ib acer case analysis
TRANSCRIPT
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XIME
ACER-The Rampaging
DragonCase Analysis
11/19/2013
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A. EXECUTIVE SUMMARY:Acer is a multinational that began its operations in china and since then has expanded globally to
become a truly multinational company. Acer has managed to position itself as an OEM supplier
and a successful PC brand. Acer now aims to increase its market share in the personal computers
market with the introduction of its new Aspirerange of personal computers for the US market.
If they decide to go ahead with the Aspire product range what effect will it have on the
corporate structure that they have been trying to build.
We recommend that Acer should try to retain its Manufacturing/production facilities to Taiwan
where it will have larger benefit and may even attain economies of scales, while other parts of
the value chain like Marketing and services should be implemented by the RBUs in their specific
locations.
B. MACROECONOMIC AND INDUSTRY ANALYSISFor the Industry analysis we decided to apply the Porters Five forces model to Computer
industry:
PORTERS FIVE FORCES DEGREE REMARK
Threat of new entrants Low Favourable
Threat of substitute products High Un-Favourable
Bargaining power of customers Medium Favourable
Bargaining power of suppliers Low Favourable
Competitive rivalry within an
Industry
High Un-favourable
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I. Interpretation:1. Threat of new entrants: [LOW]
The entry barriers for new firms in the computer industry are as follows
i.
Patents and Intellectual property rightsii. Huge Marketing spending
iii. Economies of scale are not easily achievable.iv. High Cost pressuresv. Huge R&D budget
2. Threat of Substitute Products: [HIGH]i. Smaller product life cycle meant continuous innovation in the field which threatened
the existence of any new product in the market. (in terms of substitution by a betterproduct)
3. Bargaining power of suppliers: [Low]i. The Bargaining power of suppliers of raw materials and intermediate goods is not
very high.
ii. This is on account of vertical integration by Acer where it operates as an OEM.4. Bargaining power of customers: [MEDIUM]
i. Bargaining powers of consumers in the personal computer industry is High wherethey have a large number of brands to choose from like Packard bell, Hewlett-
Packard, dell, IBM etc.
ii. Switching costs in this field are a bit higher and one cannot simply change the PC at awhim which reduces the Bargaining power of the customers.
5. Industry rivalry: [HIGH]As per the market share details provided in the case study we have 10 major players in
the PC manufacturing market with the following market share. Acer ranks 9th
in terms of
market share which shows the amount of competition in the market.
Company Market Share
Compaq 12.6%
Apple 11.5%
Packard Bell 11.4%
IBM 9.0%
Gateway 2000 5.2%
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responsible for the sales in Southeast Asia. Shih articulated an Objective of 21 in
21 which is a vision of 21 Acer public companies which had local ownership by the
21st century. It was a form of globalization that created mutual trust and
interdependence. Shih described this strategy as the 4thway.
V. ACER Strategies:1) Frugality:
Multitech had only a few offices just enough to meet its needs in the market. Hence
saving infrastructure and labour cost.
2) Duck Egg Strategy:High tech products were priced with lower margins to ensure turnover. Thereby
receiving cash payments quickly and avoiding the use of debt.
3) Commoners Culture:The early growth strategy of Multitech was referred to as the Commoners
Culture. Multitech focused on the smaller markets that were less appealing the
global giants. This strategy proved to benefit Multitech as there were a large
number of smaller markets in Asia which were ignored by the global players.
Multitech leveraged this opportunity and expanded their business in these markets.
4) Global Expansion:Multitech established partnerships with dealers and distributors in Indonesia,Malaysia, Singapore and Thailand. Through joint ventures, Multitech understood the
regional needs if the market thereby increasing sales without the need for further
investment.
5) Client Server Organization Model:The Taiwan Headquarters was described as the Server that used its resources to
support the client business units that controlled the key operating activities. The
business units were allowed to work on their own business ideas with the help of
the respective RBUs and SBUs without the having to go through the corporate
centre. This model led to the development of the CD ROMs API and IPG that
supplied CD ROMs to 70% of PCs made in Taiwan.
Shih urged that at least half of all Acers products and components be sold outside
the Acer group to ensure internal competitiveness. And RBU was allowed to source
externally and the affected SBU could then find an alternative distributor in the
RBUs region. This was considered the nuclear option but was rarely implemented.
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This model gave the RBUs more freedom to implement business ideas as oppose to
other companies that require business units to have the headquarters approve new
ideas prior to their implementation.
6) Fast Food Business Concept:The ability to assemble products close to the consumer is described as the fast food
business model. The smaller expensive components with fast changing technology
that represented 50%-80% of the total cost were air shipped directly from the SBUs
in Taiwan to the RBUs. On the other hand the less volatile items were shipped via
sea. Hence saving higher transport and inventory costs. The high local labour costs
to assemble the products represented less than 1% of the cost of the product and
were offset by the logistics savings.
STRENGTHS
1) Design, Development, Manufacturing process.
2) Revenue from OEM business
3) Encouraged employee idea generation.
4) Transfer of information between managers andemployees and promoted learning.
5) Sense of trust among employees. Decisions weremade by employees for the greater good of the
company.
WEAKNESSES
1) AAC was made losses from 1990 to 1993.
2) Shih urged free spending.
3) SBUs and RBUs were responsible for ownprofits, creating pressure on the units and
challenged the traditional culture
4)"Acer" required huge capital investments
5)Taiwan SBUs were too distant to develop
components that would be globally appealing.
OPPORTUNITIES
1) Rapidly growing PC industry.
2) Growth of the internet presented a number ofopportunities for Acer.
3) Bigger companies ignored smaller marketswhich Acer caters to.
4) The number of people working at homeincreased from 26 million to 29 million in.
5) Developments in the audio, telecom, videoand telecom technologies.
THREATS
1) Competition from IBM, Dell, Packard Belland Compaq.
2) Change in Packard Bell and Delldistribution strategies caused drop in PC
price.
3) Shorter product life cycle of PC.
4) Compaq announced 30% price reduction.
5) Hewlett and Packard were ahead of Acerin developing the multimedia systems.
SWOT
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D.KEY CHANGE DRIVERS:I. External factors
i. CompetitionIn the late 1980s the competition dynamics of the PC market changed rapidly. The
increased competition led to price pressures. Some of the features of the
competition that existed in the industry were
The major players were able to offer price reductions leading to overallreduction in PC prices .This led to the erosion of Acers Gross profit margins.
Threat of Technological obsolescence required players to innovatecontinuously
Product life cycle had shortened to about six to nine months Expectations in the industry was such that the Marginal players would be
phased out
Acer needed a product that would help it survive the competition as well as achieve
a share of the global market.
ii. Needs of the marketAspire was developed based on the needs of the market Mike Culver who was given
the responsibility of product development identified the emerging opportunities in
the market . He commissioned focus groups to further understand the customers.
Some trends and needs he identified were
Increasing trend of people working from home Growing interest in the internet Developments in audio, video ,telecom and other computing technologies Increasing importance given by the consumer to design and aesthetics
Based on ACCs assessment of needs of the customer the new product
(Aspire) was developed incorporating new design aesthetics, enhanced
hardware designs, ease of use and multimedia capabilities and other
innovations.
II. Internal factorsChange in Organisational structure
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Under Leonard Liu the concept of RBU s and SBU s were introduced. In 1993 the Client
server organisation model was introduced to improve competitive position through
speed and flexibility. Under this system any SBU/RBU could leverage its ideas through
other RBUs and SBUs without going through the corporate centre. At the same time
external sourcing by a business unit was allowed.
These changes at the organisational level over the years were instrumental in the
development of ACER by ACC as
The increased independence given to RBUs under the client server system gavethe American RBU the freedom to develop its own product.
Features like the voice recognition software were introduced by working closelywith Development group in Taiwan
In order to bring in aesthetic designing ACC worked with an external companyFrog design
This was further supported by the philosophy of Global Brand , Local Touch which
aimed at making Acer a truly global company.
E. MANAGEMENT ISSUES:I. Management Objectives:
Dragon Dream(1986)to achieve $5 bn sales in 1996through overseas expansion.Already in 1986, after few years of international operations, overseas sales
accounted for half of the totalthrough new products
Vision to build a global brand - Global brand, Local Touch to evolve from aTaiwanese company with offshore sales to a truly global organization with deeply
planted local roots.
21 in 21: Vision of building the Acer group as a federation of 21 public companiesby the 21st century
II. Supporting Management Organization, Procedures and Systems: Acers organization structure consists of the production-and-engineering-focused
SBUs in Taiwan (IPG, API, TI-Acer, Acer Labs) and the sales-and-marketing oriented
RBUs (Acer Sertek, Acer Europe, AAC, ACI, ACLA) across the globe.
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It could even become Acers first global blockbuster product. The Aspire product concept is the result of well-conducted market research by Mike
Culver, Director of Product Management, ACC. This new innovative multimedia
home PC has the potential to substantially improve Acers US share and also to
capture a larger share of the global multimedia desktop market (estimated at 10.4 m
units and growing at more than 20% annually), primarily in Europe and Asia.
Launching the product at the right time before the established competitors launchtheir own products is challenging for AAC given its limited development resources.
Also because of AACs delicate profit position, investing for this extremely expensive
and highly competitive branded consumer products business is risky. The profit in
1994 was largely based on its solid OEM sales, which accounted for almost 50% of
revenues.
Aspires less-than-premium pricing owning to its innovativeness is contradicting theduck egg pricing philosophy propagated by Shih. Also AACs move to capture the
US market share with an innovative product challenging the major players in the US
PC market, is against Acers early expansion strategies following the commoners
culture and playing from the corner with least resources, by-passing the
multinationals markets.
In a situation where the US PC market is undergoing price-war, Aspires pricing hasto be reconsidered.
Aspire project team believed that while the Acer Group based in Taiwan probablyhad the engineering capability to develop the products new technical features, they
equally felt the need to outsource the products designing. Design aesthetics of
Aspire is set to compete with Apples design.
The enhanced product features of Aspire required a new hardware design andconfiguration that was a radical innovation for Acer, requiring significant design and
tooling changes.
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F. Theoretical Models and Framework
Aspires was to be positioned between the two PC segments Upper tier IBM and lower tire
Packard Bell. This was done by offering a high quality innovative product at a less than
premium price. The basic product was priced at $1999 and the highest end system with
monitor was priced at $2999. In the current market Acers pricing strategy can be compared
to Toyota where it was neither a pure cost leader nor a differentiator but tried to position
itself in between and succeeded.
With this product Acer is expected to be subject to high cost pressures as well as High
pressures for local responsiveness in terms of the needs of the different markets if it decides
to go global with the product. Due to both high cost pressures and local responsiveness
pressure that Acer is subject to they should follow the Internationalization strategy.
G.AlternativesThe alternatives which exist according to us in lieu of Acer Aspire are as follows:
1. Not going ahead with Acer AspireIt is not a viable option as:
COST LEADERSHIP
D
IFFERE
TI
TI
ASPIRE
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Lose out on a customer need which has not yet been met Competitive scenario is such that other companies are ahead in terms of innovation
and product roll outs
US market is the biggest market for PCs and as the research is US focussed, and ifAspire is not implemented the current market demand will be lost out on
Aspire has the capability of becoming the first global blockbuster product, notleveraging that will go against Acers missionof becoming a Global Brand.
2. Put Acer Aspire on holdIt is not a viable option as:
Competitors will roll out and try to capture the demand; time shortage
Technology might become obsolete by the time implementation is done Market demand is extremely volatile, the entire research of consumer needs might
have to be conducted again
3. Implementing the Acer Aspire projectThe implementation can be done in a number of ways which are analysed according to a
few criteria below:
Criteria for measuring the alternatives
Criteria
US (entire value
chain), Sell
products
globally
US (entire value
chain),Sell
products only in
US
Taiwan
(entire value
chain)
Taiwan (only
Production
activities),
US(remaining
value chain)Implications on
Corporate
structure
Other RBUs
resistant, want to
redesign
Other RBUs
resistant, want to
redesign
Support from
all RBUs
Some resistance
from other RBUs
Implications on
Profitability
(OEM)
Risk of AAC
profitability
getting affected
Risk of AAC
profitability
getting affected
No Risk of
AAC
profitability
getting
Risk of AAC
profitability getting
affected
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affected
Manufacturing
costs
High labour
wages
High labour
wages
Low labour
wages
Low labour wages
Production
capabilities
Have to create Have to create existing Existing
Obsolete in US
market
N.A N.A. High
probability
Less Probability
Feasibility in terms
of Global product
Market research
has been done
only in US, might
not cater
Market research
has been done
only in US, might
not cater
Can check
feasibility
overall using
resources and
capabilities
Market research has
been done only in
US, might not cater
to global markets
Competition
launching their
product
Low probability Less probability High
probability
Low probability
H.Recommended Strategy and its Implementation:Our recommendation is to implement the Acer Aspire project such that the
manufacturing/production capabilities are limited to Taiwan and the remaining value chain is
implemented in USA (by AAC).
PRIMARY ACTIVITIES
R&D
In AAC, US being the major market, customer
demand can be tracked easily. the innovative idea
was the brainchild of AAC, so the R&D
capabilities should be retained for Aspire in US
Production
In Taiwan, centralised production will help
achieve economies of scale and design can be
varied to meet the local needs of the globalised
product
MarketingShould be done by AAC, US; as research has
been conducted in US and market share in US is
maximum.
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Customer Services
Initially we focus on US market roll out only- so
services will be located in AAC only. when
targetting other countries, each will have its own
service capabilities
SUPPORTING ACTIVITIES
Materials Management
Shipping of components from Taiwan to USA.
Assembly of products in USA. High labour cost
offset by low transport costs.
HR Labour has a higher learning curve in Taiwan
Infrastructure Taiwan has established manufacturing and
production facilities.
ITUSA has better IT facilities that encourage
development and design of new products.