PC manufacturer Acer learned an important lesson when it realised its channel was almost non-existent, but that has all changed. Paul Kunert reports.
At the turn of the millennium, when IT spending began to falter, margins had already eroded and the constant threat from Dell placed a shadow over the channel, Acer realised it was time to ring some dramatic changes.
While rivals flirted with the direct model and struggled to find their raison d'etre, the Taiwanese PC manufacturer embarked on a back to basics drive to cut costs and improve efficiencies. “Three years ago we decided that to continue to supply technology products through the channel on a global basis, we needed the most efficient supply chain,” says Scott Dodds, Acer UK managing director.
The vendor invested in internal IT infrastructures to improve the supply chain process, removing the need to hold inventory locally — now products are shipped directly to distribution. “If you go to market indirect, your efficiencies have to match the best in the industry in terms of managing operating costs. If that is heavy, you have got a problem,” Dodds adds.
He suggests Dell’s operating costs run at about 9.5 per cent of its overall turnover. Acer, he claims, sits between 7.5 and eight per cent: “But we are hoping to hit around seven per cent. Prices are set by market forces and there is very little, if any, technology that differentiates you from your competitors, so the only competitive advantage is managing the cost of your business and the channel you sell through.”
This is the battle ground for the future and Acer believes it is already in shape to survive on low-margin, high-volume business. Attention to cost filters right down to the 35 members of staff the company has across the UK. “We can’t afford to offer the channel margins if we employ too many people,” Dodds notes.
But such scrutiny on costs has not always been the domain of the IT industry, or indeed for the Taiwanese manufacturer, when it was launched as Multitech in 1979 by current president and CEO Stan Shih. The company started life designing and manufacturing desktops as they were before Intel processors hit the market — Shih’s vision was to help make Taiwan a leading IT innovator and builder.
Dodds says many other IT companies were set up to manufacture other people’s specifications. “We were set up as an original design manufacturer, that was part of our culture,” he reveals. The first 8-bit home computer, the Multitech Professor, was introduced in 1983, and after four years of “steady” desktop sales the Acer brand was created in 1987: “The early days were about designing and manufacturing, but Acer was the creation of a brand.”
In 1989, Acer set up a joint venture with Texas Instruments on DRAM and a year later acquired Altos, a server company with a noticeable presence in the UNIX market. But the products which helped shape the Acer of today came in the early 90s when notebooks were first introduced. The product came out of the company’s R&D, bolstered by innovations from several
small companies Acer had invested in, known as Holding Investment Businesses (HIO).
Dodds says that together with Acer branded products, its Wistron OEM business and, of course, the HIOs, the Acer Group has a three-pronged attack on the market. Portables have been the vendor’s core competency ever since the revamp three years ago, and today they constitute around 60 per cent of Acer business, with desktops accounting for 35 per cent. The rest falls to servers.
“This business is about focus and doing the simple things really well. We have developed a strong position in the notebook market, and having done that, you want to use the brand position to move into other markets,” Dodds states. The desktop and server line-ups have suffered from an obvious lack of focus, but Dodds suggests the brand traction it created with notebook sales is bearing fruit in other product sectors, with both desktops and servers posting decent growth.
In terms of market focus, SMEs have been Acer’s primary target from day one, which given the current state of the corporate market, benefited the vendor. But education and local government continue to be a focus and the Acer channel has hoovered up a lot of education business, selling entry-level laptops.
The channel is the last area Acer addressed in 1999 and Dodds admits, “we did not feature on resellers’ minds, so we moved to form a relationship”. The process of improving its relationship with the channel has taken three years, but Dodds believes Acer now has the right distributors, the products and communication, glued together with channel programmes.
Acer Point is aimed at shopfront dealers, Acer Active is designed for the true SME reseller, and Acer Executive is being lined up for corporate resellers as the vendor tries to move up the food chain. Dodds argues that more importantly, Acer is a 100 per cent channel-centric organisation and dealers are still struggling to decipher the mixed messages coming out of its rivals in the face of Dell’s direct-selling threat.
“We are totally committed to this business and there will be no change to our strategy for the future. Our key focus and effort is to make sure we deliver on our promises to the channel. PC technology has developed massively in the last five years, but the way we sell it hasn’t changed since the early 80s — you still need to deliver on your commitments,” he concludes.
Turnover last year: $10.5bn (predicted)
Number of staff: 34,000 worldwide; 50 in the UK
UK directors: Scott Dodds, managing director; Paul Cook, director of sales; James Pank, distribution channel manager; Steven Brown, client services business unit manager; David White, portable business unit manager
Markets: Mobility, desktops and servers, monitors, PDAs and education
This was first published in March 2003