By David Hsieh – Vice President, Greater China Market, DisplaySearch

On May 27, 2010 Acer and Founder announced that they had signed an agreement to work together in the China PC market. On August 4, the companies announced that they have deepened their cooperation. These moves are clearly intended to help Acer achieve its goal to become the #3 PC brand in China, with a target revenue of $2.5 billion in 2011. However, complicated legal procedures in China and prevailing patriotic sentiment of Chinese people could raise suspicions and misunderstandings about this deal.

According to the statement, Acer will be responsible for the operation of most of the Founder-branded PC business, and Founder will act as service provider for Acer’s after-sales network, so Acer can utilize Founder’s channel networks in the tier-4 to tier-6 cities, rural markets, and commercial market segments. Ideally, Founder will benefit from Acer’s large volume manufacturing and its ability to negotiate with TFT LCD makers. Under the agreement, Founder will continue to handle state-owned enterprises and government business in China.

Details of this deal have not yet been disclosed to the public, but an unconfirmed report indicated that Acer will license the Founder brand in China for seven years for a fee of CNY 6.9B ($9.44 million) However, Acer has denied this.

Why this deal is so important to Acer and Founder?

• The complexity of this agreement is greater than the typical M&A activities Acer has been conducting over the past three years, as it involves two corporate systems with different cultures and operational models.
• The Chinese government may conditionally approve this deal based on its policy to protect domestic brands. The low-profile consensus reached between Acer and Founder on this deal is believed to be related to the Chinese government approach, which avoids any potential threats to Lenovo’s #1 position in China and prevents potential resentment from Lenovo, which has strong connections to the Chinese government and the Chinese people.
• Acer has acquired brands including Gateway, eMachines, Packard Bell and ETEN recently, and has been using a multi-brand strategy to boost share in the US and Europe, enabling the company to become #2 in the worldwide notebook PC market, trailing only HP. However, Acer’s market position in China has lagged Lenovo, HP and Dell. The quickest way for Acer to gain share in China is by working with a domestic player to leverage its local brand image and strong distribution network.
• It’s also a way for Founder to transform itself from a PC maker to an value-added service provider. Otherwise, it is difficult for a local brand like Founder to survive in such a competitive PC market, where cost and volume is everything.

Even though it’s a win-win strategy for both Acer and Founder, there will still be challenges. In the short term, the two companies need to merge corporate cultures and synchronize approaches to existing channel customers. According to the announcement, parts of Founder’s organization will join Acer Group, which could be a challenge to Acer, whose sales and management team in China is only around 300 people. Managing a big team transferred from Founder will test Acer’s abilities as a top-tier PC company. During the transition, it will be important for Acer and Founder to secure current customers and synchronize their distribution network, to prevent competitors’ invasion and personnel losses.