Focus on services, says Acer’s Shih

Posted on September 5, 2003 
Filed Under Julian, The Star

by Julian Matthews

KUALA LUMPUR: Acer cofounder Datuk Dr Stan Shih advises Malaysia to focus on services in order to get ahead of the curve and compete in a globalised economy.

He said thinning margins in hardware manufacturing and the rise of China as the “factory of the world” has left manufacturing-dependent countries like Malaysia with little choice.

“The services industry is the next wave in economic development. In advanced countries, the services sector comprises two-thirds of their economies. There are higher returns and more opportunities in services.

“The hard part is trying to take local services onto the global stage,” said the chairman and CEO of The Acer Group at the sidelines of Multimedia Super Corridor’s Seventh annual International Advisory Panel (IAP) meeting.

Dr Shih urged local companies to go for niche, high-growth service businesses where there is “still room for improvement.”

He also quipped that it was better to work on “poor man’s solutions,” rather than American-styled “rich man’s solutions.”

“In the end, there are more poor people globally than there are rich people,” he said.

Dr Shih said Acer has a similar strategy to get into the services sector, which currently comprises a paltry 3% of the hardware manufacturer’s revenues.

“We are still new in this business and I am still learning but we hope to break even by 2005 and enlarge it as a high growth revenue earner for the company,” he said.

Walking the talk

Three years ago, Acer began transforming the group from purely manufacturing and an OEM service provider into a marketing and services company. Part of the move involved rebranding its OEM business under the Wistron name and its peripherals manufacturing under BenQ, and exiting from low-margin businesses.

The risky strategy has begun to bear fruit. Acer Inc’s revenues for the first half of 2003 was US$1.81bil (RM6.88bil) compared to US$1.36bil (RM5.17bil) for the same period last year, a sharp 34% growth.

Acer has been especially successful in Western Europe, outpacing rival Dell in notebook sales.

On the PC front, Dr Shih reckons that Dell and Acer are among the few branded players still turning a profit. In IT services, he stressed that Acer was not planning to take on IBM and Hewlett-Packard — strong players in that sector — but would focus instead on “next-generation services.”

He cited outsourcing and systems integration ( SI) as the traditional areas of the services sector it may compete in, but suggested there were other types of services with “new opportunities.”

Dr Shih sidestepped being pinned down on the types of services Acer would invest in but offered its tie-up with leading US-based gaming systems supplier GTECH Corp as an example.

In July 2001, Acer and GTECH formed a joint-venture company Lottery Technology Services Corporation (LTSC) and sealed a contract with Taipei Bank to operate Taiwan’s National Lottery under a five-year licence.

Dr Shih said Acer has committed US$100mil (RM380mil) to the fledgling online lottery provider which currently employs about 300 people.

Rhode Island-based GTECH claims a 70% share of the world’s lottery technology market and rakes in close to a US$1bil (RM3.8bil) revenues annually.

Shih said Acer would consider setting up joint-ventures with other players in the services sector, as it did previously with US chipmaker Texas Instruments and contract foundry giant TSMC in wafer fabrication, to hasten its growth.

No takers

On the Multimedia Super Corridor (MSC), Shih who has sat in on six previous IAP meetings, said he revels in presenting “alternative” views to the panel.

Previously he has been critical of the lack of participation of local enterprises to the project and commitment to invest and nurture local talent.

In 1999, Dr Shih offered to set up a US$20mil (RM76mil) venture fund for the MSC, but was disappointed there were no takers. The proposed fund had a caveat that it would only be set up if a local partner could fork out half of the capital.

This time, Shih said he was pleased with progress of the project so far and especially the level of commitment of the Government, which was not typical of other countries.

He said vis-à-vis China’s rise, the MSC was a step in the right direction although it may take decades yet for it to flourish.

“Other countries have not even taken the step. At least Malaysia is planning ahead. Now, build up your competence in services, try to regionalise those services and continue to promote your quality of life,” he said.

Dr Shih he was more hopeful of the services industry developing here than of his home country Taiwan where he suggested language and the inherent business culture may be stumbling blocks.

On his commitment to Malaysia, Dr Shih said Acer had shifted its regional headquarters for sales and services from Singapore to Malaysia and would continue to look for further opportunities to invest here.

Published in In.Tech, The Star, Sept 05, 2003


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