It appears that Taiwan has some exporting rivalry with neighbouring countries such as China and the Philippines as their land and labour are cheaper, there are less trade barriers, and they have easier transporting facilities for exports.
1.4 Chance
After WWII, Taiwan’s economy plummeted and China fell to the Communists, so all of Taiwan’s contact with China was cut off. Luckily, to their advantage, the United States and other countries that were trying to stop communism continued to aid Taiwan. This stabilized their economy and made those countries strong export nations.
A downfall to Taiwan occurred in 2001 when the US went into recession and because of the September 11th attacks. The US is Taiwan’s 2nd largest exporter and during this time when the US did not import as much, Taiwan’s foreign trade decreased and their main exports, electrical machinery and mechanical appliances had a negative growth. Because the US is such a big export nation to Taiwan, when they hurt, Taiwan also hurts.
1.5 Government
These are few of the decisions, policies, regulations and plans etc that reflect the presence of the government as the strategic engine of Taiwan’s emergence:
In 1957, the Bank of Taiwan started to supply low-cost export credit and in 1958 the government implemented the Foreign Exchange and Trade Reform Plan, which was about the reinforcement of Investment/FDI/lower tariff barriers etc.
In the early 1960s, the Taiwanese government introduced a series of institutional policies for encouraging knowledge creation.
The government policy in relation to export promotion generally followed the private sector’s involvements in exports, which comforted and encourage the enthusiasm of the private sector.
In 1973, the government announced the Ten Major Public Sector Projects, aimed at developing infrastructures and some key industries.
By 1980s due to the international pressure and rapid economic growth the government recognised economic liberalization and globalisation and thereby greatly opened up Taiwan with tariff reduction and relaxation/abolition of non-tariff barriers.
The government encouraged companies to reach their aspirations, encourage competitive advantage, stimulated demand for advanced products, deregulate protected industries, upgrade Taiwan’s scientific and technological capacity, and encourage the development of the private sector with financial and monetary policies.
The government maintained a stable and secure society and a good state of law and order that are the necessary conditions for attracting investment.
1.6 Taiwan and China
2002 saw China and Taiwan join the WTO (World trade organization) and with the US China and the US Taiwan bilateral trade agreements, both parties have become more open to world business relations. Also Taiwan’s MNCs (multi national corporations) depend on China as a logistic area in the global supply chain.
Good relations between both countries are important for the continuing growth of the Laptop industry.
1.6.1 Foreign direct investment (FDI)
The above case of the laptop industry shows a positive example of foreign direct investment (FDI) where the manufacturers from the domestic and host market have gained, in terms of cheap labour and jobs being created and later the goods being sold back in the home country i.e. Taiwan. Here there is a win-win situation.
However, when FDI is conducted as a means to circumvent trade barriers when trading with China whereby the manufacturer takes the manufacturing abroad but also distributes locally in that host country, then the home country itself loses the opportunity to distribute those goods in its own territory, moreover potential jobs have been lost for home residents by taking manufacturing abroad.
Hence, the hollowing out effect has been created, which means that countries such as Taiwan have hollowed out their manufacturing and trade to China. This has meant leaving themselves worse-off and China gaining from the extra jobs created from the move of manufacturing and the local trading.
Ideally there would a Free trade agreement (FTA) whereby there is a lot more freedom with trade barriers i.e. There are not any, therefore nations and firms have greater freedom to trade with one another. Consequently this encourages more global competition.
II. Acer’s global performance over the last 3 years
In 1980s and 1990s companies like Acer could take advantage of Asian strengths, efficient manufacturing, close-knit supplier networks, smart workers, and relatively lower costs, to become world leaders.
2.1 2001 performance
Acer’s financial ratio shows a decrease of performance from 2000 to 2001. Concerning their ability to payoff debt their current ratio of 2000 was 189.61 and decrease slightly to 180.02. Furthermore concerning their earning ability their pay-in capital ratio decreases from 38.92 % in 2000 to 12.66% in 2001. And finally their cash flow ratio decrease from 20.68% in 2000 to 12.10% in 2001 following by their Cash reinvestment ratio that decreased from 5.84% in 2000 to 0.68% in 2001. Overall their Net profit decreased dramatically from US$6,778Million in 2000 to US$2,367Million in 2001.
This general decline could be explained by the global recession of 2001 and of the effect of the attack of the 11th September of 2001. The attack slowed down the American economy and consequently Taiwan’s economy had a negative growth of – 4.21% in Mid- August 2001 due to lower exporting. Accordingly unemployment increased as well from 3% in 2000 to 5.2% in 2001 in Taiwan and overall Asia.
Due to this diminish demand Acer had to lay off about 500 workers in that period. This decision was influenced by Acer’s future plans to focus on OEM and its brand business units. In order to be able to gain in the future they had to sacrifice valuable workers.
During this year Acer announced its plans to change its business structure from its manufacturing –based organisation to a marketing and service-based company. These changes will pre-empt future divergence of business operations and make e-business the company’s new core focus. Based on this new plan economy was expected to top NT$150B (US$4.4B) with profits of NT$15B (US$437M).
This restructure of Acer marked the announcement of the merger between Acer Inc. and a company specializing on e-business, Acer Sertek. The year 2001 showed a transition from IT based era to a knowledge-based economy, therefore the merger helped the Acer Group to reach that transition.
Acer licensed the Palm OS operating system in 2001. This licensing agreement helped the operating system to expand into the Asia-pacific and Chinese market.
As we can see Acer’s financial performances of 2001 had decreased from previous years due the global recession, however this negative impact had caused Acer to reconstruct business and merge in hopes of future profits.
2.2 2002 performance
The company generated revenues of $3.09billion. Acer’s PBT was US$258B and PAT was US$8.6B in 2002 up from US$40M and US$29M, respectively from 2001.
When analyzing Acer’s market share compared with the top 10PC vendors in the world, the company is increasing from 2.67% in 2001 to 2.73% in 2002 while most of the top 6PC vendors just above Acer are decreasing. This poor market condition is due to the attack of September11th, threat of more terrorism and the war in Iraq. To overcome this crisis Acer would have to increase its market share by being more innovative.
Acer now holds the top market share position in Desktop PCs (18.50%) and Servers (26.20%) and is coming third in Notebook PCs (16.50%) with only IBM (19.90%) and HPQ (19.30%) ahead in this section.
Because the global IT industry has reached saturation and the competition between local and foreign brand is becoming stronger, Acer has decided to become leader of the channel business within the IT industry in Taiwan consequently it made the Channel Business Group one of its core business and bought back all shares of the Taiwan channels. This allows Acer to improve its economy of scale, strengthen core competitiveness and to increase the company’s performance in 2003.
In 2002 Acer and Cadence got together in order to revealed national and global talents specialized in design; attract companies with significant knowledge capitals which would enhance profits to the IT industry by improving product feature. This strategic alliance will give Acer creative and innovative advantage in the creation of IT products.
The year of 2002 was a turn point for Acer as their profits increased compared 2001. Acer’s mega-transformation, completed merger and alliances have caused that effect.
2.2 2003 performance
From 2001 Acer’s global performance has been steadily increasing as the September consolidated revenue shows 15% growth from the August revenue of NT$12.2B (US$361.48M), and 52% growth from the September 2002 revenue of NT$9.25B (US$274.07M). These record revenues are credited to the high demand for notebooks and LCD monitors.
Acer has been investing heavily in R&D which provides it with a consequent competitive advantage against the competitors. Using this R&D Acer created an all new product line which is expecting to raise high revenue in 2005, like the Digital home Products.
In 2003 Acer notebooks was no. 1 in Austria, Belgium, Czech Republic, Germany, Italy, the Netherlands, Spain, and Switzerland. Acer also achieved the highest growths among the top 10 vendors in Austria with 166.2%, Belgium with 343.9%, Netherlands with 307.8%, Spain with 320.4%, and Switzerland with 83.9%.
For the first time Acer recorded higher sales in notebook computers (accounting 58% of the sales) surpassing desktop (accounting 30% of the sales).
However competitors registered an increase in their sales due as well to the release of new products line; like HP that had a 20% increase from last year, Asustek Computer Inc. had 60% and IBM 30%.
Acer’s ambition is the become No.1 in notebook computers in Europe within two years. To achieve that goal they are already partnering with many major retailers across Europe in order to make sure their notebook computers are in many store shelves as possible. HP and IBM are heavily focusing on only one business strategy, following Dell’s model and are forgotten about other channels strategies. Acer is consolidating its position in the notebook market in Europe, the Middle East and Africa with its strong presence in both distributor and retail channels; however it only sold 656,000 desktops in Europe compared to HP’s 2.1 million.
The strategy of “Technological Innovation” that Acer has implemented in recent years also drove it to its No.1 position in Europe in the LCD display market. Acer holds the number spot in market shares in Austria (21.4%), Italy (32%), Switzerland (36.5%) and France (12.9%) and Denmark (18.8%).
We can see that Acer’s global performance was increasing with particular strong positioning in some of their business units. Acer has moved from supplying notebook computers as an OEM company to being a top player as a brand name.
3.0 Assessment of how Acer’s global performance could be enhanced through the use of collaborative based strategies, which are either intra or inter-industry based.
3.1 Acer’s collaboration efforts to date
In its days known as Multitech the company did embark on some joint ventures. The gains at the time were positive as Multitech gained know-how and expanded sales without extra costs like new staff or risks of building more capital.
Acer have effectively gained deals and partnerships with distributors in SE Asia e.g. in Singapore. It is the amalgamation of these small markets that leads to a big advantage for the firm.
It was an aim to gain overseas acquisitions to be able to set up off shore companies.
The decision to acquire Altos, the multi-user Mincom specialist in 1990 worked out as a bad move on Acer’s part as immediately after high powered PC’s that were launched onto the market offered multi-user networking. Therefore it was no longer such a specialist facility that had been acquired, consequently losses were incurred.
A part acquisition was the 19% interest in its Mexican distributor Computec. Furthermore Computec formed a joint venture company responsible for the Latin America area: Acer Computec Latin America (ACLA).
More recently Acer formed a joint venture with Texas instruments in Taiwan. The JV will mean a complete global coverage of the US, Japan, Europe and Asia Pacific. For Acer it implies that there will be a full and definite supply of DRAMS (memory chips) for all its products i.e. PC’s, peripherals etc. Therefore it can better maintain its place in the market with guaranteed supply.
Although Acer owns 74% of the JV stake, both companies will provide staff and management.
3.2 SWOT analysis of Acer’s position
Why does Acer need to collaborate?
3.2.1 Strengths
Frugal and economical
Able to differentiate
Offer high quality products at less-than-premium rate prices
3.2.2 Opportunities
Becoming a global brand, with a local touch
Components and marketing: Possible joint ventures and collaboration
Home computing market
Need to go outside to R&D companies to gain the right kind of innovative design
3.2.3 Weaknesses
Lack of organisational structure and procedure based administration.
Strategic business units (SBU) based in Taiwan too distant to produce the right strategies to appeal to diverse global cultures. They face a problem of remaining competitive on a global level.
3.2.4 Threats
PC firms such as Dell and Packard Bell.
Reduction of product life cycle 6-9 months
3.3 Collaboration options
Acer could prosper from collaborating with another firm within the same or related industry. Collaboration comes in several forms, but not every option is going to suit Acer.
Collaboration is a strategy that can be deployed to reinvent the enterprise as a global firm.
The ever growing need to produce innovative products rapidly, at low prices and still maintain high quality standards, creates extra pressure on electronics manufacturers such as Acer. Therefore the need to shift from a traditional vertically integrated structure to a more horizontal structure has come about.
Good communication and coordinating together would mean better synchronisation along the value chain.
On its own each partner can not achieve all the benefits along the value chain. By working collaboratively i.e. by exchanging information the door can be opened so that both parties can make a saving. Moreover the overall benefits of the process can be optimised.
The overall gains need to be positive for all parties involved, therefore free flow of information and all parties need to be involved in the decision making process.
No longer is technology the sole reason for industry collaboration.
There are possible obstacles facing Acer when collaborating, perhaps their individual capabilities and their internal business processes may not be compatible with potential value chain partners.
When collaborating Mr. Shih needs to ensure to create a collective acceptance of any new structure, as non acceptance by Acer employees will mean lack of implementation of new initiatives, therefore the collaboration will not be as productive as it potentially could be.
A key factor before commencing external collaboration with other partners i.e. distributors, suppliers, is a successful internal collaboration. Acer is required to be internally functioning efficiently through its cross functional processes. Only then will Acer be ready to gain from its partners in the value chain and equally be able to play its part in and add value to the value chain itself.
3.4 Areas of collaboration
3.4.1 Product design: R&D
“Companies are aware that more than 80% of product costs are determined in product design. This explains why collaboration in the “product design” category has the highest average score”. This is one of the issues facing Acer right now, should they collaborate in the research and development sector? This is clearly a need that is not being met as well as it could be internally.
3.4.2 Suppliers
Collaborative suppliers allow for the company to produce an ATP (available to promise statement). This means exactly what it says, that the supply chain is more reliable therefore the firms in the value chain can deliver what they promise to the customers.
The earlier example of the JV with Texas Instruments illustrates that Acer did just that and achieved a guaranteed and reliable supply of memory chips.
Therefore enabling Acer to offer abundant supplies to its customers and remain abreast of other competition entering the market.
3.4.3 Downstream collaboration
This could be done with e-business in particular whereby the customer is quite interactive with the configuration of the product that they order online and the customer is able to track their orders and give their input to product design. Acer’s exclusive marketing contract with Easy soft an E-business infrastructure company has meant that Acer Latin America (ALM) has been able to expand via the Internet and allows customers to be more interactive.
3.4.4 Strategic alliance
A form of strategic alliance would mean Acer being better equipped to compete in the global market “An inter-firm agreement to share resources and competencies on a defined scope and scale internationally or globally, in order to adapt more effectively to external conditions”.
3.4.4 Joint ventures
3.5 Factors to decide if Acer is ready to collaborate
- The collaboration will bring down costs and increase efficiency.
- Acer needs to have a current strategy to take advantage of collaboration opportunities.
- There needs to be specific priorities for opportunities i.e. marketing or R&D etc.
- So far it needs to be decided if Acers efforts in collaboration have just been on specialist areas or do they encompass the overall collaboration strategy.
4.0 Resulting recommended collaborative strategy for Acer
In the aim to create overall business value for Acer and its collaborative partners Acer would benefit from implementing the following strategies:
4.1 Full enterprise collaboration
As the main aim is to reduce overall costs, improve levels of supply and optimum efficiency, while
Spreading financial risks, Acer would be wise to adopt full enterprise collaboration.
To date the mergers, joint ventures and agreements with other firms have been to benefit a specific area of Acers business for example the merger with Sertek (ref. part 2) meant that Acer focused on its product knowledge and also with the Acer TI (ref. part 3) joint venture the focus was on supply of memory chips (DRAMS).
Therefore what is lacking in Acers overall strategy is to bring these competencies together in the value chain, that is to say, marketing, R&D, supply/inventories, manufacturing and finance.
4.2 Acer in SE Asia
The role of China and neighboring countries in SE Asia play an important part in Acer’s future development in terms of manufacturing, supply and export links.
We recommend that Acer continues to invest in China, as it is economical due to economies of scale and also the increasing consumer market.
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Acers internal issues
As a global firm Acer needs to be driven by innovation and change to always keep up with changing demands in the global market place.
The introduction of business opportunities for small and medium firms by forming industry clusters around one or two firms.
Acer needs to deject “me-too” activities i.e. Just focusing on domestic gain for Taiwan and better tolerate failure.
For its employees Acer needs to provide skilled development credit and an environment of learning whereby the employee is empowered i.e. autonomy of decision making.
Aim to target the more traditional industries which require a transformation of IT for them to be more globally marketable and in turn using effective e-learning to develop new skills more economically.
- Acer a global enterprise
On a global level Acer would benefit from aattracting foreign investment in specific industries consequently transferring technology, gaining knowledge and training via incentives schemes.
Overall by following this strategic direction coupled with a desirable global environment with sufficient resources, Acer has the potential to reach that No.1 position on a worldwide level.
WORDS:
References:
-
Taiwan (country scan) ACFAI press.
- http://www.geocities.com
- http://www.economist.com
- Economist Intelligence Unit: “Country Profile”. 2002.
- http://www.emgmkts.com
- http://www.unu.edu
- http://www.calce.umd.edu
- http://wwwtaiwan.com.
- -2002 Acer Annual report -
- http://www.ems-tw.com
- http://www.eetimes.com
- http://global.acer.com
-
- http://www.embeddedstar.com
- http://www.taipeitimes.com
- http://publish.gio.gov.
- Http://www.acer.co.uk
- Module handout: Merger endgames; Industry consolidation and long-term strategy
- Mead, R., 2003. International management, Blackwell Publishing (second edition)
- Acer case study
Appendix I
- Taiwan Year Book 2003-
Appendix II
Appendix III
Appendix V
Appendix VIII
Emerging world cities in Pacific Asia
Edited by
Fu-chen Lo and
Yue-man Yeung
Produced in association with
The Chinese University of Hong Kong
United Nations University Press
TOKYO - NEW YORK - PARIS
Table 6.7 Growth rate of the population, and births and deaths in Taiwan, 1950-1990
Table 6.10 Employment by industry, 1952 and 1990
Source: Council for Economic Planning and Development (CEPD), Taiwan Statistical Data
Book, 1991.
Table 6.11 Shares of employment by industry, 1952-1990 (%)
Table 5.2 Rural-urban migration, 1961-1985 ('000 people)
Source: Korea Institute for Population and Health, Study for Population Movements, 1991, p.14.
Table 5.3 The share of the urban population and the distribution of the industrial labour force, 1920-1990 (%)
Source: Korea Institute for Population and Health, Study for Population Movements, 1991, p. 12.
Appendix IX
Source: DGBAS ( * Projected )
Source: DGBAS
Source: DGBAS and United Nations
Appendix X
Acer Inc. Consolidated September 2003 revenue (NT$)
l Acer Inc. consolidated revenue includes revenues from other companies in which Acer Inc. has 50% or more ownership, and already deducts any revenues between Acer Inc. and these companies to avoid double-counting.
l The exchange rate used to convert NT$ to US$ was 33.75.)
Taiwan country scan- ICFAI press- www.stat.gov.tw
Idem + See Appendix V and Appendix VIII
Taiwan (country scan)ACFAI press.
Globalization and the urban system in Taiwan. H.H.Tsai + See Appendix IV
Idem -The developing economies 362-
Taiwan (country scan) ACFAI press. Adapted from www.business.auc.dk
http://www.unu.edu/unupress/unupbooks/uu11ee/uu11ee0m.htm& Globalization and the urban system in Taiwan. H.H.Tsai
-2002 Annual report- http://66.102.104/serach?q=cache :F6blNjkHcDMJ:global.acer.com/about/investor
http://www.embeddedstar.com/press/content/2002/12/embedded6337.html
http://global.acer.com/about/news.asp?id=6356 + See Appendix X
http://www.taipeitimes.com/News/biz/archives/2003/11/25/2003077225
http://global.acer.com/about/news.asp?id=6431
http://www.taipeitimes.com/News/biz/archives/2003/11/25/2003077225
http://publish.gio.gov.tw/FCJ/past/03121231.html
http://www.taipeitimes.com/News/taiwan/archives/2003/10/21/2003072746
Http://www.acer.co.uk/acereuro/page29.do?inu102.current=1714_1694_1387
International business mgt. Lecture notes
