COMPETITION IN EUROPE'S COMPUTER MARKET LEADS TO PRICING BATTLES.

Since the downturn in the high-tech market last year, leading computer hardware manufacturers have been looking for ways to reinforce European sales while boosting their slim profit margins.

Companies like Compaq Computer EMEA (Europe, Middle East and Africa) are adapting to a new and more competitive era in Europe characterized by rapidly changing market conditions. IBM, Dell, and Hewlett-Packard are strong competitors in the market, and are fighting hard for market share.

Another ingredient in Central Europe's competitive mix is small local players that can become significant market forces in small countries. Their success lies in the fact that some people will buy from them for reasons of national loyalty. These small-scale producers tend to buy inexpensive components and assemble them locally. They primarily serve the low end of the household market and some small businesses.

DEVELOPING COMPETITIVE STRATEGIES Compaq picked a difficult time to carve out a market share in the Czech Republic due to fierce competition and a lack of brand loyalty. In order to make headway, hardware manufacturers have been forced to reduce costs at all stages of production and distribution. This, in turn, is leading to reduced spending on logistics and transport, administration, and support services.

Compaq recently established a desktop PC production facility in the Czech Republic, with some 300,000 computers scheduled to be shipped this year. Fearing Compaq's buildup, other leading computer brands have resorted to aggressive price discounting.

Compaq's decision to start production in the Czech Republic was based on the need to be cost competitive in that market. Other factors that weighed in favor of the move were competitive infrastructure and labor costs.

OVERCOMING THE COMMODITY IMAGE European consumers increasingly view computers as a commodity, and this has led to price wars in some markets. In order to overcome the commodity image, Compaq is taking steps to enhance the services sector of its business while lowering the cost-to-market of its products.

In keeping with their global strategies, leading international manufacturers are working to instill consumer confidence in their brands. They have tuned into the fact that Central European customers are increasingly sophisticated and demand computer solutions, and not just a piece of hardware.

Computer solutions have proven to be especially important features for corporate clients with complex computing and networking requirements. Providing adequate architecture and systems integration not only adds value to hardware being offered, but it opens the door to additional services that multinational computer makers can offer.

The demand for skilled solutions technicians is on the rise as computer companies seek to expand service after the sale. Compaq's strategy is to grow its service's business in anticipation of growing market demand. As a result, services will become the increasingly important component in its business model mix. Offering advanced solutions is expected to be a key ingredient in the move to overcome the commodity mentality among consumers.

A FOCUS ON APPLICATIONS SERVICES The ASP (application service provider) model is an important component for leading computer companies in Central Europe. It evolved very rapidly through the first three quarters of last year. Market acceptance slowed a bit after technical problems arose with some service providers.

The consensus among suppliers is that the growth potential for ASPs in Central Europe is excellent. Compaq is the market leader in server technology for ASPs, with 50 percent of the ASP market share.

It appears that the demand for ASPs will be greatest among small- and medium-sized businesses. Bigger businesses that are affiliated with pan-European and global companies tend to use foreign suppliers rather than source the service nationally.

NEW PRODUCTS ON THE WAY Compaq launched PocketPCs in the Czech Republic last year. It also launched the Blackberry in the United States, which is a very small electronic de-vice that offers multiple e-mail functions and fits in the pocket. Given the increasing interest in e-mail access in Central Europe, the demand for such products will rise over the next few years.

Given current market conditions in the region, manufacturers like Compaq and Dell can no longer limit themselves to being hardware vendors. They must offer real solutions capabilities for their customers. After all, consumers in the region are not only looking for hardware, but for solutions that address their increasingly complex computing needs.

SOURCE: "Let the games begin," Prague Business Journal, Czech Republic (25 May 2001); Internet <http://www.pbj.cz>.