Abstract

On the Next Front: Emerging Markets

The rapid growth in the size of the European notebook PC market in recent years has upset the competitive balance between the leading notebook PC vendors, both in the mature Western European market and the emerging markets of Eastern Europe. Significant differences exist between the leading brands in terms of both their global business strategies and their strategic deployment in the European market. For those vendors that have been doing well in Europe, yhere is intense interest to see what the next move will be - not only in Europe, but also in emerging markets such as China, India and the Middle East.

When expanding into emerging markets, the leading international brands enjoy many advantages that their local competitors do not. However, every market has its own unique features; the leading brands need to adjust their business strategy to conform to the local situation.

Acer's strategy of using joint ventures and recruiting managers locally has proved very successful in Europe. The new Italian CEO has decided that, while continuing to develop the European market, Acer should make the US the new focus of its operations. It can be anticipated that Acer will also continue its aggressive development of emerging markets.

The fall in HP's market share in the European market is partly attributable to the changes in HP's business strategy; the policy of implementing a unified strategy worldwide has run into difficulties in Europe. Eventually, HP modified its PartnerONE initiative to take account of the differences within the European market; it can be anticipated that HP will encounter similar problems in other regional markets.

Dell's direct sales model has been very successful in mature markets. In emerging markets, however, Dell has found it difficult to maintain sales growth. In Eastern Europe and other parts of the EMEA (Europe, Middle East and Africa) region, Dell has been obliged to adopt a traditional channel sales model. It remains to be seen whether this model is a temporary measure; it appears that utilization of the conventional channel sales model may be a prerequisite for success in emerging markets.

Toshiba has been able to leverage its strong brand image in the European market; nevertheless, Toshiba has encountered several significant obstacles in its development of this market, which have led to the introduction of new, low-priced notebook PC models. However, Toshiba's production costs have remained consistently high, which has had a negative impact on its development of emerging markets.

Some Strategies Clear, Some Still Evolving

Analysis of the positioning and strategies adopted by the leading notebook PC vendors shows that Acer and Dell have continued to implement their long-standing business models, focusing on the strengthening of their existing core competencies. Although occasionally they may experiment with new strategies, these initiatives have so far been rather tentative; there has been no fundamental change in the underlying business strategy.

By contrast, HP and Toshiba have been constantly adjusting their strategies ?both long-term and short-term - in response to changes in the state of market competition. They have endeavored to expand the overall size of the market available to them by utilizing a diversified range of strategies. HP has made adjustments to its distribution channels, putting more emphasis on direct sales; Toshiba has changed its product strategy, introducing new, entry-level models. However, these changes in strategy and restructuring initiatives take time to implement, impacting as they do on both the company's internal organization and its supplier relationships. When faced with rivals who possess significant competitive advantage, HP and Toshiba may find themselves experiencing a further erosion of market share.

Acer's existing product, pricing and distribution strategies have proved their worth in Western Europe. The task facing Acer now is to extend the implementation of these strategies to include Eastern Europe. It can be anticipated that Acer will continue with its current distribution strategy, but with some adjustments to attract new distribution partners, including more emphasis on joint marketing.

Faced with a low operating margin, HP will continue to implement internal restructuring initiatives; in addition, it can be anticipated that the share of HP notebook PC models designed to target the professional market will continue to increase. Direct sales will become increasingly important, and HP can be expected to experiment with the CTO model in both the direct sales and channel sales segments. This will result in more standardized offerings, and like the Dell model, will create a higher "Regional Product Availability Rate."

As for Dell, with its direct sales model, besides continuing to develop the professional market in Western Europe, the company can also be expected to step up its development of the Southern European market; Dell will be using the same business model that it employs in the US throughout Western Europe. In Eastern Europe, in the short term at least rival brands are unlikely to experience any significant negative impact from Dell's experiments with new distribution models.

Toshiba's market share has been shrinking steadily in the last few years. To claw back some of the market share that it has lost, Toshiba will need to expand its presence in the consumer market, while at the same time adopting a more aggressive outsourcing strategy. It can be anticipated that, with in-house production increasingly confined to high-end models, the number of different product will fall noticeably, and the "Regional Product Availability Rate" will rise. Besides adding new consumer models, Toshiba will also be rolling out new entry-level models to target the Eastern European market.

Acer Focusing on Europe in 2005

As noted in the first section of this report, the main sources of growth for the European notebook PC market in the future will include the consumer market, the SMB market, the desktop replacement effect, the growing demand for wireless applications, and the development of emerging markets.　

In the consumer market, Europe's diverse cultures encourage notebook PC vendors to roll out a wide range of different models Acer, HP and Toshiba offer a particularly wide range of models in the consumer market. As regards pricing strategy, the consumer market is highly price-sensitive, and tends to emphasize low COA. This characteristic puts Acer and HP - both of which have maintained low-price strategies - at an advantage in the consumer segment. Developing the consumer market requires the establishment of a much larger network of retail outlets than is the case in the professional market in order to reach all potential customers. The larger the distribution network, the more attention must be paid to efficiency and cost. Acer, HP and Toshiba have all had a presence in the European consumer market for many years and have achieved high penetration; they are thus at a significant advantage in this market. Overall, Acer and HP are best placed to achieve success in the consumer market.

Purchasing decisions in the SMB market bear some similarity to those in the consumer market. The price/performance ratio is also important to customers in this market, putting mainstream models - which tend to have a high price/performance ratio - at an advantage. The larger the enterprise, the more importance it can be expected to attach to after-sales services and low TCO (Total Cost of Ownership); enterprises may also be concerned about whether the notebook vendor can provide other services such as IT services, call-out service and third party support. Acer, HP and Dell all have their own individual areas of expertise in this field. Besides notebook PCs, all three of these vendors also sell desktop PCs, enabling them to offer a "total package".

The desktop replacement) effect has been stronger in Europe than in the US. Notebook PCs purchased to replace desktops have to conform to a different set of needs in terms of performance, price, multi-function capability and ability to support multimedia applications. In their product strategy, Acer and HP have focused on providing a comprehensive range of product lines, while also giving customers the choice of Intel or AMD CPUs. What is more, both Acer and HP have maintained low-price strategies. Dell's product strategy is two-pronged; while marketing ultra-low-end entry-level models, Dell also sells mainstream models, relying on a high price-performance ratio to grow market share. Although Toshiba has introduced some low-priced models, it continues to focus on providing a wide range of functions and high specifications, as exemplified by the Qosmio multimedia notebook PCs.

Wireless applications for notebook PCs have taken off more rapidly in Europe than in the US. Although there are some slight differences in specifications, the Intel Centrino / Sonoma platform has been adopted by all the leading vendors.

In recent years, the emerging markets of Central Europe, Eastern Europe and Russia have had the highest growth rates in Europe. However, income levels in these countries remain low, and the large enterprise and other vertically integrated markets are similar to the SMB market in Western Europe in many respects. Acer and HP would therefore seem to have the best chance of developing Europe's emerging markets successfully. HP has been the most aggressive in developing the emerging markets, and has already established a high level of brand recognition in these areas. Dell has experimented with new distribution strategies and collaborative ventures in the emerging markets, but continues to lag behind the other vendors in terms of scale of operation and efficiency.

It is anticipated that the competition between the four leading notebook PC vendors in the European market will remain fierce in the future. Having worked hard to develop its European marketing and distribution channels, Acer has a achieved a dominant position in the European market, and Europe will continue to constitute one of Acer's most important markets.

HP has had a presence in the European market for many years. After a process of restructuring lasting over a year, HP now has a distribution structure that is more suited to the special features of the European market. However, it remains to be seen how quickly HP's complex distribution structure will be able to react to the rapid pace of change in the European notebook PC market.

Dell has made relatively little effort to develop the consumer market in Europe, continuing to focus on the application of a low-TCO strategy to the professional market, and maintaining a Europe-wide strategy rather than tailoring its operations to individual markets. In Eastern Europe, Dell still lags behind its competitors, despite its adoption of a channel sales model in this market.

Toshiba has made significant adjustments to its business strategy. While continuing to focus heavily on the high-end notebook PC market, the company has also responded to the rapid growth in the value-line market by rolling out new entry-level models. However, Toshiba now finds itself experiencing problems with unclear positioning. The introduction of entry-level models does not sit well with Toshiba's high-end image; Toshiba may need to make further changes to its marketing strategy. It is anticipated that Toshiba will continue to focus mainly on the Western European market, and that its development of the Eastern European market will proceed relatively slowly.

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