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With smart organic and inorganic strategies, Acer is fast making its way up the ranks—not just in the PC market but also in the display segment
By K R Nambiar
Acer has come a long way, from being a dark horse to a rightful challenger to the PC market crown. The transition has enabled the company to shake off its original image of being a “cheap” Taiwanese manufacturing company, and a series of calculated moves has helped gain both its market share and mindshare among PC buyers.
In Q3 2008, while the rest of the market grew less than 15 percent, Acer’s global growth was an astonishing 45 percent. It’s true that part of this growth can be ascribed to Acer’s acquisition of Packard Bell and Gateway, but there is no doubt that the PC maker is striding ahead while most of the competition struggles to keep up.
IDC reports that Acer is the second-largest notebook vendor and the third-largest PC brand globally in terms of units shipped. With an overwhelming market share of 35 percent, the company is also the world’s largest netbook vendor.
In India, Acer is on a roll. While perched as the third-largest PC brand in the country in unit sales, it recently stole the thunder from Korean biggies LG and Samsung to become the market leader in LCD monitors. Its mission now is to edge closer to market leader HP through a series of product rollouts and marketing activities, while staying focused on its strengths and growing its channels.
Focusing on strengths
Acer’s Asian roots may look humble, but the company draws strength from its legacy of being part of one of world’s largest technology manufacturing groups. “We know where our weaknesses lie, and we also know where our strengths are. We bank on our efficient supply chain, lower operational expenses, faster turnaround, and our vast channel presence,” says W S Mukund, CEO, Acer India.
“Do you know that we have the lowest operation costs among all global PC brands?” he asks. “We operate at just under 6 percent, while Dell, which is having a direct model, operates at around 8.9 percent. HP’s is even higher, at 10.5 percent of their revenues.”
Acer’s sales strategies thrive on a mantra that derives from its operational efficiency and its speed in reaching products to the market. The idea is to offer a product that’s a step ahead in terms of configuration or features compared to the “sweet-spot” model of the competition, while ensuring that the product is priced in the same range.
To take on an HP or a Dell, Acer might offer a similarly priced model with a processor having a higher clock speed, or double the memory, or some other feature that could be perceived as a value-add by potential customers. In the monitor space, it broke the near-monopoly of Korean giants, Samsung and LG, by constantly upgrading market standards. For example, when Samsung was selling a 17-inch inch LCD monitor for Rs 8,500 on the street, Acer offered an 18.5-inch monitor for a few hundred rupees more. The strategy obviously worked, as IDC India declared Acer as the market leader in Q3 2008.
“If you ask us, we are simply leveraging our strengths. We do not need to spend anything extra in building a brand specifically for our monitors. We have an extremely efficient base in terms of supplies with our Far East operations, and we also have channels that can move stock off the shelves very fast,” says S Rajendran, Chief Marketing Officer, Acer India. He adds that Acer essentially drove the market by pushing wider monitors through its “Go Big Go Wide” campaign, and constantly introduced wider form factors.
Taking the rough with the smooth
However, not all partners are enthused about Acer. In fact, many enterprise-focused systems integrators prefer HP, IBM or Dell. “There’s perhaps nothing wrong in looking at Acer’s desktop and notebook offerings if you’re a home user or a small business. However, when approaching large enterprises and corporate customers, one needs a bigger technology range and offers. That’s why we have associated with HP,” explains Rajeev Mehta, Managing Director of the Delhi-based Zest Systems.
While Acer’s management is conscious of the lack of high-end technology products in its menu, they make it clear that the enterprise agenda is not central to the company’s overall strategy. Acer’s non-American roots have apparently been a handicap when it comes to enterprise business. “The lack of a strong presence in North America has cost us business from the traditional enterprise market, where the decision is largely policy-driven—and the policies are usually taken from the North American headquarters of such customers,” says Mukund. “This is one of the reasons why we have not focused on bringing some of the top-end servers, storage products or technologies to the market. In fact, we are present in every market space except the high-end enterprise.”
However, Mukund is quick to add that Acer is a still a preferred brand among enterprises that do not have a strong American leaning. “We have a number of bank customers, and banking runs some of the biggest mission-critical applications,” he says. “Another case in point is Infosys, which has purchased some 35,000 systems over the years, and this installation is supported through our partners.”
2009: Multi-brand strategy
In 2007 Acer acquired US PC maker, Gateway Systems and in 2008 it snapped up Packard Bell, which had a significant presence in Europe. Acer is all set to launch Gateway and eMachines (a brand owned by Gateway through a prior acquisition) in the country next year.
Acer has hired leading management consultant McKinsey & Co to plot a strategy to take the multiple brands to different markets. Since Gateway and Packard Bell are mainly positioned for the home and SOHO market, Acer is expected to unveil a product line that is multi-branded. It may even withdraw some of its existing models from the market to accommodate new brands.
“At this point, we are not bringing Packard Bell into India and most of the Asian markets. We will have Acer, Gateway and eMachines. The brands will have distinct identities and overall we will expand our product range and reach,” says Mukund.
Banking on retail
Acer was one of the first vendors to focus on retail, and the focus will now shift from B-class towns to C- and D-class towns. “We see opportunities in both—modern (large format) retail and our specialized IT stores. It’s the consumer who decides where to buy. We believe that larger retails will play a very crucial role in determining how consumers in metros and large cities buy. However, in the near future, we see IT specialised stores being preferred by customers in B- and C- class towns,” explains Rajendran.
In 2009, Acer expects large-format retails to contribute a quarter of its retail pie. “We will be adding new Acer Malls in smaller towns. We are targeting 350 Acer Malls by 2009 end,” says Rajendran.
Acer’s retail business has grown ever since it signed on Hrithik Roshan. “Since Hrithik is a youth icon, the walk-ins, especially by students and young professionals, has increased,” says K L Narasiah, of Computer Marketing and Allied Services, an Acer Mall owner in suburban Bangalore.
The numbers game
One of the targets Acer has set itself is to become the second-largest notebook vendor in India, and also edge out Dell to become the second-largest PC brand globally. “We might achieve both in the coming year, because what distances us from Dell is a market share of only around 1.5 percent. We might actually be aided by the current slowdown, as enterprises—where Dell outscores Acer—are likely to go slow on purchases. We see consumer and government buying remaining steady, and this is where Acer has an edge,” claims Mukund.
Mukund is also banking on the multi-brand strategy in India and elsewhere. Also, Acer’s quick decision to introduce netbooks just as the new market was opening up, is expected to help the company inch closer to Dell. “We have grabbed market leadership with around 35 percent share. In India we have just introduced a netbook with a hard disk drive for Rs 17,500,” says Rajendran. By 2011, the company hopes to grab the global leadership spot in the notebook market.
Acer is also advising its partners to pursue the education and government segments, as its key strength of offering affordable prices makes it an attractive option. “Since notebooks are almost mandatory in several high-end technical institutions and management colleges, we have focused on that market. We have had several large wins in this space,” says Rajendran.
In addition, Acer has also bagged big orders from some state governments, notably Gujarat and Andhra Pradesh. Rajendran says that Acer has supplied in excess of 65,000 computers across schools in Gujarat, and all these PCs are supported via the company’s partner network.
The art of reselling
Acer’s non-retail partner program called Star VAR is expected to get a boost in the new calendar year. The company already has more than 100 VARs signed up, and is trying to handhold these VARs to address the SMB segment. Earlier, Acer had tied up with ICICI Bank to help partners finance their customers.
Since C and D class towns are a focus area in the new calendar year, Acer is identifying sub-distributors who can run schemes for their partners in these places. “We got this idea a few months ago from a Chennai-based partner, who said that he has several resellers across Tamil Nadu who don’t fit it into any of our existing programs, and the distributors do not offer direct credit to them. Hence we have set up a program that will have master resellers who resell products to other resellers in C and D class towns,” says Mukund. Around 23 such sub-distributors have signed up. Mukund clarifies that only those sub-distributors who have resellers in the upcountry market have been signed on.
Acer has tried to ensure that the market operating prices of its products are consistent. “We have managed to ensure that MOPs are not compromised through discounting back-end rebates by volume buyers among channels. Hence discounts have been capped at the 50-unit mark. This discourages resellers from taking larger volumes and ending up overstocking,” says Rajendran.
To make more inroads into northern India, Acer recently roped in SES Technologies as a distributor.
Challenges ahead
Signing on Hrithik Roshan may have helped to boost Acer’s image among the youth and in the home market, but to gain significant numbers and reach its goal of being a market leader in the country, the company still needs to find solutions to missed opportunities in the enterprise and SMB market. While Acer is confident it has a product range that meets the requirements of an SMB customer, most system integrators would rather align with a vendor that has a proven record across the enterprise space, and have a solution-centric business model.
While the multi-brand strategy is likely to help Acer in the immediate future, spanning it over a longer period comes with its own challenges. Statistics reveal that while Acer lags behind Dell by just a million and a half units, Acer’s sales revenue at USD 20 billion is just one-third of Dell’s USD 61 billion. However, Rajendran attributes this disparity to the fact that Acer’s offerings are essentially Acer-branded products, whereas the competition’s turnover figures takes into account third-party products such as software, networking equipment, printers etc.
Acer’s overall business strategy is clear—it will drive new technologies for consumers at lower prices, setting new benchmarks from a value-for-money perspective. Perhaps the company’s biggest challenge will be to increase its sales of high-end products, which will ensure greater value and bigger margins. From the look of things, Mukund’s claim that Acer will checkmate the competition on its own terms doesn’t sound far-fetched at all. |