Business Week International International Business: EUROPE
EUROPE'S PC MARKET: FROM COZY TO CUTTHROAT
Just two years ago, the names of Olympic Technologies, TIKO Computer Corp., and other clonemakers used to send chills through the boardrooms of industry giants like IBM. Now both have vanished, just two victims among some 200 no-name makers that have pulled out of the European market over the past 12 months.
The battle for Europe's personal-computer market has taken a decisive turn. Industry leaders such as Compaq, IBM, and Apple, which were slammed by clonemakers in 1992, are pushing the mainly Asian clones off Europe's shores. In 1993, Europe's top 10 computer companies grabbed back 7% of the market and are likely to add 5% to 6% to their current 57% this year, according to market researcher International Data Corp. (IDC).
But that doesn't mean easy times are returning. The struggle between the clones and the big-name brands has reshaped Europe's PC market. Once a slow-moving Shangri-la of generous margins, it's now a fiercely competitive arena where prices between top-name brands and second- or third-tier players vary little more than 15%. "Pricing in the U.K. and Germany is sometimes more aggressive than in the U.S.," says David L. Prais, European marketing manager for Gateway 2000, a U.S. computer maker that sells by mail.
As in the U.S., product cycles in Europe now last little more than six to eight months. That has forced manufacturers, wholesalers, and retailers alike to shift strategies and source locally, spelling doom for Asian imports. "The Taiwanese didn't move quickly enough to manufacture in Europe, to be closer to the customer, and to keep inventory down," says Simon Pearce, senior director at IDC in London.
PENT-UP PENTIUM. Like their U.S. counterparts, European customers are seeking out the hottest technology the minute it hits the market. "The two markets essentially are the same," says Bill C. McCracken, general manager for manufacturing and distribution for IBM's PC division.
Orders are soaring for PCs with multimedia features, says Graham Taylor, vice-president at market researcher Inteco. In just six months of selling PCs in Europe, Gateway 2000 racked up sales of $47 million in Britain and Ireland. A quarter of the machines sold were based on Pentium chips.
At the same time, home-PC makers such as Commodore International Ltd. and Atari Corp., which continued to sell well in Europe long after tanking in the U.S., are now losing ground rapidly. Commodore, in fact, announced plans to liquidate on Apr. 29.
The battle between big-name brands and clones lured in a lot of first-time buyers, who had been turned off by high prices. IDC now predicts that the home office/small office segment will zoom at 19.5% annually over the next five years, compared with the corporate market's more modest 6.1%. That has top-tier companies selling their products at new retail chains such as France's PC Warehouse.
The major manufacturers are placing big chips on this battle because the European PC market is still less developed than the U.S. While one in three American households has a PC, in Europe, only one in nine does. "Europe is not only as big or bigger than the U.S. market, it's got a lot more potential," says Gateway's Prais.
Increasingly, winners in the European PC market will be determined by their retailing and distribution acumen, as in the U.S. Germany's Vobis Microcomputer, a maker/retailer hybrid, is a good example. By blanketing its home market and neighboring countries with a network of 278 retail shops, it has rocketed from a no-name to Europe's No.6 computer maker in three years. Giants such as Apple Computer Inc. and Compaq Computer Corp. now sell through the chain. Vobis CEO Theo Lieven wires each outlet so sales data flow to his desktop the minute items are rung up. He changes manufacturing runs daily, based on what's hot.
The recent shifts have also helped Compaq dethrone IBM as the European PC market leader. Compaq, which moved faster to revamp its strategy, outsold IBM in Europe in this year's first quarter. It led the price-cutting among top-tier companies. At IBM, McCracken says his company was bested mainly because shipments of two PC product lines--the PS/2 and the ThinkPad--were delayed by component shortages. Nonetheless, McCracken agrees that in the European landscape, change is the only constant.Gail Edmondson in Paris