The local Australian PC assembly business is finding itself squeezed between the larger multinational vendors and smaller "cottage industry" builders. These sections of the industry have a growing capacity and inclination to siphon off the hard-won market share of Australian PC builders. There is almost an unconscious aversion by some to growing their businesses too much, lest they attract unwanted avarice from competitors.
Big customers are not necessarily buying big brands, are price conscious and can have champagne tastes on beer budgets. So how are Australian PC vendors (the ones that actually put systems together here) competing in these continuing turbulent times? ARN spoke to several PC assemblers to find out what they are doing to develop and protect their customer bases and sales paths Turning out a thousand or more PCs per month puts you in the field of play. Starting with a stack of cases, motherboards, memory, hard drives, cards and processors which are converted into ready-to-go machines makes you an assembler (as opposed to a re-builder) and Australian PC assemblers, if not Australian owned, are ostensibly run by Australians who deal with their own favoured suppliers and maintain, to a degree, indigenous business practices and products.
There is something almost unifying when you ask competitors how they handle common threats. It is not suggested the local breed will form a cartel to hold back the multinational wave or the backyard gush, but no-one was in any doubt about the challenge posed to our assemblers.
The companies referred to in this article represent a variety of assemblers. Each has a different view of the world according to its distribution method, business roots, company style and product range. Their commonality lies in their positioning between multinationals and no-name boxes. They have branding issues like the big guys and proffer the quick turnaround of your local builder. They form global strategic relationships with key suppliers and have the capabilities to adjust specifications in an instant. They have price advantages at one end, and are "value challenged" at the other.
Australian assemblers (AAs) have become niche marketers, and continue to seek and develop business in sectors of the market where they can either press home their price advantage or exploit their specialised product or market advantages.
One thing is clear: the key to Australian PC makers' success is their "relationship" with their customers - resellers or end users: they, like your local politician, know what their constituents like and want. This is often tricky business because, as your local politician knows, their constituents change their minds often and don't always let them know.
Darren Davis is product manager at Optima, a semi-automated assembly facility at Rydalmere with capacity of 200 systems per day and an average output of 2000 systems per month. Quality endorsement (ISO9002) and quality components - "we only deal with reputable companies" - are critical to Optima's competitive strategy, he says. "Relationships with suppliers are vital. You have to have a good relationship with suppliers because they basically can keep you informed about what's going on, giving you a jump on competitors . . ."
Key suppliers to Optima include Intel (80Ð90 per cent of Optima systems have Intel CPUs) and Seagate for disk drives. "Intel will come in and tell us what the market's going to be doing for the next year . . . and basically we have to follow that because if we don't, who do we rely on?
"We are treated as a multinational . . . with suppliers . . . but when it comes to releasing products they treat us as a tier two. We would be one of Seagate's biggest customers, and we are loyal to them."
Optima's distribution method is mostly via appointed resellers, especially in country and regional centres. This network is complemented by a direct sales team primarily focused on government customers. Davis claims that the relationship between Optima and its dealers is a key element to its success. "We pride ourselves on that; if our dealers do well, we do well." If a school in the vicinity of an authorised reseller buys direct from Optima under a preferred supplier contract, that dealer is often compensated for the sale. "If you're an Apple dealer could you ring up the managing director to discuss a sale? We are a big company but our doors are always open."
According to Davis, Optima mostly competes with tier one vendors, especially in government business. He believes that its competitive advantages are flexibility of specifications, service reliability, customer support and access to local R & D. The Achilles heel is essentially a branding issue - some customers want big brands - so as the company's marketing communication budget grows, brand awareness and acceptance will increase. Davis indicated that Optima's OCT and Vizon brands were most likely to be put up against tier one vendors and these represented premium products.
At the section of the market where Optima competes with small assemblers of "clone systems" it has released the Sprinter brand, which Davis claims is price competitive in a tax exempt sale. He also said that there is an increasing number of these types of systems being purchased by government customers.
In short, Optima is addressing both sides of the squeeze. It relies on a loyal dealer network and provides pricing advantages, flexibility and access to its R&D staff to woo the hearts and minds of the brand-conscious as well as the value seeker.
PC Direct's general manager, Sales and Marketing, Rowan Schaff, is on a mission for growth. Brought in from the New Zealand operation to facilitate a doubling of the Australian turnover this year, he names Intel, Tech Pacific, Quantum and Legend among the company's key suppliers. "We see ourselves as being in the IT business and not the assembler business as such. So we're quite willing to move if that's what the market says we should do."
Among its competitive advantages Schaff points to the company's ability to control its relationships (suppliers and customers) and a vision of its business.
As the name implies, PC Direct is a direct sales organisation and has an assembly operation in Sydney's Waterloo. Its Australian market is divided into retail/home (almost exclusively via Harvey Norman), small business and corporate/ government. "We tend to compete with the bigger guys, we don't really compete with the small assemblers . . . we're not really in that market . . . we are still quite competitive pricewise and we can become competitive if we want to, but that was Osborne's mistake."
In corporate/government markets, Schaff believes that customers are looking for brand comfort or at least corporate viability and that PCs are not a generic buy yet. "Price and product . . . are still the first two things that people look at. He concedes that their biggest weakness in Australia is a lack of a global brand, something that they intend to address.
Schaff says there has to be some sort of relationship. "Would the buyer go out and buy equipment from a company he has never heard of and knows nothing about? Even if it is not a personal relationship, they will have some knowledge about the company through the media or advertising . . . but there has to be some link. If they don't know the name at all, then they're going to be more reluctant to do business with you. We don't have twenty million dollars to build that sort of brand strength but we can do it through smaller exer-cises," he says.
Schaff believes that PC Direct's competitive advantage against the multi-national vendors, especially those that use the channel, is its direct-to-customer relationship. "You have the market at your fingertips and you know what's going on . . . that is of critical importance, especially when you are comparing us against companies that are using a reseller channel of some description." As well as this, Schaff says PC Direct can leverage off its parent The Blue Star Group (a wholly owned subsidiary of US Office Products). Blue Star can become prime vendor for a cluster tender.
ASI Solutions' director, Maree Lowe, believes that the company is a niche marketer of critical mass. Spawned from an Australian stalwart in PC and network distribution, Anabelle Bits, ASI is assembling systems at an average of approximately a thousand per month. An exclusively Intel based assembler, this figure is enough to be critical mass, making ASI Solutions rate with Intel as a significant player in the Australian market.
A full range of systems is assembled by a team of builders, each responsible for full assembly of their own units. ASI has designed its own temperature controlled burn-in facility to test the systems, using application software rather than simple diagnostic routines.
ASI is an exponent of the "fast food approach" to PC assembly where adjustment to the base recipe allows for flexibility, fast turnaround and the opportunity to take advantage of short-term local buying from distributors of components. ASI Solutions has a direct sales team and also a dealer network that is mainly comprised of specialist application resellers.
Compared to the multinationals, Lowe considers their key competitive advantages to include the local relationship, niche market intelligence, and their quick turnaround. "ASI, in comparison with a big monolithic company, is not small enough that customers are going to worry if the company is going to be able to provide support, but the people are here and . . . quick enough to react and move . . . whereas with Compaq it takes a lot longer to turn the wheels around so that they can provide service."
ASI has direct servicing arrangements Australiawide (except Adelaide). This means, for instance, that it controls its own warranty work, and receives the resulting feedback from its customers. This alone sets ASI apart from the backyard assemblers. In many instances, according to Lowe, the box is not only configured but also installed onto the LAN as well. "We're doing LANs, networking and system integration around Australia. This is the new age . . . this is where these (other) companies are really mail-order type companies . . . a major council comes to us and says Ôwe want to convert a huge site to NT workstations, routers the whole bit', that's what we are targeting as our business. So that's quite a differentiator."
Like other AAs, ASI values the relationship with its key suppliers - Lowe points to Intel and Seagate as examples of where they have been quite rigid. ASI is currently developing a "strategic partnership" with a supplier of motherboards, which Lowe did not want to name.
Total Peripherals Group
According to Tim Strachan, newly appointed national PC sales manager at Total Peripherals Group (TPG), its operation is also relationship driven - suppliers, customers and dealers. TPG turns out an average of three thousand units per month with peak periods (May/June) rising to eight or more thousand. All systems are custom built on an assembly line facility at North Ryde. While normal turnaround is two to three days, if necessary a machine can be "fully custom built" in 24 hours.
Sales are made direct with Federal and State Government departments through a team of sales staff - relationship selling - and otherwise through a reseller base.
As for suppliers, it is clear TPG is careful. Strachan, who is refreshingly concerned with the supply position, said, "We prefer to find a good supplier, and we'll stay with them. We don't chop and change. When you've built up that loyalty, when a shortage does occur, companies like us tend to get preference . . . the computer industry is notorious for shortages. We've been with Seagate hard disks for six years and Chuntex monitors for seven years." TPG uses Intel processors only.
General manager of TPG Alan Latimer believes that Intel locally works quite closely with TPG because it can affect the Australian strategy. The Intel account manager meets with TPG every few weeks, reports on where the market is going and provides a quarterly roadmap on product rollout.
"Quite frankly, we would rather educate our customers in the benefits of the Intel processor range because we've seen that we get better performance out of the systems."
Latimer claims that the biggest advantage TPG has over the majors is flexibility of configuration. "That doesn't only mean the different sizes of hardware components but sometimes specific brands of specialist devices . . . I guess the majors might do that only in some instances."
The biggest threat TPG and other tier two vendors face is the apparent rise in major buyers specifying tier one vendors, not for reasons of technical capability or performance but for comfort.
In summary, the Australian PC assembly business is feeling the squeeze from above and below. How companies counter the squeeze depends on their individual circumstances but the key elements include relationships with key suppliers, being very close to the customer and exploiting any competitive advantages.
Australian assemblers, by their attitude of "taking on the big guys", win natural kudos and a share of the hearts and minds of the IT buyers. They have to work harder to earn a place at the table. Once there, the selling begins. The relationship established will not overcome any shortfalls in performance of the systems. The buyer is king and, as in any sales environment, the seller must earn the business.
Faced with biases, our Australian assembler either addresses them, or moves on to the next prospect knowing that sometimes their competitors also face biases and move on.
Tier two vendor: advantages/disadvantagesAdvantages of Australian Assembly(vs) Multi-NationalsRelationships (Customers) Flexibility (specs)Technology take-upPricingDelivery timeSelf determination(vs) Back-yardersLoyalty of dealersRelationships with component suppliersSystems of productionOrganised supportBrandDisadvantages of Australian Assembly(vs) Multi-NationalsBrand IssuesExclusion by customers wanting tier one vendorsSize (vs) Back-yardersPrice