The 2008 Summer Olympics have become a key battle ground for marketing. Early January, Lenovo announced the international release of the consumer computer brand “Idea”, a bold move in the Olympic Year. The man behind the move is Liu Jun, the former Lenovo commander-in-chief of Lenovo’s successful “1+1” household computers.
Lenovo is going to restructure its global brands in order to promote Lenovo as a company name rather than a product brand. “Think”, as a product brand, will be labeled on almost all business computers overseas (with some exceptions in China). The recently released “Idea” will be applied to consumer PCs. Lenovo 3000, launched in the small and medium-sized enterprises (SME) market in February 2006, is going to be scaled back, and will be replaced by Think brand. This is probably why the prices of most well-known ThinkPad notebooks have been cut sharply overseas.
Last December, Lenovo Group announced it was pulling out as a TOP sponsor after the 2008 Olympic Games in Beijing. Two days later, Taiwan-based Acer, announced it will be a TOP sponsor for the Vancouver 2010 Olympic Games and the 2012 London Olympic Games. Competition in the international PC industry has become a marathon: HP and Dell remain firmly entrenched in the No.1 and No.2 positions, while Lenovo and Acer still battle for the third place.
Acer Rises Up
Two years ago, Lenovo was a step ahead of Acer, but Acer now has caught up and appears to be leaving Lenovo behind. Data published by Gartner, a US-based IT consulting firm, shows that in the fourth quarter (Q4) of 2006, the two firms had equal market shares (both 7.1%), but in the next two quarters, Lenovo began to lead with some minor advantages. Then, in Q3 2007, a one-percentage point advantage gave Acer the edge over Lenovo (not including the 1.5% market share held by Acer’s recently acquired Gateway). At this point, it appears that Acer will continue to put distance between itself and Lenovo as one of the world’s top PC makers in 2008.
Three years ago, Lenovo shocked the world with the purchase of IBM’s PC business. Six months ago, Acer’s acquisition of Gateway completely changed the landscape of the international PC industry and derailed plans by Lenovo to acquire European electronics maker Packard Bell (PB). Early last August, after getting a foothold in Europe, Lenovo intended to take over PB, in the hope of becoming a major force in the world’s second largest PC market.
But Acer had other ideas. With 55% of its global revenues coming from the EMEA (Europe, Middle East and Africa) region, Acer had long established its presence in the EU market. Years earlier, Gianfranco Lanci, the former managing director of Acer Italy, used a new business model to make Acer the No.2 desktop supplier and No.1 notebook supplier in his home market. He eventually became Acer’s president. So while Lenovo maintains a major presence in the Chinese market, HP and Dell are the major players in North America and Acer has to outmaneuver Lenovo in the EU market.
When Acer acquired the 4th biggest PC maker in North America, Gateway, for US$710 million, Gateway’s right-of-first-refusal to acquire Packard Bell was thus transferred to Acer. Lenovo suddenly found itself on the sidelines of the mainstream market in the EU.
After the deal, Acer’s regional businesses distribution was streamlined. If all goes as planned with the integration of Gateway, North America will become a major foothold for Acer. With Gateway’s 6.1% market share in North America, the new Acer (currently occupying 5.6% of that market) has the potential to become among the top three in North America and the No.2 PC supplier in that retail market. In North America, Gateway enjoys a high brand value. Acer will position it for the mid-range and high-end markets to complement its own mid-range and low-end products.
The next step for Acer is the Asia Pacific market, where it does not perform well: this market contributes 23% to Acer’s global revenues and that proportion will fall to 15% after the acquisition. But Acer has a plan for this market as well.
T. Y. Lay, who used to be in charge of Acer’s global operations, was tasked with developing the Mainland China market. “How to develop the market in Mainland China? We shall stick to the New Channel Business Model,” points out Lay. Previously in this market, Acer used an aggressive flat-channel model, building over ten branches in Mainland China to do business directly with regional distributors. The results were not inspiring.
Lay removed all branches and sub-contracted the channel management to Ingram Micro Global and Digital China. The two exclusive distributors place orders and pick up products directly from OEMs, while Acer is responsible for product R&D and brand building. The effects have been dramatic: Acer’s growth rate in Mainland China in 2006 exceeded 100%, and is over 60% in 2007. In the process, it has joined the ranks of the top six notebook suppliers.
Gateway’s growth is also encouraging. Gateway products can now be found on the counters at the Zhongguancun Top Electronics City. “The notebook shell is made of titanium used mostly for aviation purposes. Gateway is a well-known US computer brand…” espouses an enthusiastic clerk as she introduces a RMB7,999 (US$1,145) notebook. On August 16th 2007, Gateway inked an exclusive distributor deal with Digital China to start its business in China.
“Besides a franchised store on the 1st floor in Top Electronics City, we have exhibited Gateway products in a couple of stores in Zhongguancun,” says a managing director of Acer’s regional distributor. “Gateway and Acer will target different markets in China, with Acer aimed at common consumers and Gateway for more special demands.”
“Speaking of our global strategy, when the integration of Gateway and PB is completed, we will take the next step in the Mainland China and India markets,” explains T. Y. Lay. “We won’t exclude the possibility of acquiring a Chinese homegrown PC maker if it is commercially complementary and financial synergy can be achieved.”
A Problem: the 2% Meager Profits
When it announced the Gateway acquisition, Acer stock nosedived. Investors feared that the US$710 million price tag was too high and that the deal might tie Acer down.
In the past, Acer did not run factories, and all production was contracted to Taiwan-based OEMs. As such, it did not need to invest much in fixed assets, or hire large numbers of workers and managers. Its distributors placed orders directly with the OEMs, which saved on costs for stocking and supply chain operations. With the New Channel Business Model, Acer is able to run cross-boundary business that has produced over US$10 billion in annual revenues with a 7,000 member workforce.
“We’re not headquartered in Taiwan. We’re headquartered everywhere in the world,” explains Lay. The nine-member management team, including Acer chairman J. T. Wang, president Lanci, product line owners, and regional chiefs, gather in a different city each quarter to discuss the next step for Acer. English is their working language since more than half of the senior executives are non-Chinese. “Our business plans are updated quarterly for more flexibility.”
