...Case Study: Inventec Q1: Despite its growth and size, why is Inventec not very profitable? One of the major causes of low profits is that despite Invectec’s expected growth of 50% of volume production of notebook PCs by 2005, its principal clients implemented aggressive pricing strategies, which forced its gross margins for notebooks to dip below 4%. With notebooks accounting for 80% of Inventec’s revenues, coupled with comparatively high bargaining power from suppliers, this drop in gross margins eroded significant profits. Moreover, Inventec is operating in a dynamic electronic industry with a very short product life cycle, where the design og a new product may be obsolete after a very short period of time. The reliance on frequent technological innovation causes the inherent risk in the industry to be very high. In addition, Inventec has a very limited list of customers. Both Hewlett-Packard (HP) and Toshiba account for the major portion of Inventec’s sales. With a small number of buyers, the threat of buyers to Inventec is high, which increases the bargaining power of buyers and thereby, limits Inventec’s negotiation possibilities as it cannot afford to lose its major clients. Also, with the decrease of government restrictions in Taiwan, barriers to entry into the industry are low. The high threat of new entrants increases the supply of quality goods, and coupled with increasing demand for ODM, Inventec experienced shrinking profit margins as the profit margin that...
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... I. Why Inventec is not very profitable a. Industry competition b. New entrants c. Bargaining power II. Drivers of average profitability of the Original Design and Manufacturing industry d. Process of manufacturing products costs e. Low cost distribution III. Key factors Inventec needs to manage to earn above-average profits f. Comply with product standards and quality assurance g. Lower operating costs h. Differentiation IV. Profits of Indian software industry vs. Chinese ODM industry i. Growth rate j. Higher bargaining power k. Global outsourcing l. Competition V. Strategic advice for Inventec to improve profitability m. Change sectors to software development n. Vertical integration 1. Despite its growth and size, why is Inventec not very profitable? Inventec is not very profitable for a few reasons, first being the industry competition. There are many large competitors such as Asustek, Compal, and Quanta who all have larger sales revenues. Also, as OEMs usually outsource some of their technology, EMSs and ODMs are competing for the same clients more and more. The second reason Inventec is not very profitable is the threat of new entrants. Taiwan has a high rate of new entrants for instance. A business that wants to start in the ODM industry can just step right in without any issues and less government restrictions. The third reason Inventec is not very...
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...Question 1: Despite its growth and size, why is Inventec not very profitable? Inventec is not very profitable due to: 1. Extensive industry competition: - Personal computers have become commodities and OEM’s aggressive pricing strategy leaves Inventec with little profit margins. - The industry is saturated and fragmented. There are many big competitors on the market already. EMSs and ODMs are increasingly competing for the same client base. - High ratio of fixed to variable costs: Inventec has to reduce prices to fully utilize installed capacity. (e.g. its new manufacturing compound in Pudong, Shanghai) - Inventec does not own the distribution channel and cannot make the rules. They just follow the orders from the big player in the electronic industry. - Hard to differentiate as Microsoft and Intel has exclusive market share of the operating system and the processor industry. 2. Low barging power: - Inventec has a very short list of customers but their purchase volumes are high. - OEMs are price sensitive and they often have multiple partnerships. - Low switching cost for OEMs as the product life cycle is short. Question 2: What are the drivers of the average profitability of the Original Design and Manufacturing industry? 1. The aggressive pricing strategy of OEMs has largely dropped the profit margin of ODM firms. 2. Many Taiwan ODMs shift their manufactures to mainland China because of the cheaper labour. But this is no longer the case and now...
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...Q1: Despite its growth and size, why is Inventec not very profitable? Ans: Applying Porter’s 5 Forces it is evident that the Taiwanese ODM industry is highly competitive and hence it is hard for any ODM to gain high profits. Following are a few reasons why Inventec is not able to earn a handsome profit: * There is intense competition among ODM vendors such as Compal, Quanta, Mitac etc. All these firms manufacture similar products and hence there is very little differentiation. * Excessive fragmentation in the ODM market has caused lower bargaining power for the ODMs. In 2005 both Apple and Cisco split their contracts to multiple ODMs which lead to a drop in Inventec’s stock price. * Inventec had exclusive contracts with Compaq and Toshiba leading to customer lock in. Thus, when HP acquired Compaq, stocks of Inventec plummeted amidst speculation. However, other ODMs’ stocks were safe as they supplied to multiple OEMs. * Computer products greatly became commoditized in early 2000s. As a result, the OEMs had to squeeze their profits. In turn the OEMs used their bargaining power to squeeze the profits of the ODMs. Thus, for the ODMs profit plummeted from 10% in 2001 to 3-4% in 2004. * Since 2001 easing of Taiwan Government restrictions of high tech investment in China lead to huge cost saving to Taiwan ODMs. This reduced the entry barrier in the ODM industry fueling the already fierce competition in this industry. Q2: What are the drivers of the average profitability...
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...Inventec Corporation Case Study 1. Despite its growth and size, why is Inventec not very profitable? Inventec Corporation, one of the leading Original Design Manufactures (ODM), specializes in designing and manufacturing electronic devices. Although the firm had a rapid growth in market share and a huge production scale, the company did not perform well in terms of profitability. There are several factors that may lead to lower profit margins .The great amount of rivalry among existing firms can affect the firm’s profitability. Many firms, such as Compal, Quanta, Mitac, etc., have virtually the same services as Inventec; therefore, the competition amongst these corporations is ferocious. Secondly, a threat of new players within the industry is extremely high in Taiwan. Due to lax government regulations, any company with interests in the ODM industry can easily venture into the industry. Another issue affecting the firm’s profitability is the bargaining power of buyers and sellers. Inventec Corporation, from the perspective of buyers, has a limited customers list; this could give more power to buyers. The major portion of the company’s sales is comes from HP and Toshiba. Therefore, Inventec cannot switch customers easily. Consequently, Inventec has no choice but to accept aggressive pricing strategies from its principal customers. This forces their profit margin to drop below four percent. Due to the highly competitive nature of the ODM industry, Inventec faces a huge amount...
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...1. Despite its growth and size, why isn’t Inventec very profitable? Inventec isn’t a profitable company due to three reasons: increased competition, loss in profit margin from notebook manufacturing, and loss of contracts. Inventec was one of the first Taiwanese companies to open an original design and manufacture plant in China in 1991. During that time, the company had been successful in the venture. However, in 2001, the Twainese government eased the restrictions on high tech investments in China to capitalize on the lower operating cost. Additionally, Inventec lost some of the contract that it held with Cisco to manufacture VOIP phones. All these decisions affected Inventec’s stock and their profitability. 2. What are the drivers of the average profitability of the Original Design and Manufacturing industry? The average profitability of the ODM industry is due to their ability to produce products at a lower cost. Clients of the ODMs would take the product specifications and have competitive companies bid on the projects. Thus, giving clients a chance to receive valuable design at lower costs. ODMs offered clients the chance to collaborate to develop a better product. Additionally, these companies since they were located on the main land in China were able to produce products at a lower operating cost, including lower cost of labor. Lastly ODMs are able to take advantage of the offering limited products. Since this was the case, ODMs did not have to worry about...
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...DATE: 11-05-2005 TO: Louis Woo, CEO, Inventec Corporation FROM: Mitt Romney, Senior Consultant, Brain Consultancy RE: Securing Inventec’s Future Success Being one of Taiwan’s leading Original Design Manufacturers (ODM), in 2005 Inventec stands at a crossroads. So far Inventec’s economic activities focused on designing and manufacturing electronic products for OEMs, mainly western companies, which distributed them using their strong brand names. Since 1995 notebook PCs have been the mainstay of Inventec’s business (Appendix A). However computer industry-wide price and margin erosions are expected to continue. Having only a few core customers, ODMs have become increasingly dependent on their western counterparts, a circumstance which is used against them to obtain lower prices. This is especially true for Inventec (Appendix B). More diversified contract manufacturing partnerships and an increasing consolidation in their industry have increased OEMs’ negotiating strengths as well. As those clients have adopted aggressive pricing strategies, the only thing that counts is how fast you can deliver the lowest cost product. Exploiting even cheaper labor seems almost impossible, since large ODMs have already moved the largest proportion of their manufacturing to low-cost areas in mainland China. Meanwhile Inventec has also developed and marketed software under its own brands. As the PC hardware sector shows signs of weakening, the...
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...Inventec Corporation Case Study Inventec Corporation lies in the ODM industry which designed and manufactured electronic products for client companies that marketed the products globally. Despite its growth and size, Inventec is not very profitable for the following reasons. To begin with, the ODM industry’s average profitability is low. Net margins of leading taiwan ODM companies range from 1% to 6%. The low profitability is mainly driven by the huge customer bargain power and the fierce competition. ODM’s clients, these global electronic companies face fierce competition themselves and have a need to lower cost. Their strategy to diversify contract manufacturing partnerships reduces their reliance and increase negotiation power against ODM industry. Consolidation within OEM industry further gave them greater bargaining power over the segmented ODM. The fierce competition from both existing competitors in ODM industry and the substitute EMS industry further drives the profitability low. The large manufactory capacity has resulted in ODMs competing with each other for more market shares, which pushed the price down. EMS also provides clients manufacturing, sourcing, procurement, inventory management services. EMS usually doesn’t maintain Intellectual Property and are not likely to compete with OEM clients. This has made them an attractive substitute for those OEM clients who want the design of product to be customized and confidential. In...
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...1. Inventec was deeply committed towards increasing its market share in the mobile phone segment, but had to contend with a high channel development and alliance cost. Lower levels of brand awareness, and missing consumer information compounded Inventec’s problems of enhancing sales volume and market coverage. From analysis of accounting information: * Comparing with the others leading Taiwan Original Design Manufacturers in 2005, Inventec has a low net income figure of 59m while three of them are over 250m, also gaining a negative income growth in the leading manufacturers in this industry. * Its dominate product is NB PC, which occupies 80 per cent of its products, however this product does not contribute to the revenue growth at all with only servers contribute to 19 per cent. We can interpret from this is that Inventec’s NB PC product is not competitive among the leading manufacturer industry. Others perspectives: * Underutilization of China plants * Electronics manufacturing services take a large stake in the manufacturing industry. High margin products in server market, which will be the commodities tomorrow * Holding a client’s inventory and taking on an additional risk * Small ODM sector had grown more steadily * Increasing competing for the same client base between ODM and EMS companies * EMS providers offered production site closer to the final market, global lofistics and integrated IT services comparing to ODM provider, which may...
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...About Inventec Corporation “Founded in 1975, Inventec has enjoyed a leading reputation in Taiwan’s electronics and technology industries. Starting out as a manufacturer of electronic calculators, Inventec has moved forward into the design and manufacturing of high-tech products such as notebooks, enterprise servers, storage products, wireless communications, network applications, consumer mobile devices, consumer electronic devices, and wireless solutions. Currently, the annual production capacity of notebooks exceeds 30 million units, over 3 million servers and 5 million smartphones. Being the biggest server ODM and one of the top 4 notebook makers worldwide, Inventec 08’ revenue has reached 10 billion with growth rate over 33%” (www.inventec.com). As Taiwan’s leading Original Design Manufacturer (ODM), Inventec’s reputation for success is apparent. Areas of achievement include development and production in software, notebook PCs, Servers, and consumer electronics such as PDAs, MP3 players, and mobile telephones. Inventec continues to progress in the $190 billion contract manufacturing industry, while working with large Original Equipment Manufacturers (OEM) such as Hewlett-Packard, Dell, Apple, and Palm. Inventec serves alongside the Electronics Manufacturing Services (EMS) industry which offers opportunities to broaden their product scope and remain competitive with other EMS firms. Inventec also has their own brand of products and software which may result to them...
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...Inventec Corporation Whoever owns the distribution channel owns the business. We are just the guys behind the scenes . - Inventec executive Louis Woo In Inventec Corp.'s gleaming new manufacturing compound on the outskirts of Shanghai's Pudong district, six automated assembly lines hummed with state of the art equipment. Hermetically sealed machines dispensed adhesive onto tiny boards. ext, high speed machines picked micro chip components off tapes and placed them onto the boards. Other machines soldered, cleaned and tested, until the guts of a notebook personal computer (PC) popped out to be encased in black plastic or metallic silver by human hands. Each line produced a new notebook computer every 16 seconds, for a combined output of 13,500 PCs per day . However, none of these PCs carried the Inventec name. Instead, the notebooks produced in this Chinese factory bore the brand logos of three competing multinational computer companies. Each PC was packaged in a brand manufacturer box, and shipped to client distribution centers around the world. Some were shipped via UPS from the Shanghai factory directly to consumers in the United States, with return address labels bearing the name and U.S. address of the brand company. Inventec, with annual revenues topping 150 billion ew Taiwan Dollars (NT$)a and market capitalization valued at over $1 billion, was one of Taiwan's leading Original Design Manufacturers (ODM). ODMs designed and manufactured electronic products such as computers...
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...Q1: Despite its growth and size, why is Inventec not very profitable? Even though the Inventec firm has a rapid growth of market share and a huge production scale, the profitability of corporation does not perform well. Anyway, Porters’ forces influence some areas in the company. 1. The intensity of rivalry among existing firms. There are many competitive firms such as Compal, Quanta and Mitac. Which lie in ODM industry therefore the completion among there corporations is ferocious. 2. The threat of new entrants is high in Taiwan. The interests in the ODM industry can step into this field without any difficulty owning to less government restrictions. 3. The bargaining power of buyers is high and the power of sellers is low. Considering of buyers, it only has a limited customers list and the buyers will achieve more say in transactions. To be more precise, the major portion of its sale is accounted by the HP and Toshiba so that it cannot switch customers easily. Consequently, the firm has no choice but to accept aggressive pricing strategies from the principal customers which force their profit margin to drop below 4%. To sum up, the pressure from customers and rivalries leads to low profit margin. Q2: What are the drivers of the average profitability of the Original Design and Manufacturing industry? The driving force of profit in original design and manufacturing industry is the designing process which provides high end services to clients. In the manufacturing process...
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...Question 1 Although Inventec had been a successful company earning revenues as high as 150 billion NTS$ and a market capitalization values over USD$ 1 billion, other companies within the same industry were simultaneously growing. At least 10 Taiwanese ODM factories moved in and around Shanghai. This was related to the fact in 2001 Taiwan eased government restrictions of high tech investment in China and all major ODM’s began opening PC plants in China in order to reduce their operating costs. In some cases, the operating costs we be 1/7 the cost in Taiwan. This had such an effect that competition got fierce and constant underbidding was necessary to attain contracts with clients such as HP, Dell, Apple and Palm. The aftermath of the above mentioned situations caused net margins on notebook computers drop drastically from 10% in 2001 to basically 3-4% and below 1% for second tier ODMs. Since 1995, the notebook PC’s represented nearly 80% of Inventec’s Corp. revenues. Quantifying that Inventec has earned over 150 billion NTS$ this represents approximately 120 billion NTS. Additional concerns about underutilizing Inventec’s Chinese plants triggered Inventec’s stock to go down in the mid 2005. Prior to this year Inventec had lost Apple’s iPods exclusive manufacturing contract and a portion of Cisco’s VOIP phone business. In review of all these events and situations Inventec experienced, despite is rapid growth pace, were grounds which hindered Inventec’s profit growth...
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...increasing, the profit margin that each competitor could share is simultaneously shrinking. In other words, despite the fact that Inventec has done quite well in expansion and decision making, strategic direction as well as determination of sustainability in the past, the unavoidable occurrence of competitive environment for it ultimately led it to the result of a shrinking profitability figure. On the other hand, with the more competitive environment for electronic products, such as computers, PDAs, corporations which ask for outsource have to survive by constantly remain competitive by squeezing cost which in turn, squeezing the ODMs. Thus, from both the direct pressure coming from client and competitors, Inventec could not realize substantial abnormal profit. Q2. Is this Essay helpful? Join OPPapers to read more and access more than 350,000 just like it! get better grades Normally speaking, the drivers of the average profitability of the Original Design and Manufacturing industry would be as follows: * The efficiency of the product and software design * The efficiency of the manufacturing process * The effectiveness of the manufacturing process * The availability of the skills required by the design procedure * The availability of the funds * The progress or upgrading of the skills Q3. Key factors for companies like Inventec to earn abnormal return should be as follows: * Remain competitive * Being able to differentiate either by quality or lowering...
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...r MGMT330 Strategic Management Final Project Xiaomi Entering India’s Mobile Market Analysis Content 1. Introduction ---------------------------------------------------------------------------------------------- 3 2. General Environment analysis of the Mobile Industry in India --------------------------------6 3. Business model of Xiaomi with India market analysis--------------------------------------------9 4. Comparison between Samsung and Xiaomi -------------------------------------------------------11 5. Recommendation---------------------------------------------------------------------------------------13 6. Conclusion ------------------------------------------------------------------------------------------------15 7. Reference ------------------------------------------------------------------------------------------------ 15 1. Introduction 1.1 Background information of Xiaomi Xiaomi, a leading smartphone brand in China, has been trying to enter India’s mobile market in this year. India is a developing country which has a potential market for smartphones. There will be a detailed explanation and analysis of how Xiaomi enters India’s mobile market. We will also evaluate its strategy and provide some opinions or recommendations. We will describe the business model of Xiaomi and the original strategy that Xiaomi used in mainland China first. Then talk about the mobile market of India and the general environment...
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