IB Acer Case analysis

8/13/2019 IB Acer Case analysis

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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.

Documents

IB Acer Case analysis