Asus Turns a White Box Play into Branded Success

Asustek Computer (Asus) capitalized on the U.S. pre-holiday news lull by generating coverage on the Eee PC. This PC solution seems to be catapulting Asus ahead of its low-cost computing competition. Announcements ranged from the introduction of new channel partners, to rollout into new geographies, and the availability of a Windows version of the Eee PC. An announcement of an increased sales forecast for 2008 to 5 million units of the Eee PC followed this week. But, in spite of the attention and growing forecasts, Asus’ CEO and President, Jonney Shih and Jonathan Tseng, claim Asus is not concerned that low-cost devices will cannibalize its more profitable PC business.

Asus’ sudden visibility in the low-cost laptop market may mislead business managers and industry watchers into overlooking the company’s primary business. Asus is, in fact, cited as the “mother of all motherboard producers”. With highly diversified manufacturing services, Asus produces components for cell phones, desktop and notebook computers, graphics cards, optical drives, servers, and networking devices for some of the world's leading ICT companies. One country-specific success story for Asus is in the Russian PC market where more than 80% of desktops are sold through the white box (unbranded) channel. The company entered this strategic growth market through this white box channel and developed a reputation for providing value and quality desktop PC components. Capitalizing on its brand recognition as a high-quality component provider, Asus has also become a highly competitive manufacturer of branded PCs in the Russian market.

HP, Dell and other hardware companies can take a page from the Asus playbook. To date, direct competition with white-box assemblers in emerging markets has proved largely unsuccessful for most global brands. Hardware companies could, instead, participate in this dominant emerging-market channel. With careful mapping of the value chain, global PC manufacturers can identify opportunities to provide aspects of their own competitive advantage (e.g. economies of scale, efficient tools and processes, pre-kitted and branded components, and even support services). With the white box market dominating the emerging-market PC business, hardware companies would do well to learn how to participate profitably in the revenue stream rather than swimming against the current.

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Designing for Global Markets

GE Chairman and CEO Jeffrey Immelt offered up this week’s nugget at a gathering of Indian Institutes of Technology (IIT) graduates in California’s Santa Clara Convention Center. During a wide-ranging address, Immelt characterized three generations of technology business: the past, in which developed-world companies designed for mature markets; the present, with developed-world companies tapping emerging-market manufacturing and personnel resources to deliver products and services to mature markets; and the future, when developing-world companies design and sell products and services to mature markets.

Vital Wave Consulting wondered why Immelt’s three generations each ended with mature-market (rather than global) buyers, when GE’s revenues from emerging markets are projected to grow from $10 billion to $50 billion between 2000 and 2010. Last year, nearly 20% of the company’s $163 billion in revenues came from emerging markets, and revenue in these markets rose 14% in the first quarter of 2007. Emerging markets already represent the fastest growing markets for global technology companies, and overall revenue potential in these regions will soon overtake that of mature technology markets. For GE and other technology companies, a more accurate description of the third generation of technology business is global companies designing for global markets, not just the developed world.

Immelt’s audience of primarily Indian-born engineers, eager to compete in the world’s most advanced markets, was receptive to his suggestions. Successfully designing for the developing world, however, presents a worthy challenge and, in the long-run, larger rewards. Business trends suggest that companies based in developing countries will not only be selling into mature markets, they will also be designing for emerging markets around the world. With lower cost structures, technical expertise, and a broader understanding of global problems, emerging-market entrepreneurs may bring a richer set of solutions to local challenges. Multinational corporations, however, retain the advantage of global scale. To lead in developing countries, they must develop effective strategies to design for the world’s growing mass markets. First, however, they must acknowledge that the market opportunity is global and that, if they don’t act fast, their counterparts in developing countries will.

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