AcerAcer China China ManufacturingManufacturing DecisionDecision

““FreshFresh TechnologyTechnology enjoyedenjoyed byby everyoneeveryone, , everywhereeverywhere.”.”

Presented by:Maria Pia CarbonellSarinporn JorphochaudomHortense MudengeMinerva NayanFabian Ochoa

Mar 13, 2010

1. Contextual Analysis

2. Attractiveness

3. Capabilities

4. Strategic Position Analysis

5. Strategic Partnership: Selection Criteria

6. Work Plan

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6. Work Plan

7. Recommendations

• Acer is deliberating whether or not the company is ready for full operations in Chinese mainland.

•The computer industry is becoming highly segmented with companies looking for niches•Need to maintain profit margin, fresh capabilities to counter risk of changing technology/price changes/stock outs/over stocking, and an effective Global attitude (maintain the company goals but through a local approach)

•Acer has a niche in PC systems(components and peripherals market)

•Sustainable competitive advantage can be achieved in China only when the Acer gains operational efficiency resulting from high volume, low cost and high quality achieved only

•If suppliers would agree to join them, political certainty, effective training and motivation of workers through salary, health benefits, have a niche in electronics, and understanding of culture and behaviors

Situation

•Political and Security Issues

•China sees Taiwan as one of its provinces and does not recognize Taiwan’s independence

•Taiwan is a democratic form of government, similar to the West

•Trading difficult because of transportation links problems: sea and air

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•Trading difficult because of transportation links problems: sea and air

•Taiwan’s official economic policy restricted direct investment in China, especially large and high-profile investments

•Chinese Culture

•Relocation of Taiwanese

•How to source inputs regionally

•Due to low prices, market has become more sensitive to quality technology -> Acer is not yet popular in terms of quality

Complications

• Can Acer enter the Chinese market successfully?Key Question

Barriers to entry (Low) Buyer power Supplier power Rivalry SubstitutesSize/Growth

Market

• Low Start-up Costs

• Easy to develop

economies of scale

so costs can be

lowered

• Steep learning

curve in Production

Process

• Government

Legislation.

• Size and concentration of Buyer

• Lots of suppliers.

• Preferred product (Legend and Chinese Brands)

• Low switching

• Strong relationship with suppliers

• Joint Ventures to establish distribution systems

• “Local touch” owned by local

• Legend, IBM, Founder, HP, Great Wall, Compaq, Dell, Start, Langshao, Hirense. Accounted for more than 60% market share.

• Leadership by Legend

• Many products • Low prices in

competitors’ products

• Traditionaltypwriters

• Pen and paper• Manual

documentationprocess

• China PC Industry growth in 1997 by 40%.

• Enormous potential of market size.

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Legislation.

Political Instability

• Logistics: Sea and

air transportation

constrains

• Human Resources:

Regulations on

hiring foreign

workers.

• Low switching costs

• Low differentiation in products

local investors (Low)

Legend• Lots of players

COMPANY STRENGTHS:

1. Decentralized Structure

2. Transferred Knowledge

3. Technological Competence

4. Manufacturing Capabilities

5. Central Kitchens

6. ISO Certified

COMPANY WEAKNESSES:

1. No exposure in China yet

2. Taiwanese hesitant to relocate to China

3. Issue in getting local suppliers

Thought Acer has all the capabilities to go into China, there are

also several factors

preventing it from

doing so.

1. Financial• Growing (Strong)

2. Technological• Development in all business areas (Strong)

3. Culture• Family and Western type

4. Human Resources

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• Organizational structure modified 1998

• Transferred knowledge from R&D tomanufacturing

• Understanding of Chinese Market

• Challenge in training to workforce toachieve standard efficiency

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Key Considerations: 1. Build on Acer’s current weaknesses (entry barriers, culture,

attracting skilled manpower etc)

• Considerable presence in China (brand, sales, operations)

• Positional advantages (warehouses and manufacturing facilities spread throughout

China and in districts with tax and other incentives)

• Complementary organizational culture to Acer (family oriented partnerships)

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Key Considerations:

2. Strategic Growth Areas• Market size in semi conductors, consumer electronics etc

• Strong supply chain (Vendors, DCs)

3. Acer can add value (help to address their unmet needs)• Training (skills)

• Technical expertise

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• Technical expertise

• Quality standards

• Incentives

Quarter1 Quarter2 Quarter3 Quarter4

(1) Monitor government rules and regulations

(incorporation laws, tax incentives, etc) x x x x x x x x x X x x

(2) Identify companies with presence in Chinax x

(3) Conduct ocular inspections (to determine

distribution efficiencies, infrastructure, x x

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distribution efficiencies, infrastructure, sustainability of supply chain, skilled manpower)

x x

(4) Select potential partner, then negotiate terms of partnership x x x

(5) Conduct capacity-building trainings; technology transfer x x x

(6) Monitor progress and assess sustainability of partnership x x x

1. Partner with a Chinese company that will complement Acer’s weaknesses and

address the company’s barriers to entry

2. Consider in the future to establish Acer’s “village” in areas outside mainland

China (such as Macau which became an autonomous region in 1999)

3. Consider also in the future, once restrictions are lifted, areas within mainland

China that have tax incentives, favorable business conditions and sufficient

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China that have tax incentives, favorable business conditions and sufficient

infrastructure (same as in Subic and Juarez)

4. In case the partnership fails, Acer may leverage on their capability of supplying

computer components to IT companies in China. They can have production

factories outside mainland China and companies can outsource from there

(patterned after the GO strategy for manufacturing)

Thank Thank you.you.

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