interview
.
Simon Lin of Taiwan's Acer Inc
Overcoming the Obstacles to Business Success in Japan
Computing Japan talks with Simon Lin, President and CEO of Acer's Information Products Business Unit, about Acer's success in the Japanese marketplace, and his views of past and future PC market developments.interviewed by Wm. Auckerman
Simon Lin is president and CEO of the Information Products Business Unit of Acer Incorporated, the Business Unit responsible for computer system R&D, manufacturing, product management, and OEM business. He oversees a staff of about 1900 persons.
Prior to joining Acer in 1979 as a regional sales manager, Lin worked as a design engineer with Sinotek Engineering. He holds a BS degree from National Chiao Tung University. Among the posts he has held at Acer are Vice President for the International Distribution Sales Division and President of the PC Products Business Unit. In 1989, he was honored by the Taiwanese government as "Outstanding Manager of the Republic of China."
Lin is currently a member of the board of directors of Acer Inc., Acer Peripherals Inc., and Acer Labs Inc. He is on the board of supervising directors of the Taipei Computer Association.
First, tell us a bit about your background.
Simon Lin: I graduated from Chiao Tung University in Taiwan, which is a very famous technology university, particularly for computers and electronics. As you may know, we have to do military service for two years, and after that I decided to become a design engineer. That was my hope, for my whole life: to be a good engineer. I'd always wanted to be an engineer.
So, I joined a company and became a systems design engineer for two years. We did a pretty good system design based on microprocessors. In 1976, 1977, microprocessors just started to be introduced in Taiwan, so I used the opportunity to learn about microprocessors. I hadn't done anything related to microprocessors in school.
During this time, I got married. My wife was a teacher, and she worked in the southern part of Taiwan. I was in Taipei, which is over 300 kilometers away. Living apart during the week was not the kind of life I wanted, so I decided to change my job. Changing my job seemed easier than my wife changing to Taipei.
Is that when you joined Acer?
Lin: Yes, I looked around for opportunities. Acer at that time was pretty small, based in Taipei, but the company had just started to expand, with one office in the southern part of Taiwan. I talked with Stan [Shih, Acer's CEO] and the other gentlemen -- we all graduated from the same university, so it was kind of easy to talk; you might say we all "spoke the same language." The company was small, only about 25 employees, but I said, "If there is an opportunity in the southern part of Taiwan, I'll take it."
Still in engineering?
Lin: No. I returned to my home town and went into sales. That was a very important career change because, as I said, I had intended to be a very good systems engineer. But the only job offer for me was in sales. I took it because I felt that having my family all together was more important than anything else.
That was the first step. I started in local sales, and then some years later became director of procurement for the factory. That's how I started my career in Acer. I had a very great dream at that time, though actually the dream was very small -- I just wanted to be together with my family.
How often do you visit Japan?
Lin: When I became director of procurement for Acer, in 1982, a lot of components were already being purchased from Japan. So, since then, I have been coming to Japan very, very often -- maybe 60 or 70 times.
Particularly from 1987 to 1989, I was in charge of the overall distribution sales, worldwide excluding North America and Europe. So Japan was under my territory -- I was the guy to open things here in Japan. At the time, we formed a joint venture with the Sumitomo group, and established a company here in Japan. During that time, especially, I came to Japan quite often, for whatever the business required: sales training, meeting the dealers, meeting our distributors, talking to our customers....
During those two or three years, when we were starting to do business in Japan, it was very tough. But we were committed to be in this marketplace.
What was your impression of the Japanese market?
Lin: Back then, Japan was not a very high priority, mainly because at that time NEC was dominant. Some people suggested that we make NEC-compatible products, but I said no, because we would have had to diversify our R&D efforts into two major teams. Compatibility is always a question, and we decided not to join the NEC-compatible camp.
Looking back, and considering subsequent market developments, was that the right decision?
Lin: We had some kind of understanding, and hope, that Japan would eventually be a big market. No matter how slow it might be to develop, we knew it should eventually be a big market for Acer. Unfortunately, because NEC at that time was so strong -- with 70% or 80% of the overall market -- the remaining percentage of the market was very small, very niche.
Many people believe the Japanese market is so tough because of the business style and consumer expectations. The business style means that for consumer electronics, even very popular commodities, local brand name loyalty is much higher than foreign brand loyalty. And from the technology point of view, the severe quality requirements of the marketplace is always a kind pressure. Japanese consumers expect almost perfect quality. That's good, but it's sometimes overwhelming. Those are the two major factors to overcome if you want to make a successful business in Japan.
You mentioned that it was very tough when you first entered Japan.
Lin: In the first year, the second year, we suffered big losses, because the only business we could do here was with English users. We started out by selling a pure English version of IBM PC-compatible computers to foreign companies in Japan. One our biggest original markets were the US Navy bases.
That was Acer's start in Japan. The market was so small, so niche, that we couldn't make money. Then, after two years, we joined the AX consortium. Everyone at that time said maybe the alternative AX standard could do something against NEC. Unfortunately, though, the specifications of the AX were not universal. The so-called Japan EGA [JEGA] standard was different from the global EGA standard, and not compatible with the later VGA. That became a problem. We pushed the AX very, very hard, and we tried to encourage many companies to join the AX consortium to make sure that it would be a success. But it failed.
And then came DOS/V?
Lin: Yes. In 1991 and 1992, IBM and some others talked with Acer, and we all joined together to say, "Maybe this time we can start from a purely DOS-compatible standard." From there, it became very easy to convert to a bilingual system, to Japanese. That was the starting point.
DOS/V was supported by IBM, by Microsoft, by some big companies in Japan, and it soon became the new standard. Since then, the market for us has become more and more attractive. Before DOS/V, for a company like Acer, the Japanese market was really, really small; only NEC had a big market. But after DOS/V, the market for other companies has expanded. I think that, sooner or later, DOS/V will reach 60% or 70% of the market.
So DOS/V has opened the game to new
players?
Lin: Yes, because it is a worldwide standard. And because finally a worldwide standard has appeared in Japan, it gives the advantage of wider sourcing of components -- and then the price becomes lower. So players from outside Japan -- Acer, and American firms like Compaq, Dell, and Packard Bell -- come into this marketplace and push the price low, which is a significant move.
This compliance with the worldwide standard, plus a very attractive price, means that NEC feels a big pressure and has seen a collapse of its market share. As of late 1995, if you put all the DOS/V systems together, I think their market share may be bigger than NEC. DOS/V is a significant change that will enable many companies -- Acer and others -- to be very successful in Japan.
I've participated in this evolution of the Japanese market: from the NEC dominance of the whole market, through the abortive AX challenge, and now DOS/V. The market is changing, and this change is very good for the Japanese consumer.
Is there a chance that NEC will eventually adopt the DOS/V standard?
Lin: I think that it would be reasonable for NEC to consider it. NEC is already promoting some DOS/V models for their servers; this, to me, seems a pretty reasonable business decision. NEC's 9800 platform has been so successful in this marketplace for 10 years, so they serve such a large customer base. And, more importantly, so many independent software vendors [ISVs] are working on the 9800 platform, and there is so much software, so many packages, available today for the 9800 platform. In this sense, NEC must feel a responsibility to its customers, channels, and its ISVs and partners.
For NEC to make a dramatic change in the mainstream, the desktop, will be very difficult. So they start from the server -- which is good, because the market is limited, the users are more knowledgeable, and NEC can have better control. If NEC starts from the server market and continues by introducing DOS/V clients, then DOS/V will eventually become an NEC environment. They can gradually convince people that NEC is good not only for the 9800 environment, but also for the DOS/V environment.
Overall, though, the big question will be whether they can, or want to, abandon their 9800 platform. I don't know. Maybe they might take two steps. The creation of a model in which 9800 and DOS/V coexist, running concurrently; I don't know if it would be a good idea or not, but it may be a first step.
With the introduction of DOS/V, and the subsequent entry of foreign vendors in the Japanese marketplace, hardware prices are falling. Is this good for Acer? Do you compete well in the low-price market?
Lin: We're not only competing in the Japanese market, we're competing in the worldwide market. Our feeling is that an open market is advantageous; Acer is very good at that.
How are your sales in Japan now?
Lin: If we consider only Acer brand name products, our sales in Japan are very low. Looking at Acer's worldwide brand name market, the portion in Japan is maybe 3% of total sales. But our OEM business in Japan is very good. If we take the OEM business into account, the Japanese business share may be 20% to 25% of our total market.
What is the profitability of the OEM market versus brand name sales?
Lin: From my point of view, there are two layers of operation. One sector is my operation: taking care of manufacturing, research and development, OEM sales, and the technology and component side. The other sector is the sales operations: Acer Japan, Acer America. They take my product, market and promote, and make sales to the end users, to the customers. From my perspective, when we talk about OEM and Acer brand name, we have almost the same margin, because we treat the same customer bases.
Beyond this, I think that Acer's sales organizations may be better in terms of margin. We have better expense control and promotion, and a good sales marketing structure.
I've read that Acer is giving more priority now to its OEM strategy. Can you comment on this?
Lin: Acer has been in the OEM business for 10 years. We have been able to continuously keep OEM customers with us for many years.
But the general public doesn't know about Acer's OEM activities.
Lin: Yes, that's true, because we don't particularly want to promote it. It's a part of our business. Especially in 1990 and 1991, our OEM sales compared with our brand name sales was pretty low. We did not achieve the business goal that we wanted, which was to keep 40% to 50% OEM sales, and maybe 50% to 60% Acer brand sales.
In fact, we kept that ratio very successfully until 1989. But from '89 through '91, our OEM sales dropped significantly, to maybe 20%. Starting in 1993, though, our OEM sales have grown dramatically. As of today, it is between 40% and 45%. Also, our overall sales have grown quickly. This means that OEM sales has shown a very significant increase, which means that Acer's structure for components supply is a successful model.
Is there a conflict between OEM sales and brand name sales?
Lin: OEM sales might be considered a conflict with brand name sales in the market, but for me, serving OEM customers is Acer's business as well. They buy components from me. In answer to your earlier question, in recent years, we're not particularly promoting OEM sales, but what I like to say is that we are more open than ever before. Our OEM business is very good for us, just as important for us as our Acer brand name business.
What type of Acer brand name products are being marketed in Japan?
Lin: We are marketing mainly multimedia-style products now. As you know, multimedia is a major subject in the PC arena here. So multimedia in one unit is a must; we have to pack the right configuration. Today, we are marketing multimedia as the main target in our desktop line. And then we have our notebook products, which start from fundamental entry notebook to higher notebooks with multimedia capability. This has been the main theme in Acer's 1995 product line in the Japanese market -- focusing on providing computers with better multimedia functionality, whether desktop or notebook.
Do you do any production in Japan?
Lin: It's not so-called production like we do in Taiwan; we have small reconfiguration facilities here. We ship the motherboard, we ship the housing, and then we can create certain configurations here according to our OEM customers' requirements.
Do you approach the Japanese market differently than those of other countries? Is there anything unique about Japan that you, as a foreign company, have to respond to?
Lin: I think that we approach the Japanese market a little bit differently because we understand that the local requirements are different. If you look at the Japanese market, even in the stage when NEC was very strong, the portion of notebooks has always been higher than any other country in the world. Which means that some specific factor, such as limited desk space, perhaps, is a factor for the Japanese market. Also, Japan has a product that is unique: the wordprocessor. You don't see so many wordprocessors worldwide as in Japan.
So, yes, I think Japan has some unique product requirements in its marketplace. And I personally feel that to fulfill the Japanese market, you have to be here, in order to understand the Japanese customer better.
Today, sales of the "moniputer" -- an all-in-one system with monitor and computer together inside the box -- are higher in Japan than anywhere else. I think this also reflects the space requirement, as well as the need for some kind of entertainment tool in the PC environment. Compared with the USA, many people are not really familiar with how to operate a computer, so to encourage sales dealers probably want some other functions bundled with the PC. These are factors that deserve attention. Japan has a quite different product approach.
What kind of R&D trends do you foresee in next few years?
Lin: I think that, for the next couple of years, putting multimedia functionality into the computer -- whether it is a board, in the CPU, or firmware or whatever -- is one trend that you cannot neglect. The other trend is user interface. No matter how good Windows 95 is, compared to a pure intuitive interface, we are still far away. So continuously enhancing your capability to improve the interface between the machine and user is a second major trend.
I think a third area is integration of consumer preferences, like color, appearance, shape, as well as communications capabilities. The convergence of these into one unit is another trend. So, in a sense, I think that enhanced usability is a key point -- multimedia capability, better user interface, and consumer demands for communication and appearance.
You mentioned Windows 95 -- How do you it see affecting the hardware market?
Lin: Windows 95's is much easier to use compared to Windows 3.1. I think one point, though, is that many novice users still complain that they don't know how to install it. It will be some time before the average person gets used to these kind of operating environments. But I can say that Windows 95 is a successful product. It will help hardware sales a lot.
In a February interview with Computing Japan, Acer CEO Stan Shih mentioned that Acer was negotiating to license Mac technology. Has anything happened in that area yet?
Lin: No, not yet.
Some critics charge there is a lack of creativity among Asian manufacturers like Acer. Would you care to comment on this?
Lin: I think that we can look at creativity from different angles. On the component side, for example, I personally believe that Asian countries show more creativity than the US. But for the environment side, such as changing from DOS to Windows, or from Windows 3.1 to Win95, or the generational change of CPU architecture and so on, US makers are dominant in the so-called creativity. You have to look at these two major sides.
Another area is creativity within the market. Some people will say that companies like Packard Bell show creativity in the sales channel. They implement new ideas about how they can sell into the new channels. For this, I think it is totally a market-to-market differentiation. Some approaches may not be successful in Japan or other places. This kind of creativity exists in Asia -- for this kind of marketing issue. The only challenge is the platform-change creativity, the architectural creativity -- this is an arena in which it is pretty difficult for Asia players to play.
What are Acer's plans for the future? What lies ahead for the next 2 or 3 years in the Japanese market?
Lin: For the next two or three years in the Japanese market, the number one influence, I feel, is that DOS/V will continue to grow. It has already proved that adopting a world standard brings more benefit than a proprietary standard. DOS/V will continue to benefit both the customer and the market.
If you consider products, I think for the next couple of years the convergence of technologies, particularly multimedia and communications, will be a key concern in the Japanese market. And because of DOS/V, multimedia content providers will be more eager to produce the titles for the Japanese market, because they can then do also some modifications and service the worldwide market as well. In the 9800 environment, you can only service the domestic market. With DOS/V, they can service both Japanese customers and the worldwide market with some modifications. So I think CD content providers will produce more and more DOS/V titles, which will enhance the functionality of the multimedia requirement and push it into the home market.
Overall, in the next couple of years, the computer in Japan will undergo some kind of diversification, both on the consumer side and in the commercial side for business purposes.
