210.
Henderson, R. and Clark, K. (1990), Architectural innovation: the reconfiguration of existing
product technologies and the failure of established firms, Administrative Science
Quarterly, Vol. 35, pp. 9-30.
Schumpeter, J.A. (1943), Capitalism, Socialism and Democracy, Allen and Unwin, London.

Further reading
Adams, B.L. and Sykes, V. (2003), Performance measures and profitability factors of successful
African-American entrepreneurs: an exploratory study, The Journal of American
Academy of Business, pp. 418-23.
Amabile, T.M. (1996), Creativity in the Context, Springer, New York, NY.
Betz, F. (1993), Managing Technology: Competing Through New Ventures, Innovation and
Corporate Research, Prentice-Hall, Englewood Cliffs, NJ.
EBR Calantone, R.J., Vickery, S.K. and Droge, C. (1995), Business performance and strategic
new product development activities: an empirical investigation, Journal of Product
21,5 Innovation Management, Vol. 12 No. 3, pp. 214-23.
Chacke, G.K. (1998), Technology Management: Application to Corporate Markets and Military
Missions, Praeger, New York, NY.
Cooke, P. (2004), The role of research in regional innovation systems: new models meeting
470 knowledge economy demands, International Journal of Technology Management, Vol. 28
Nos 3/4/5/6, pp. 507-33.
Daft, R.L. and Becker, S.W. (1978), The Innovative Organization, Elsevier, New York, NY.
Damanpour, F. (1991), Organizational innovation: a meta analysis of effects of determinants and
moderators, Academy of Management Journal, Vol. 34 No. 3, pp. 555-90.
Damanpour, F. and Evan, W.M. (1984), Organizational innovation and performance: the problem
of organizational lag, Administrative Science Quarterly, Vol. 29, pp. 392-409.
Drucker, P.F. (1991), The discipline of innovation, Innovation, HBR Press, Boston, MA.
Drucker, P.F. (1993), Post-Capitalist Society, Harper Collins, New York, NY, pp. 25-30.
Gobeli, D.H. and Brown, D.J. (1987), Analyzing product innovations, Research Management,
Vol. 30 No. 4, pp. 25-31.
He, W. and I, C.H. (2005), The Theory of Economic Development, Owl, Taipei.
Higgins, J.M. (1995), Innovation: the core competence, Planning Review, Vol. 23, pp. 32-6.
Hill, C.W.L. and Jones, G.R. (1998a), Strategic Management Theory: An Integrated Approach,
4th ed., Houghton Mifflin, Boston, MA.
Hill, C.W.L. and Jones, G.R. (1998b), Strategic management theory, California Management
Review, Vol. 4, pp. 41-65.
Marquis, D.G. (1972), The anatomy of successful innovation, Managing Advancing Technology,
Vol. 1, pp. 35-48.
Miler, S.M. (1990), The strategic management of technological R&D an ideal process for the
1990s, International Journal of Technology Management, Vol. 5 No. 2, pp. 63-153.
Miller, D. and Friesen, P. (1984), Organizations: A Quantum View, Prentice-Hall, Englewood
Cliffs, NJ.
Nelson, R.R. and Winter, S.G. (1982), An Evolutionary Theory of Economic Change, Harvard
University Press, Cambridge, MA.
Nkomo, S.M. (1987), Human resource planning and organization performance: an exploratory
analysis, Strategic Management Journal, Vol. 8, pp. 387-92.
OECD (1981), The Measurement of Scientific and Technical Activities, OECD, Paris.
Porter, M.E. (1985), Competitive Advantage, A Division of Macmillan Press, New York, NY.
Porter, M.E. (1990), The Competitive Advantage of Nations, The Free Press, New York, NY.
Schumpeter, J.A. (1911), The Theory of Economic Development, Harvard University Press,
Cambridge, MA.
Schumpeter, J.A. (1950), Capitalism, Socialism and Democracy, 3rd ed., Harper, New York, NY.
Tushman, M.L. and Anderson, P. (1986), Technological discontinuities and organizational
environments, Administrative Science Quarterly, Vol. 32, pp. 439-65.
van de Ven, A. (1986), Central problems in the management of innovation, Management
Science, Vol. 32, pp. 590-607.
Venkatraman, N. and Ramanujam, V. (1986), Measurement of business performance in strategy Innovation
research: a comparison of approaches, Academic Management Review, Vol. II, pp. 801-14.
Vickey, C.M. (1984), Virtual organizations: an examination of structure and performance in air
process in the
force acquisition teams, PhD dissertation, The Florida State University, Tallahassee, FL. health industry
Vickey, S. (1991), A theory of performance competence revisited, Decision Science, Vol. 13,
pp. 635-43.
471
About the authors
Benjamin Jian Chung Yuan is a Professor in the Institute of Management of Technology at
National Chiao Tung University in Hsinchu City, Taiwan, Republic of China. He graduated from
the State University of New York at Buffalo with Master and PhD degrees both from Electrical
Engineering Department in 1975 and 1978. His current research interests include technology
forecasting and impact assessment, technology foresight and policy, innovation and R&D
management, entrepreneurship and incubation management, core technology and competitive
strategy, business plan and new venture, industrial economy, and technology development.
Chun Yi Liu is a doctoral candidate in the Graduated Institute of Management of Technology of
National Chiao Tung University. He is a Councilor of Tao-Yuan county council in Taiwan. His
major is national technology policy. Chun Yi Liu is the corresponding author and can be contacted
at: tojo@ms38.hinet.net
Kun Ming Kao received a Masters degree from the Department of Business Administration at
National Changhua University of Education, Taiwan. He is a PhD student in the Institute of
Management of Technology at National Chiao Tung University, Taiwan.
Ying Che Hsu received a Masters degree in June 2008 from the Institute of Management of
Technology at National Chiao Tung University, Taiwan.

To purchase reprints of this article please e-mail: reprints@emeraldinsight.com

Or visit our web site for further details: www.emeraldinsight.com/reprints
Reproduced with permission of the copyright owner. Further reproduction prohibited without permission.