Some Assembly Required: Acer on local production, retail sales and phablets

-Acer Australia is unequivocal: local production will continue.
-Some staff were let go after company-wide performance review.
-Sales are slowly improving after slump at end of 2012.
-Re-entering the Australian smartphone market with new phablet.

When you walk into the Acer Australia head office at Sydney Olympic Park, 20 kilometres west of Sydney, the first things you see are the logos for its eponymous brand and for the oft forgotten Gateway. The reception area is pristine, you can take an apple from reception while you wait, surrounded by working models of Acer’s latest tablets, PC and convertibles. There is a holographic woman projected onto a white screen talking to you on a loop.

It is a mixture of new and old, emerging and obsolete technologies, apples and oranges.

Acer emerged as a powerhouse supplier to the retail and business channels in the 1990s, riding a wave of pro-Windows sentiment. It established its own assembly and processing plants to gain what it believed would be a competitive advantage and established strong ties with, in particular, the government and education sectors.

Acer Australia now faces significant challenges. The rise of Apple as a broad consumer brand and the entries and re-entries of Samsung and LG has taken share from the Taiwanese brand. As consumers begin using tablets and smartphones where they used to use desktop computers, Acer has found itself losing mindshare and profitability. The last publicly available, global results show Acer Inc. lost $225 million during 2011.

Locally, the company is reported to have run at a small operating loss last financial year.

This sets the scene for what proved to be an enlightening, if at times intense, meeting with Acer Australia’s hierarchy. Somewhat atypical for an Asian company, managing director Charles Chung is dressed is smart business casual, rather than rigidly formal, wearing an open-neck blue business shirt, a woollen jumper and suit pants. He is warm and friendly and clearly eager to show me exactly what is going on at Acer Australia.

This production facility is here to stay

Chung has been the boss here for a long time — 14 years — and part of the local senior management for three years more as the marketing director. He came to Australia after 10 years at Acer, with stints in Taiwan, Africa and Singapore. While an Acer employee, he completed his Masters of Business Administration at the University of Iowa (‘the Fightin’ Hawkeyes’). Again, atypical for the MD of an Asian company, Chung is a long-termer — he’s not on secondment — and his family are Australians.

Joining Chung in hosting this tour are David Sunton, GM of marketing, and operations director Andrew Bosch. Sunton is the most public face of Acer Australia. He has fronted the media to launch products and was interviewed by this reporter at the launch of Acer’s kiosks late last year. Bosch, like Chung, does not spend much time in front of the microphone or camera.

So, why now?

That becomes clear as we walk from the Acer boardroom, through the canteen (where Chung greets employees by name, picks up litter and receives bows from some colleagues), down a flight of steps and through a secure door, into the assembly plant that adjoins Acer’s head office.

We can’t get too close because we are not wearing helmets or DayGlo vests but, as Charles Chung proudly exclaims, production is happening.

While it is not the frenetic hubbub of activity you see in TV pictures of Chinese factories, the plant is up-and-running, with technicians on the assembly line opening up desktop computers, configuring the specifications and then drilling them closed.

The subdued nature of the operations, Bosch explains, is due to the seasonal nature of this business. The education market is active from November to February, as students and teachers prepare for the new school year. Government, enterprise and other B2B business picks up in April to June, in the lead-up to the end of financial year.

At capacity, Acer’s Australian assembly line can produce 1,200 to 1,400 units per day, while the average is closer to 1,100 per day. Chung said these figures are “up and down” compared to three years ago, saying that the education market was now back to where it was before Prime Minister Kevin Rudd first government gave away thousands of notebooks to students as part of its ‘Digital Education Revolution’.

“It is affecting all the vendors,” Chung said of the post Revolution era, “especially us, because we are number one in the education space, so we are severely impacted but, in saying that, we are still very strong in education.”

During these quiet periods, Acer employs around 35 assembly technicians, with up to 90 seasonal workers brought in for the two busy periods. These contractors are supplied by Pivotal, an established HR solutions provider based in nearby Parramatta.

Acer only assembles desktop computers for its B2B clients at this facility. All retail products are sea-freighted in from the manufacturers in China and then drop-shipped to retailers. Chung said that while retail products are largely homogenous, in that my Acer notebook and your Acer notebook are the same notebook, business customers have specific requirements.

The basic materials for the computers are imported and stored at the facility so when a client supplies its hardware, software and accessories requirements, Acer can assemble and pack the computer on site.

At a time when international conglomerates such as Ford and Electrolux are closing or downsizing their long-standing facilities due to uncompetitiveness, it was imperative to find out what advantages there were for Acer to keep this plant open.

It costs AU $9 (or US $8-to-$11, according to market fluctuations) to assemble a desktop PC at this facility, Chung said, while it costs US $7 to assemble the same computer at a factory in China. The benefit Acer is what Chung calls the “end-to-end advantage”.

While Acer’s competitors are sea-freighting in containers full of pre-assembled units, Chung claims a supply chain advantage in being able to service its customers with immediacy. He made the unverified claim that Acer could turn around units for “some customers” on the same day.

Acer originally housed its assembly operations and head office in separate Homebush locations. Chung made the decision to integrate the facility into its head office, and this new combined ‘mothership’ was opened in October 2012.

Having made a commitment to report that this facility was open and operating, it was time for some direct questions:

Can you categorically state that this production facility is remaining open for the foreseeable future?

“This production facility is here to stay,” Chung answers. “It is a tremendous infrastructure investment and it gives us a huge competitive edge compared [to] our competitors.”

Have you let staff go?

“Recently we reviewed our business performance and we continue to assess the staff performance periodically, so we did let go some individuals.”

I asked for either a round number or a percentage but David Sunton interjected saying those figures were too sensitive to reveal in such a competitive environment. Chung then interjected himself to offer the following explanation:

“I am not proud to say that I let go people,” he said. (This quotation has been updated after Chung contacted Digital Retailer to clarify his statements. It originally did not include the word ‘not’.)

“We all treat our employees like family members but we do run a business. Internally, we have a very strong culture in terms of teamwork, learning and empowerment, but we do have a very stringent, A-Plus performance system.

“We encourage each division to deliver top performance. The industry we are in is very cutthroat. We need to remain as a high-performance [and] competitive [company]; we need to continuously review our efficiency and productivity and make sure every employee is chipping in.

“In the event of a periodical review, we may need to let go some of the poor performing people, which is very unfortunate, but at the same time we are also identifying areas where we need to hire more.”

Education, Enterprise, B2B – are you moving the focus away from any of these core categories?

“No, not at all,” Chung said, and Sunton added an “absolutely not” to his denial.

“We have been very focused on commercial business from the day I arrived here,” continued Chung, “and in this business, we believe, local assembly and supply chain efficiency, is paramount.”

It not easy to prove that a company is not going to do something, especially in the byzantine world of international commerce, where an edict from the regional head office in Singapore or the global head office in Taipei could change everything.

When this proposition was put to Chung, he said that because the commercial division was such a large ratio of Acer’s business in Australia — around 60 per cent this year — and because the local assembly is the keystone of this success, it is unlikely to happen.

Andrew Bosch, the director responsible for this division, showcased Acer’s warehousing facilities, where the company keeps “$11 million worth of parts” with a monthly churn-rate valued at $1 million. This demonstrates that Acer has parts on premises for almost a year of in-house assembly, refurbishments and warranty claims.

No matter how many different ways the question was asked, Acer Australia’s senior management left themselves no wiggle room: these assembly plants are here to stay, they repeatedly claimed, and there are no plans to change focus away from the B2B operations.

It is not just all commercial and no retail

That commercial is as high as 60 per cent is not ideal for Acer. After rattling off the names of his retail partners – Harvey Norman, JB Hi-Fi, Officeworks, Dick Smith, The Good Guys, Bing Lee, Radio Rentals and the Thorn Group all get name checked – he says an even split is preferred.

“It is not just all commercial and no retail or no retail and all commercial,” Chung says, as the conversation pivots to Acer’s consumer division.

“We have been gaining tremendous market share in retail in the last 12 months,” he says, handing me a chart that shows Acer claimed 17 per cent brand share of sales units in ‘mobile computing’ for June 2013. This is equal second (with Asus and Toshiba), one percentage point behind HP.

This is Acer’s best performance over the past nine months: since September 2012, its brand share in this category has dipped as low as 10 per cent.

The props didn’t stop with Acer’s sales chart – when the prickly question of retailer relations was raised, specifically referencing Harvey Norman – Sunton leapt to action.

In his hands is a thick manila folder containing the War and Peace of invoices. These orders are for notebooks, tablets and hybrids and are all from Harvey Norman stores. I was not able to analyse every single invoice, but all the ones I did read were dated June or July 2013.

Acer has requested that no specific details from these invoices be revealed. They did, however, allow me to take a photo of the folder to give an idea of its size.

Although Acer’s retail share is improving back to where it has traditionally been (due, Chung says, to correctly planning their inventory to have stock available for when the hesitation over Windows 8 subsided), both the marketing and managing directors agree that the retail landscape is far from perfect.

In addition to all the usual complaints of low consumer confidence, parallel importers and the high Australian dollar, Acer raises an interesting point: the changes in the retail landscape means fewer people are making a career out of retail sales, there are more casual or short-term staff and, as a result, product knowledge in a rapidly changing category is not as strong as in previous years.

It’s a story that I’ve heard a lot recently, from the IT and technology vendors that Digital Retailer covers, and also from the appliance suppliers. Up until the mid-2000s, Acer would run training nights: all the sales staff from one retailer brand in an area would be brought together for a few drinks, some dinner and the inculcation of features and benefits, and brand messaging.

It was not Acer that ended this practice, however, but the retailers themselves. Chung says the main groups began lobbying Acer and its industry rivals to switch to online learning modules, which neither entrench interpersonal relationships nor hold much appeal for sales staff.

“All the majors pushed for e-learning but it is not getting the effectiveness,” Chung said. “People work through the day — they’re not allowed on the computers — and at home, it’s hard for them to find the time or they don’t want to.  And then this is multiplied by how many vendors?”

Sunton adds that “the incentive for free-time learning is very difficult. That’s why the traditional, face-to-face, labour-intensive way works”.

I don’t bullshit…Initially we didn’t sell…

This breakdown in the communication of Acer’s messaging and the demonstration of its products led the company to invest in its first batches of kiosks, in malls at Bondi Junction, Castle Towers and Parramatta.

Here is what David Sunton told me at the Bondi kiosk on its opening day:

“We’re not about selling at these stands,” he said. “There are no sales terminals but what we do have is a printer on the stand. Once the customer says they like the product they want to buy it, we say, ‘There’s Harvey Norman, JB Hi-Fi and Dick Smith in this centre’.”

And here is Charles Chung seven months later:

“I don’t bullshit. Initially we didn’t sell and we only did referrals but a lot of customers keep coming back, saying:

I want to buy from you.

‘But I can’t give you any discount — get it from a retailer and you’ll get a discount’.

But I don’t need a discount — I just want to buy from you.

It may seem strange in this penny-pinching world that some consumers feel this way, but the lines outside the Apple Retail Store in Sydney are proof that some consumers simply prefer to purchase at a ‘brand experience centre’ and don’t care for haggling.

“You may ask how many,” Chung continues. “Not a lot.

“But for those customers, they want to get a product now. They say, ‘I don’t want to wait and I don’t want to buy from a retailer, even if they can give me a discount — I don’t care — I just want to buy from you because your service is better and your experience is better’.

“Some customers are like that, but there are more customers that get the feel of the product and the product information and then go to buy the product from the retailers.”

The phablet market segment is growing

Acer will be counting on its retailers for support when it re-enters the smartphone category in September with its first Android ‘phablet’, called the Liquid S1.

It was at Mint Bar in the Sydney Hilton in 2010 that Acer’s first foray into mobile phones was launched. Unique among the smartphone vendors, Acer chose to launch without any carrier support, selling all its handsets outright through the retail channel.

Once again, Acer plans to sell the Liquid S1 only through retailers.

“It will be an outright purchase from a retailer,” Sunton said. “We don’t want to focus on the telco bundle market. It will be a high-end spec in a medium price point.

“We are going to have a very innovative way of setting up this product in-store.”

Chung said Acer would follow this road again because it is becoming too difficult for companies to differentiate themselves in the telco channel.

“The carrier market is very overcrowded,” he said. “There are more smartphone players than there are IT players. We want to play smart — look at what are the market segments we can play in and win — and we believe the ‘phablet’ market segment is growing.

Originally unveiled at Computex, the Liquid S1 runs Android 4.2, and has a 5.7-inch HD touchscreen (1,280 x 720), 8-megapixel rear camera, Full HD recording, a quad-core 1.5GHz processor and 8GB storage. This is only a 3G model; Sunton said an Acer 4G phablet would be coming to the Australian market soon.

It’s not just ‘throw a million dollars at a billboard or a TV commercial

Over the past two years, Acer’s brand has received a boost through its tier-one sponsorship (‘The Olympic Partner or ‘TOP’) of the 2010 Winter Olympics in Vancouver and the 2012 Summer Olympics in London; while locally, the company has enjoyed great traction through its sponsorship of the Acer Arena — it’s fair to say Allphones Arena is not proving as sticky now that that brand has taken up the naming rights.

But with Acer giving up the Arena and discontinuing its Olympics sponsorship, there is a marketing hole developing (and a lot of cash being freed up). Is Acer’s messaging still getting across to the end consumer?

“We are always striving to get there and getting a brand message across is always every brand manager’s challenge,” Sunton answered. “Branding is not just a tagline alone, we believe in it, but it is also how we design our operation.”

One wonders how many people reading this article know that Acer’s tagline is “Explore Beyond Limits”. A former marketing director himself, Chung said it’s harder than people might think to preach these brand messages.

“You cannot just do a TV commercial and tell people, ‘that’s what I am’,” he said. “They need to experience it.

“Branding is based on experience: and experience is based on the marketing aspect: when people read articles in the media, they get a feeling of what a brand is all about; when they go to the retailer; or go to an Acer stand — that interaction — when they see how the product can perform — the Acer stand experts can explain why the product is good for their lives.

“When a consumer buys the product or if they have a warranty service, then they have experiences, and they form opinions.

“Every touch point is important to your brand — it’s not just ‘throw a million dollars at a billboard or a TV commercial to build your brand’ — I don’t believe that.”

Click here to see our full image gallery of Acer’s production facilities.

Not revealing the prices on the Harvey Norman invoices was the only condition placed on this interview. This journalist has been a guest of Acer at Acer/Allphones Arena several times.

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