Another problem that HTC faced as a subcontractor was that it did not have sufficient protection for its innovation. Some network operators would transfer HTC’s designs to other subcontractors without compensating HTC. This issue had troubled HTC since its beginnings in selling PDAs to Compaq, which had once transferred the manufacturing of a model developed by HTC to LG Electronics, a leading South Korean company. “We can’t blame Compaq for seeking more subcontractors,” recalled Chou,“If I were to put myself in their shoes, I would make the same decision.”
Subcontracting had its limits for network operators as well. Some were discovering that selling mobile phones
with their own private brard had a negative side. They had to take responsibility for after-sales and repair services, which was costly. Indeed, some of them did not mind letting HTC co-brand the product and share part of the burden. BT, for example, allowed HTC to co-brand its ‘fir-stclamshell esmartphonetwith a new label called Qtek. Consumers selected HTC’s Qtek line largely due to BT’s endorsement, which helped the jbrand to be recognized by the end-users in its own right. In spite of launching the Qtek line in the European market, the management team at I-ITC believed that in order
to support its corporate brand, the company must build a reservoir of capabilities in product design and brand marketing. HTC did not complete the last mile on the branding road until 2006, eight years after its founding as a PDA subcontractor. The year 2006 marked the beginning of the third phase of growth for HTC.