Acer: Writing the Textbook for Tomorrow's Computer Industry
An Interview With Stan Shih of the Acer GroupIt has been said that Taiwan is a country where everybody dreams of becoming an entrepreneur. Stan Shih, chairman and CEO of the Acer Group, Taiwan's largest PC manufacturer, has turned his dream into reality. With revenues estimated to be around U S$3 billion in 1994, Acer is one of the world's top ten PC manufacturers, and the only non-Japanese Asian company (so far) to make it big time. Shih, born in 1944, holds degrees in electrical engineering. When he's not traveling the world promoting Acer, picking up industry awards, or giving interviews to the press, he spends his days in Taiwan with his wife and three children, and his nights dre aming of even bigger successes.
Interviewed by John Boyd
Computing Japan: What kind of business is Acer doing in Japan?
Stan Shih: OEM [original equipment manufacturing] business and Acer brand-name business. Our OEM business ranges from servers and desktop machines to notebook computers, as well as motherboards and monitors. As for the Acer brand-name business, we use distributors, dealers, and mass merchandise stores. We also assemble PCs in Tokyo. But, of course, we buy more from Japan than we sell: key components like memory, LCDs [liquid crystal displays], CD-ROMs, floppy disk drives, and others.
CJ: What exactly does your OEM business consist of?
Shih: We supply systems and components to Japanese computer vendors to sell under their own names, from finished products down to motherboards. It depends on the OEM customer's requirements. We supply to more than 10 OEM customers here [in Japan], and each has different needs.
CJ: And what about the Acer brand-name business? Do you market a full range of computers in Japan?
Shih: Yes. Servers, desktops, and notebooks. And we're going to be very aggressive in promoting Pentium multimedia PCs to the home. We are already very successful with this in the US; it's a big hit for us there right now.
CJ: That's interesting. Some would argue the Pentium is too much power for most home users.
Shih: Home users now want multimedia, and multimedia needs Pentium power. That's the number one reason. Number two is the price. If the price difference is $300 to $500, then.... It's like buying a car: If the price of a 3,000-cc car is only 10 percent more compared with a 1600-cc model, which car would you like to buy? Although you may not need the speed of a big car, you will still buy it if the price difference is only small.
That's why I don't think the Compaq argument is accepted by the market: Compaq is saying, "No, you don't need the Pentium. The 486 is enough." They probably have over-inventory ó that's why they're talking in this way. Compaq never talked like that whe n it introduced the 386; it never talked like that when it introduced the 486. But this time, they say you don't need the Pentium. I don't know the reason, but I suspect it could be because of over-inventory with the 486.
CJ: Speaking of Compaq, it entered Japan not very long ago, and was soon followed by Dell Computer. Yet they have already made an impact on the market ó not necessarily in market share, though Compaq has begun appearing on market share pie charts af ter just a short time. In the case of Acer, though, I think you've been here longer, but you haven't made the same impact. Why is that?
Shih: We are trying to approach [the Japanese market] in the Acer way ó or the Asian way ó instead of the American way. The American way is to make a big noise. But when we promote our brand name in the US, Europe, Latin America, we are quiet. We first have to establish our infrastructure and management; we have to establish partners, networks of distributors, dealers. Before doing all that, we cannot make a noise. That's not our approach. Also, in Japan, it's more difficult to build up the infrastruct ure and the distribution network than in any other country.
We were asked the same question in 1987 in the UK. Dell went to the UK and [made a big noise]. So the press asked what Acer was doing. I said, "That's not the Acer approach." We are in the market for 10, 20, 30 years. We are not there to make it [quick ] or give up. We don't give up a market. I think some of the American companies will give up on Japan sooner or later, because they will consider it too tough.
CJ: You mentioned the UK. That was in 1987, and it's now 1994 ó seven years later. How are you doing in the UK today?
Shih: Our infrastructure in the UK hasn't been good enough until now, so now we're making a big move there.
This brings up another important issue. American companies may be able to recruit talent easier [than we can] in Europe and some other countries, though not necessarily in Japan. American companies have an image of being the leaders in the world, so th ey can attract good people faster. And this makes it easier to make an impact.
We know our strengths, and we have the staying power. So first we establish the infrastructure, then we can make a big impact. If you look at the US market, this year we have more than $800 million [in sales], next year more than $1 billion. So now we are moving in a big way in the US. If you go to the US today, you will see that Acer-brand activity is totally different from one year ago. But we took a long time to get to this point.
CJ: Recently, Michael Dell, founder and chairman of Dell Computer, was in Japan. He talked about the importance of ranking in the top five of world PC manufacturers, given that it's now a global market, and given there's a need to support the big c uts in prices with world-wide sales.
Shih: Michael Dell is half right. You have to become one of the leaders: top ten to survive, top five to make a profit. In terms of components, it's global competition. But in terms of market, it's local competition. We are in the top five in manufacturing many key components. We are also in the top five in many developing countries with our Acer brand. Dell is good in the US. But it's a different story in Europe and elsewhere. Dell has successfully migrated its marketing approach to the UK, but not to Germany, not to France, not to Scandinavia. So can they be successful in Asia? Outside of Japan, I don' t think so. They can't become a leader in Taiwan, Malaysia, Singapore, or Indonesia because they don't have value-added in the distribution. They have good logistics in the US, but that doesn't mean they have good logistics in Asia.
On the other hand, we were number ten in the first quarter in the US with our brand name. I expect in this quarter we will be number eight. That's not too far away from Dell.
CJ: How does Acer add value in the distribution channels?
Shih: We have three strategies. Number one we call the fast-food business mode. We assemble components in Taiwan for the global marketplace. The second way is a local touch with a global brand name. Local touch means system assembly is done locally, s o the products are localized. Management is also localized. And third, most important of all, we aim for a local shareholder majority: to become a pure local company. No other multinational is doing this. Given all this, our operations structure is called a client/server structure. Our relationship with each local market is not hierarchical, but like a network, with Acer serving to improve the speed and cost of our local partners, the clients.
These three strategies give us a totally different business structure [compared with our competitors] to meet the new IT (information technology) requirements in a global market: speed, cost, volume, and value.
I don't know who will win, but we have our own way to wage a long-term battle. And it has to be long-term, because the IT industry is one of the biggest in the world. So you have to be there in the year 2000 and after, not today only.
Including our OEM business, our goal is to be in the top five in 1995. And with our own brand name, I predict we will be in the top five before the year 2000.
CJ: In the Japanese market this year, we've seen DOS/V take off, and Apple continues to do well. Is this the beginning of the end of NEC's 50 percent market share dominance?
Shih: I think so. NEC will continue to be the market-share leader for the next 10 years because they have the infrastructure, everything. But a 50 percent market share is unusual. There are too many good companies in Japan, and the market will demand a n open solution in the future for the whole computer industry. If the market isn't open, there is a waste of resources ó you have to duplicate everything. What is more, the open market is just more competitive, and it best utilizes the industry's limited resources.
CJ: Recently, Fujitsu and Epson joined the DOS/V group of PC manufacturers, which already had companies like Toshiba and IBM Japan. With all these major Japanese companies competing in the DOS/V market, is there going to be room for the smaller comp anies like Dell, Compaq, and Acer?
Shih: This is why Acer must focus on a local touch with its global brand; it's the only way. The reason Apple is successful here, or even Sun Microsystems, is because they are in a unique position. No one in Japan can make similar products. But when it comes to DOS/V, any Japanese company can make the same products. There will be no room for companies like Compaq and Dell, unless they really localize ó like IBM. IBM here is really a Japanese company, although the ownership is still outside Japan. Acer is aiming for a Japanese majority ownership by 2000.
CJ: As early as that?
Shih: By the year 2000, we can have a majority of Japanese ownership. It is this kind of spirit that will make Acer a Japanese brand.
CJ: In the past, you said Acer is interested in licensing Apple's Macintosh technology. Since then, Apple has been reported in the press to be ready to license and is holding discussions with a number of major manufacturers. What's Acer's position t oday on this?
Shih: We are still waiting for a completely clear answer from Apple. Right now they talk, but it's not clear. Apple, because it controls the technology, must make a decision first. Then we can make a decision based on their decision.
CJ: What is Apple unclear about?
Shih: It's a dilemma for Apple. Is the technology going to be fully open, or half open? Now it's closed, but they are moving to half open. We don't know what their strategy is.
CJ: Do you expect Apple to clarify things soon?
Shih: I don't know. It's such a critical decision for Apple. There is talk in the press about Apple's discussions with Fujitsu, and wanting to limit Fujitsu to the Japanese market. I already mentioned the need to utilize global resources. If a technolo gy is not fully open, then it's a waste of know-how. Apple has a lot of technological strength and value, but if it is only half open, then the value is diluted.
CJ: Still on the subject of Apple: Given the way the PC world has swung to MS-DOS and Windows, now the global standard, is there still room for an Apple in this market? Is there still room for a unique product that doesn't follow the standard?
Shih: As a company, Apple's business is big, but it needs a reasonable, stable market share: a so-called "dynamically stable" share. If it can reach about 20 percent, then it can be dynamically stable. But if it gets only 10 to 12 percent, it faces the risk of sales erosion ó gradually, not immediately. If Apple becomes really open, it could achieve 20 percent market share, even more; then it would become dynamically stable.
CJ: Certain US executives criticize Japanese, Taiwanese, and Korean companies for grabbing Western technology and creativeness, and not really contributing anything creative themselves. Do you agree with such criticism ó that there's a lack of Asian creativity?
Shih: Yes and no. Yes, the US is more innovative because they have a big, mature market. They have a technology base. They have a culture of the individual that encourages creativity. They also like to create fancy technology, new architectures.
It's a different environment in Asia. Asian companies are contributing in a different way to the world economy: in engineering, in commercializing the technology, in making high-quality mass production in a cost-effective way. This contributes somethin g to the global end-user, for they now pay less. This is also innovation; this includes creative know-how.
And the Japanese lead here. But it's not the fancy way. Kaizen: continuous improvement. This is a hard-working contribution to the world society, while Americans enjoy life because of fancy technology.
CJ: Fancy? In what way?
Shih: High-end technology. Americans don't like to do the dirty jobs, the low-end jobs. So we do these jobs, and this helps Americans enjoy their lives. Japanese have to work harder, and their lives are harder: small rooms, expensive food. It's hard to enjoy life [in Japan]. But they contribute to American society, and yet Americans complain about Japan.
At Acer, we are working hard to improve innovation in Taiwan, in Asia, to improve the way of running a business. Then we can enjoy life too in the 21st century.
But I can't complain, because Americans worked hard in the 19th and early 20th centuries. So they enjoy life now because they did a good job in the past. Now we have to do a good job. We, too, must become more creative, do more high-end, more intangibl e work, because the intangible doesn't limit your dream.
So Americans do have some reason to complain about us. But we also have reason to complain. Talking about innovation, actually the Japanese have been innovative in the past 10 or 20 years.
CJ: You mean in manufacturing?
Shih: But also in semiconductor processes, in consumer electronics, etc., etc. In many key components like displays.
As for Acer, we are also trying in chip technology. Pica, our 64-bit PC architecture, is ahead of the PowerPC. We are also innovative working with Microsoft in CD-ROM graphics. We are bringing mainframe technology down to the PC level.
In our business strategy, we are innovative: How to better utilize resources, creating a better management system, a better structure to do business that is helping an Asian company become a global company. This is another way of being innovative. It's a reason Harvard Business School is now starting to use Acer as a case study.
CJ: What path do you foresee for the future?
Shih: Two years ago, I gave a speech in Cancun, in Mexico, to over 400 of our distributors. I spoke on how we have to work together to rewrite the business textbook. Because the textbook is also provided by the American school, or the Japanese school, and they have their own way of thinking, they have their own environments.
We in developing countries must find our own way to contribute to the world society and economy, in a different way. The American way is not our way.
Now Acer is beginning to write a new textbook. Of course, this book will be based on some of the experience of the American textbook and the Japanese textbook. But our textbook is going to be more important than those books.
Why? Because of the much greater population in Asia and Latin America than in American or Western society. We are writing the book for those people.
