Why Guiseppe Can't Sell Computers... one for the EC File

Rohit Khare (khare@w3.org)
Mon, 7 Oct 1996 09:56:23 -0400

Ties right into this morning's earlier fwd about national approaches to
In the Web market, too, I'm seeing lots of Euro-blunders. Startups that a=
being forced to recapitalize in the US because Euro-venture funding is
nonexistent. Inability to leap in and pioneer research from the industria=
labs, which want 100% planned out agendas. False pride that the vast
majority of Europe's programmers are working for 'user organizations'
rather than building new technology...

Well, as a Norteamericano (after all, we live on a hispanic continent, in
the long term), screw 'em. There's a limit to sympathy in the global
economy... RK

October 7, 1996

Why European Computer Makers Flop


<Picture: M>ILAN, Italy -- When Olivetti S.p.A. announced on Thursday tha=
it was putting its personal computer division on the block, it joined a
long line of European computer makers that dropped out in the face of
strong American competition.=20

The Europeans, unlike their counterparts in the United States or East Asi=
held on to costly retail stores too long and failed to speed products to
customers in a race against obsolescence that is crucial in a business
where product cycles are measured in months, not years. Besides that, mos=
European computer makers have failed to gain market share beyond their
tight national boundaries, robbing themselves of economies of scale neede=
to be internationally competitive.=20

So it is perhaps not surprising that the field is littered with the corps=
of losers. This year, Compagnie des Machines Bull of France merged its
personal computer division, Zenith Data Systems, with Packard Bell
Electronics of the United States. Earlier, ICL P.L.C. of Britain sold mos=
of its personal computer business to Fujitsu. This summer, Escom, No.=A02=
Germany after Siemens Nixdorf, filed for bankruptcy.=20

"If history is a guide, it's not Olivetti -- it's European technology
companies," said Daniel Mandresh of Merrill Lynch & Company in New York.
"Getting beyond their state borders is a major problem."=20

As a result, the five leading personal computer companies in Europe,
including the No.=A01, Compaq Computer Corporation, as well as I.B.M., ar=
American; of the top 10, only 2, Siemens Nixdorf and Olivetti, are
European. And if Olivetti succeeds with its plans, that too soon change.=20

The lure of Europe for the American companies is in many respects obvious.
Price margins have been high in comparison with those in the American
market, and until recently the pricing environment has been stable. Add t=
that a rich humus of small and medium-sized business customers, which in
major markets like Germany and Italy form the backbone of local industry,
and the opportunity for rapid growth and high profit becomes evident.=20

So what have European computer makers been doing wrong? For one thing,
although the American computer industry stopped running its own retail
stores a decade ago, many European companies still run expensive chains.
Vobis Microcomputer, a small and aggressive German manufacturer, for
example, operates 251 stores and 436 franchised outlets. Only recently ha=
superstores in Britain and Germany come on the scene -- hastening a
shakeout of the less competitive.=20

Moreover, unlike their nimble, highly specialized American competitors,
many of Europe's personal computer makers are divisions of huge,
diversified electronics corporations. Siemens Nixdorf, for instance, the
European leader, is a unit of the giant Siemens A.G., which makes
everything from power generating stations to toasters.=20

In a major turnaround, Siemens Nixdorf has had three years of profit, aft=
running up $1.3 billion in losses. Norbert Strauch, a company spokesman,
attributes the improvement, among other things, to "internal restructurin=
breaking down from one big organization to a whole series of smaller ones=

David Winn, general manager of I.B.M.'s European PC operations, says a
strength of the Americans, and a European drawback, has been the ability =
move equipment around, making quick sales and avoiding inventory pile-ups
that translate into losses.=20

"Given the rapid technology change and short product cycles, logistics
becomes an overwhelming differentiation," he said. Indeed, unsaleable
inventories caused much of the red ink that ultimately drowned Olivetti.=20

Oddly, too, on a Continent where many businesses regularly export
two-thirds of their products, European computer companies have failed
miserably to break out of national boundaries. Siemens Nixdorf does 65
percent of its business in Germany; Elonex, an innovative British company=
does 89 percent of its sales in Britain. Tulip Computers N.V., No.=A04 in=
Netherlands, is No.=A022 in all of Europe.=20

Graham Lisle, a Compaq executive in Munich, attributes this European
failing to being "a hero in your own country, and to a lesser extent

"We're all over," he said of his own company. "If there's an economic
downturn, you're less exposed, because it balances out."=20

Olivetti, which did a mere 29 percent of its personal computer business i=
its home Italian market, avoided that pitfall at least. But by most
indications, it seems to have done everything else wrong.=20

Until early this year, when it began shutting down, Olivetti ran an
expensive chain of computer stores throughout Italy and abroad. With
production of only about 700,000 machines, Olivetti never achieved the
economies of scale of competitors like Compaq and Hewlett-Packard, and
slow-moving delivery systems meant inventory pileups that cost dearly. Li=
Siemens Nixdorf, Olivetti's personal computer unit was part of a much
larger group that sold everything from fax machines and copiers to mobile
phones and printers.=20

Nearly half of Olivetti's personal computers were delivered to the group'=
own systems and services unit for inclusion in large banking or business
systems, with often unclear bookkeeping between various Olivetti units th=
led to heavy losses.=20

Oddly, too, on a Continent accustomed to a patchwork of languages and
cultures, European computers are often shunned outside their home country.
Germans buy Siemens Nixdorf, the Dutch buy Tulip. American computers, in
contrast, are somehow neutral.=20

American companies have proved superior to their European counterparts at
meeting varying local demands. Compaq, for example, sells smaller
processors and slower modems in southern Europe, where technology tends t=
lag behind; ads by the American manufacturers are attuned to national

"There is an art to getting the balance between your global business, and
making just the right allowance for local markets," Mr. Winn of I.B.M.

"I think manufacturers from the United States have gotten good at that."=20