Buying brand equity

With more and more hardware players from the Far East attempting to crack global markets, buying brand equity may be the way forward. Whether it is Lenovo snapping up IBM’s PC arm or BenQ grabbing Siemens’ mobile division, IT powerhouses from the Far East have realised that rather than ploughing billions into building up their brand over a number of years, a well-structured deal can achieve the same result in the blink of an eye.

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By  Stuart Wilson Published  May 3, 2006

With more and more hardware players from the Far East attempting to crack global markets, buying brand equity may be the way forward. Whether it is Lenovo snapping up IBM’s PC arm or BenQ grabbing Siemens’ mobile division, IT powerhouses from the Far East have realised that rather than ploughing billions into building up their brand over a number of years, a well-structured deal can achieve the same result in the blink of an eye.

A quick look at the IDC first quarter EMEA PC shipment figures highlights the fact that vendors such as Asus have now cracked the top ten rankings. As vendors such as Asus, which until now have focused the bulk of their energy on contract assembly and components, start pushing harder to establish themselves as a finished goods brand in their own right, the logic behind them making a purchase for the sole purpose of building brand equity in developed markets starts to make a great deal of sense.

Asus is the number one notebook vendor in its home market of Taiwan — a country at the very forefront of PC development and innovation. The scale of Asus’ operation is impressive with a sales target of US$15 billion in 2006. This is a company that is constructing a new manufacturing plant in China that will employ some 100,000 staff — that’s the scale of operation that we are talking about.

And it is not just Asus starting to realise that there is no reason for it to play second fiddle to the traditional global A-brands in the developed IT regions of the world or emerging markets. Other players such as Foxconn also have the scale, experience and muscle to transform themselves into finished goods powerhouses.

The Lenovo-IBM deal could prove to be a blueprint for similar deals in the future — especially if the transaction can be structured in such a way that the acquirer hoping to build up its brand equity merely takes a portion of the business. Asus buying Fujitsu Siemens’ PC, notebook and PDA arm? Not beyond the realms of possibility in my opinion as a new global IT vendor pecking order establishes itself.

I’m also thinking back to the growth of India’s software development and IT services industry. Less than a decade ago, companies such as Wipro, Infosys and Satyam seemed content to provide nothing more than outsourcing resource pools for the illustrious global names dealing with the Fortune 500 companies.

The big global players went in and snapped up the big-budget high-margin consultancy work, front-ended the project and offloaded the grunt work to India’s highly efficient IT services outfits. It worked for a while until the Indian IT services community realised that they could actually do the whole project themselves if they took on the consulting work and build an organisation capable of dealing directly with the client.

There is no reason why history will not repeat itself in the hardware space. The giants of the contract assembly space have numerous advantages. They are the ones with the manufacturing capability, they are the ones driving product innovation and they are the ones with the economies of scale. The only thing they don’t yet have in some cases is the brand equity outside their home markets.

It is a logical path to take, but it also represents a tightrope walk for some players as they attempt to balance keeping their contract assembly customers happy while simultaneously competing against them with their own brand products.

If these changes occur in the market, the implications for the channel will be huge. Lenovo has just unveiled its new partner programme in the Middle East less than a year after finalising the deal to snap up Big Blue’s PC unit. The new programme will see Lenovo look to not only strengthen its position in the business market, but also establish itself as a genuine contender in the fast-growing consumer and SOHO segments.

Distributors and resellers always try to pick the best vendor to work with. As globalisation forces drive change in the vendor landscape, there is no telling how a brand that could be flying high today will be perceived in six months time, let alone a few years down the road.

It is not just a case of picking the right vendor; it is also about making sure the channel gets on board fast enough to reap the rewards during the periods of rapid growth for a vendor. Working out how the vendor landscape will change, identifying the rising stars and partnering early is a sure-fire margin-maker for the channel. Now where did I put that crystal ball?

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