Breaking Out of the Western Shell

Micron Enters the Japanese Market

Micron Electronics, Inc., is a major PC manufacturer and direct retailer, with over 3,000 employees and annual sales of $1.8 billion. Micron Electronics Japan KK, with headquarters in Makuhari, is a new (1996) and expanding subsidiary of US-based Micron Electronics, Inc. Manuel De Pena is president and representative director of Micron Electronics Japan KK. A graduate of the University of Texas, De Pena helped launch the international department at CompuAdd (a computer mail-order company), then worked at Dell Computer for four years. He joined Micron in May 1994 as director of international sales, and was appointed president of Micron Electronics Japan in spring 1996.

interviewed by Wm. Auckerman

What is the relationship between Micron Electronics and the other Micron companies?

Manuel De Pena: Micron Technology is our parent company. Until recently, they owned 79% of Micron Electronics; now it's about 65%, since there was a stock offering of 13.5 million shares made in late January. Other companies under the Micron umbrella include Micron Quantum Devices, Micron Construction (which builds a lot of the fabs and facilities for us), and Micron Displays.

We're the largest of the subsidiaries. In fiscal year '96 (ending August 1996), Micron Technology's total sales were about $3.6 billion. Out of that, we were about $1.8 billion, so approximately 50% of total company revenues.

Micron Electronics was formed in April 1995 through a three-way merger. Could you tell us a bit about that?

De Pena: Before the merger there was Zeos International, which was a completely separate organization; there was Micron Computer, which was a 100%-owned subsidiary of Micron Technology; and there was a company by the name of Micron Custom Manufacturing Systems, which was involved in doing contract manufacturing for other manufacturers, such as Cisco, and for the parent company. Now, we're all part of one organization.

It was what is called a "reverse merger." What actually happened was that all three companies merged into Zeos, and then we changed the name from Zeos into Micron Electronics.

How big is the Micron Electronics Japan staff, and how big do you expect to grow?

De Pena: Right now, we're about 50 people; we just got started. We're getting ready to expand into our next section, which will hold about another 100. We're looking to have, by the end of the year, a total of about 150 people, but that all depends... on the impact of our successes as we enter the Japanese market.

Do you market the same products in Japan as in the US?

De Pena: We absolutely tailor the products; all our products are localized. But what's interesting about that is not only do we localize everything to Japan, but we're also offering some of the English systems that customers used to buy directly from the States. We're finding that there is quite a large foreign community - I don't mean just American, but a community of businesses and individuals that is interested in products that are not in Japanese. We've adjusted our sales in order to accommodate these customers, and have had quite a few calls for these systems.

What kind of English-language sales and support do you provide?

De Pena: Currently, almost all of our direct sales staff speak English. We also have people in tech support that speak English. We expect to increase that to make sure that we cover the market.

How much independence does the Japanese office have in formulating its marketing and business strategies?

De Pena: That's a very good question. We understand that, of all markets, Japan is the most different from what we're used to dealing with. So even though we're a 100% wholly-owned subsidiary of Micron Electronics, we actually have quite a lot of independence and autonomy in deciding the direction, or even looking at a new direction from a marketing and image standpoint.

We're heading in a little bit different direction - I'd say quite a bit different direction - than what they're doing in the States, which tends to be a little more conservative, more technology centered. We're looking at breaking out of that shell, and being associated more with what a Japanese company would be associated with.

Can you comment on your distribution strategies?

De Pena: Historically, we have mainly focused on the consumer, and what in the United States we would call small business. But with the introduction of new products that are coming up very soon - we'll soon be introducing a new line of notebook products into Japan - that kind of expands the market that we normally would target. We're introducing a new line of servers, which also expands who we normally would target. And we're introducing a set of client-level type workstations mainly geared toward the corporate market. So what we're really doing is expanding who we reach.

That does not mean that we're going to abandon the consumer. On the contrary, I see us introducing more, and more interesting, products here in the near future.

How does your pricing in Japan compare with prices in the US?

De Pena: When we first looked at the Japanese market, we thought that it would be possible to price slightly above the US. But recent changes in both the market and the economy are forcing us to price at or below the US level. We're trying to avoid the below.

Do you have plans for setting up a regional assembly plant?

De Pena: Yes, we're looking at that right now. We're checking various locations to see what is the most convenient, most cost-effective. Since Japan is the largest and the primary market we have in Asia, what the proximity to Japan is, and where the hubs of distribution are located are important factors.

What is your three- to five-year goal?

De Pena: Our primary goal is to establish ourselves as a company that the Japanese customer would feel comfortable doing business with. Focusing on the direct market makes things a little more... I won't say more difficult, but we're entering an area that is new for Japan. Right now, the direct market is only about 10%. But at the same time, my competitors are fewer.

Within three to five years, we would like to be able to attain a measurable market share. I'd like to be able to tell you "3% to 5% within three to five years," which is what I have said in previous interviews. Anything more than that, I think, would be unrealistic; that's an attainable target. Can we make it? I think we can, but it's going to depend on various factors, such as how the industry changes, how the economy transforms itself....

Who are the main competitors for your target customers?

De Pena: Absolutely our primary competitors are Dell and Gateway. And, to a lesser extent, maybe Epson Direct and Akia.

And how do you differentiate Micron from your competitors in the minds of prospective buyers?

De Pena: One of the challenges is communicating who we are. Part of what we have to do is let the Japanese consumer know what we've done in other areas, and to make them feel more comfortable doing business with us. Once we're able to do that, I think one of the things that will help us distinguish ourselves is to show people we have what we feel is a very high performance, very high value product - that our overall package, the combination of product, service, and quality we offer, is a good alternative.

Are you currently selling "packaged" products or build-to-order configurations?

De Pena: Right now, we have mainly packaged products. We have an inventory that we're constantly rotating in Japan, so if you were to call us up about an advertised configuration, we could ship it to you within about three days. But we are moving toward a more assemble-to-order (or custom) configuration model. That extends the lead time, but it gives our customers a greater breadth of choice. But we'll continue to implement both.

What are some of the special problems of doing business in Japan?

De Pena: Some of the challenge in running this type of organization is finding qualified people. In an industry that is as new and dynamic as the technology industry, it's difficult convincing a potential employee that working for Micron is something that would enhance not only their career, but their quality of life. I seriously think that if you're happy at the organization where you work, then your overall attitude toward life is much better.

What are some of the current driving forces in the industry?

De Pena: Obviously, the technology changes are very, very strong. It's very difficult to do anything without really following what Intel does. A lot of the technological innovations and advances that Intel brings to the market are fundamental to keeping the industry alive and vibrant and growing. What Microsoft does is extremely important as well. Right after the introduction of Windows 95 there was this huge resurgence in the Japanese market. Now things are beginning to taper off.

Some people attribute the cooling off to the economy; others say that because there hasn't been any new or compelling technology, either hardware- or software-wise, things haven't happened. I think a combination of both of them has a lot to do with the market and the industry really moving in the right direction. I think you'll see some new products from Intel and Microsoft on the very near horizon that are going to rejuvenate the industry.

Some pundits have said that Micron's timing of entry into the Japanese market is bad, that you're coming in too late.

De Pena: Well, it's all relative. It's the right time for us because we've had to implement a lot of infrastructure investment in order to open up this facility. Had we opened up any earlier, I don't believe that we would have been able to offer our customers the type of service and type of product that they have come to expect from us. It would have been less than ideal for us to be here any sooner. There's a couple of market forces that we wish we could have skipped, such as the weakening of the yen, but we'll adjust, and the economy will adjust.

And I think there will still be other entrants to the market. People say that we're the last, or we're late, but this is an industry that doesn't have any allegiances to who comes in first or last. Any company that offers consumers the right product and good quality, reliability, and service can be successful. I think Akia is a perfect example of that.

How has the PC marketplace changed in the past few years?

De Pena: In the States, I think that users have become more educated, and more savvy with regards to what they buy. In the initial phases of this industry, people weren't really sure. They had a certain amount of money, and they bought what they felt they could get. But the second or third time around, people are saying, "These are the type of things I really need to watch out for. Maybe the size of the disk is not as important as the performance of the processor, or the amount of memory that I have, or the feel of my keyboard."

I think, even in Japan, you'll find that as people in their businesses, in their homes, become more educated on how to use computers, they're becoming more and more demanding. They're also learning what it is they want and don't want. And that has been a big advantage to us, because we're able to change as quickly as the industry, or as quickly as our customers want us to change.

What changes do you expect in the Japanese market in the next few years?

De Pena: That's a tough one. I think the direct sales model is an area that is going to grow quite a bit as Japanese consumers become more experienced, more educated, more discerning in what they buy.

Overall in the Japanese industry, I think you're going to see - as has been the trend - a reduction in the importance of the NEC PC98 standard. I'm not telling you anything new, but I think you'll find that the whole Intel/IBM-compatible product is going to gain more and more momentum. Windows has had a big impact on that. Obviously, you can run Windows on an NEC PC98, but it's really not native; there's quite a substantial amount of rework that has to be done to the Windows software to work properly with the PC98.

I see, in the very near future, that software and technology that was first introduced in the US and then in Japan is going to be introduced simultaneously. It just doesn't make sense anymore to have a lag in what you introduce in one market over another.

Which company do you consider the one to watch? Who is Japan's current market trendsetter?

De Pena: We've watched what Fujitsu has done, if only because it has been so reckless. Fujitsu has made such a great market impact in such a short time.And we continue to watch what they do, because they're really responsible for the current pricing direction. Obviously, it's quite good for the consumer, and to a lesser extent for "direct" companies such as ours, but such "shocks," as they call them here in Japan, can be difficult on the industry. It takes time to adjust.