The case gives us an insight into global business strategies and operations of Acer Group, one of the largest PC and computer components manufacturers. The case study discusses the pros and cons of expanding the business in China and reasons whether the Acer group is ready to start their business in China.
As part of their global manufacturing strategy, Acer had adopted the ‘fast food’ business model on inventory management. This model involved shifting assembly sites of computers to local sites i.e. areas where the computers would be distributed. This model provided up-to-date products to the customers, reduced inventory, expedited transportation and developed a highly flexible logistic system. In spite of implementing the mentioned business model, Acer incurred losses worth $75 million. Few possible reasons include - * Internal Communication and Co-ordination - Setting up new assembly sites locally made co-ordination between manufacturing sites difficult and cumbersome. * Forecast mismatch – Since the computer industry was rapidly changing it was difficult to predict sales accurately. A slight mismatch in the forecast meant higher accumulation of inventory in each of its assembly sites. * High operating cost – Increased number of sites meant more number of components in the existing supply chain and more supervisors which in turn raised the operating cost. * Inventory pile up - Unclear understanding of customer demands and market needs resulted in bloated inventories. Old and obsolete products piled up in the inventory, occupying space in the warehouse. This also led to a delay of launch of new products. * High inventory levels created cash flow problems
Taiwan’s culture resembled western principles as opposed to those of traditional Chinese culture. 1. Taiwanese workers had a sense of belonging to the organization as they were considered as family by the employer and hence were flexible and ready to adjust their schedule according to the demand in the market. Whereas the Chinese people were inflexible with their schedule as they were assured pay irrespective of their individual performance. 2. The Taiwanese government had a very strict and constrained policy regarding large investments in China and they strongly discouraged the idea of investing on the mainland which made the Taiwanese less future oriented. 3. Taiwanese market had a very rigid approach toward new profitable opportunities from different markets as opposed to the Chinese market who grabbed these opportunities with both hands. Thus the Taiwanese tried to avoid risk. 4. Many amenities in Taiwan were available freely when compared to China, i.e. the standard of living in China was lower than that in Taiwan. Family ties were strong in the Taiwanese culture. 5. Good education since the very beginning was an integral part of Taiwanese culture. The schooling system in Taiwan was of higher caliber as compared to China. The standard of work in Taiwan was better than China too.
Yes I would recommend the senior management at Acer to put up manufacturing operations in China due to following reasons – * China has a huge market and ample opportunities which will help Acer have a very strong foothold in the global market making the brand stronger. * The restrictions imposed on transportation will be relaxed after Taiwan becomes a member of World Trade Organization. * Considering a location in China will give advantages in terms of tax, favorable business conditions and other incentives and most importantly safety. * Selecting a place in the industrialized part of China which has plenty of local workers (cheap labor) will reduce the dependency on people from other regions. * China has a very active market for computers and hence finding vendors or partners to establish distribution and marketing activities will not be a difficult job. These contacts will also help to understand the local needs/market which in turn would increase the overall sales. * Since Acer already had some experience with global expansion, training the work force to meet efficiency standards would be comparatively easy in China. Abundant availability of resources would be an added advantage
Since Acer has been more familiar with the Chinese culture and market as compared to the other Third world countries, entering the growing market in China is a wise decision.