Dell? He’s All Wrong In Europe…

To hear Hermann Oberlehner tell it, Michael Dell has got it wrong in Europe. “We’ve looked at this very carefully,” he said, “and in Europe outside the U.K., the Dell model just won’t work.”

This statement might ordinarily be dismissed as having come from a jealous also-ran. But Oberlehner is founder and chief executive of Gericom AG, based in Austria, which has quietly become the leading vendor of personal notebook computers in Germany. Last quarter, Gericom shipped 111,000 units in Europe, beating out such heavyweights as Dell Computer Corp., Toshiba Corp., International Business Machines Corp. and Acer in Germany.

In Europe overall, Gericom is the No. 5 vendor in mobile computing, according to International Data Corp., with a 9 percent market share.

“They are a very aggressive vendor in the consumer portable market, with a very strong focus on the lower-end consumer market,” said Stefania Lorenz, senior analyst for European personal computing at IDC.

But Oberlehner said he realized in the mid-1990s there was a hole in the European mobile computing space. As manufacturers struggled to make ever-slimmer notebooks for the lucrative corporate market, consumers were being left behind.

Gericom discovered that, with modifications, cheaper Intel Corp. chips designed for desktop computers would work in notebooks. While the company had initial quality control problems and a high rate of return – some say as high as 30 percent – new heat dissipation methods were employed, and the problems were worked out.

“Where before everyone had thought ‘smaller,’” said Ranjit Awtal of Gartner Inc., “Gericom asked, ‘Just how much mobility do you need to move your computer from the kitchen to bedroom?’

“They took risks when other vendors were reluctant. By providing a cheaper, slightly heavier and less mobile PC, Gericom actually paved the way for much of the mobile growth in the European home market today.”

By about 1996, Oberlehner, looking to cut costs and frankly tired of contending with retailers, took a hard look at Dell’s U.S. mail-order business and seriously considered emulating it in Europe.

“We tried to compete using the Dell model here in Europe,” said Oberlehner, who established Gericom in Linz in 1991, “but we discovered that we just didn’t need to – in fact, that it just wouldn’t work here.”

Of course, Dell has been doing just fine in Europe, with about 10 percent of the overall PC market, trailing only Hewlett-Packard Co.

Oberlehner believes that on the Continent, the customer’s buying experience differs drastically from that in North America. In Europe, customers prefer a more intimate sales environment, and they trust that salespeople have experience with the machines they proffer. The selection process is heavily geared toward comparison shopping by cost, brand and features, especially local-language and culture-based add-ons.

This, Oberlehner said, is unlike the experience in North America and Britain. “Americans are poor computer buyers,” he said. “They don’t look at specs – they look at the brand, the size, and buy. Dell works so well because the entire American retail system is set up with enormously costly pitfalls.”

Since no one cares about the specs, the logic goes, the sales team does not need – and often does not have – much information. Customers buy the name, and when they have a problem or the machine does not do something they need it to, they can bring it back to the retailer because of the generous U.S. return policies.

Oberlehner says that while profit margins in the United States are higher than in Europe so are costs. So Oberlehner stopped looking at retailers as adversaries and began seeing them as a symbiotic necessity: Where the retailers can provide marketing access to a customer base, Gericom can get the product quickly to market. As long as Gericom is willing to move quickly and provide post-sales support and service, the model works, he says.

But to succeed, he said, you must be willing to take razor-thin margins and produce using small teams working around the clock. Gericom, which outsources much of the assembly-line production of its notebooks to the Taiwan-based assembler Uniwell and some other Asia-Pacific companies, employs fewer than 300 people in Austria.

Gericom’s home-turf advantage also means that it can, for example, ship 7,000 units overnight to the main distribution centers for leading European retailers such as MediaMarkt, Lidl, Carrefour or Dixons without breaking a sweat.

And relying on local sales support and marketing initiatives rather than trying to centralize or even regionalize means that local buyers feel that the machines cater to them – whether the band name on the box is Gericom, Gerico, a Dixon line or something else.

“We can’t possibly compete with big vendors in the corporate market,” Oberlehner said, “where you have multinational needs. But likewise, the multinationals can’t compete with us in providing local support and computers that local people need. It’s not a question of price; it’s a question of tuning the products to meet the needs of each local market.”

Gericom keeps its focus on mobility. It was the first notebook maker to introduce a GPRS-enabled notebook computer, and it followed up with partly “ruggedized” notebooks aimed at the upper portion of its lower-end market.

Into the future, Oberlehner is counting on an “enormous potential” for replacing desktop computers with laptops in Europe. It cites research that says that fewer than 60 percent of German households own a computer, for example, and of those, only 15 percent have a laptop.