Acer Inc: Taiwan’s Rampaging Dragon

Economic Foundations of Strategy – BMGT43470

Group 1

Tien Nguyen - 16202409

Junxiao Lin - 16202336

Bingjie Hao - 16202335

Hui Wang – 16202334

 I confirm that I have actively participated in the construction of this paper report. This
case report is based upon the independent analysis of the below signed members of the
group, except where clearly and specifically referenced as otherwise.

Signature

Tien Nguyen Junxiao Lin Bingjie Hao Wang Hui

Acer is a world-leading Taiwanese company founded in 1976 under the name

Multitech, and then changed its name to Acer in 1987. The company has its headquarter
in the city of Taipei, Taiwan where it owns the largest franchised computer retail chain.

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Acer offers a wide range of products including desktop and mobile personal computer,
server and data storage. In 2000, Acer directed business to focus on technology
development and user-friendly computing. In 2009, Acer becomes the second largest
computer manufacturer in the world behind HP. Acer has been employing 8000 people
in more than 100 countries.

Stan Shih is the co-founder, chairman and the most remarkable figure of Acer
Incorporation. He with his wife and three friends founded the company in 1976.

Leonard Liu has spent 40 years in the information technology system industry, with a
history of developing innovative computing technologies into successful businesses. He
has played key roles in the development of PC, enterprise software and semiconductor
industries.

Strategy highlights

Stan Shih came up with a principle referred to “Acer 1-2-3”, which means customers
came first, employees second, shareholders third. Stan Shih created “think and learn”
culture, which is mainly about developing a strong teaching relationship between
managers and subordinates. “Commoner’s culture” was also raised by Shih. He
encouraged Acer to join other “commoners” - mass-market customers, local distributors,
owner-employees, small investors and supplier-partners.

In 1992, in order to link the company more closely to its national market, Stan Shih
articulated his vision of “global brand, local touch”.

Client sever organization model was generally about organizing the company as a
network, in which business units could leverage their own ideas or initiatives directly
through other RBUs or SBUs without having to go through the corporate center.

Fast food business concept refers to air shipping small, expensive components with
fast-changing technology that represented 50%-80% of total cost from SBU sources in
Taiwan to RBUs in key markets.

For the purpose of understand clearly and deeply the current strategic situation of
Acer and then suggest a scientifically appropriate recommendations, we decide to
conduct some analysis in order to comprehend the (1) industry and (2) Acer internal
resources and capabilities.

Five Forces Analysis

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 Internal Rivalry factor is low. The internal rivalry was low in 1990s, it’s hard for the
current companies in the industry to heat up a price competition. Firstly, there were not
many sellers in the market, but the whole industry was rising, and brought in numerous
customers. Firms did not need to compete much for customers. Secondly, the products
from different companies were differentiated, reducing price possibly cause no effect on
the market share. However, low-cost firms may also reason that if they cut prices their
high-cost rivals may exit, but the fact was the price of PC at that time could not be
adjusted quickly.

Entry factor is Low. It is quite hard for a new company to enter this industry. As a
high-new-technology industry, it needed plenty of resources to start and the government
also had some extra supports to current companies. The PC industry had a steep
experience curve, it put entrants at a cost disadvantage. At the same time the network
externalities gives an advantage to incumbents with a large installed base. Especially, the
consumers always showed the loyalty of the existing brand, it was hard to change their
preferences. So, to new companies it was quite difficult to enter.

Substitute and complementary products play an important role. At the early

1990s, there were few substitutes. And the substitute like minicomputer, its sale declined
quickly. Therefore, substitutes hardly threaten the incumbents in the industry. But it
would be growing because of the rise of smart phones and tablets. Equally, the
complementary products were not too many at that time with just some CDs or games,
but nowadays people almost cannot live without personal computers. In summary, the
complementary products were low but it would grow in the future.

Supplier power is then medium. The supplier power is medium. Although, the
suppliers were concentrated but in PC industry suppliers and firms were in win-win
situation. So, the suppliers would not destroy their target market. But under that
circumstance stood a good chance to have vertical integration.

Buyer power is low but growing. In the competitive market the buyer power is an
indirect power because of the high demand and few substitutes, it was hard for
costumers to get profits from sellers. However, because of the development of PC
market and many substitutes like tablets and smart phones appear later, the buyer power
would grow.

In summary, the industry was attractive and beneficial for incumbents but will be less

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attractive in the future. For outsiders, it was quite difficult to get into the PC industry.

SWOT analysis

Strengths

Acer luckily owns a dedicated entrepreneurial leader – Stan Shih. As the co-
founder of Acer, he has a long-term perspective of the market, which, along with his
guidance, helps Acer to gain a clear and consistent strategy through its development.
At the same time, he shows an example of how to split the power, which is very
important for a global company. Along with its long establishing and thriving in
Taiwan and other parts of the world, Acer has gained a recognized brand. As a
technological corporation, new technology and products are the core
competitiveness. And Acer always stands among the first group, focusing on R&D,
for instance: Micro-professor, and 32-bit PC. With the commoner’s culture Acer kept
low cost advantage. Especially the labor cost, Acer establish its factory in China
which is one of the cheapest labor market in the world.

Weaknesses

Around 1985, Acer expanded rapidly and they urgently need some senior
managers so Shih brought in about a dozen top-level executives and 100 middle
managers. But these “paratroopers” did not successfully accomplish their jobs,
including Liu. The lack of effective senior managers became a big problem to Acer
till 1994. As a Taiwanese company, Acer is a newcomer to American market. It had
little experience about the expansion of overseas markets. The company culture and
international business conflicts means the culture of Acer seems to be inappropriate
for any market all around the world. Acer lost money till 1994, and as a PC
company, the financial problem brought lots of trouble: the shortage of research and
development fund.

Opportunities:

The PC market was growing quickly at that time. More and more demand on PC
are excavated. And Acer is one of the pioneer of the PC market. Markets around the
world are getting closer. Acer had more choices and opportunities to spread its
business. Furthermore, China owns one of the lowest labor force. Acer sets the
factories in China to get more cost advantage.

Threats

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 In the closing years of the 1980s, Dell established its direct sales model, led to
dramatic PC price reductions. The effective direct sales strategy from Dell pushed
Acer to concentrate on marketing. The market is dominated by 4 companies (45% in
US market and 30% globally): Compaq; Apple; Packard Bell; IBM. It is hard for
Acer to fight for more market share. Better designed products are about to launch.
The PC industry changed from technology-base to technology-appearance. Better
designed products, like Apple’s, attracted more customers.

Questions

Stan Shih’s strategy is a well-formed consistent strategy which reflects his theory of
gaining competitive advantage by using a global brand but letting regional business units
freely capture market opportunities, along with the effective and “fast-food” support
from the whole organization. His generic strategy can generally be described cost
advantage. “Promoting microprocessors” is not a real strategy because it is neither a
consistent nor long-term theory to gain competitive advantage.

On a scale of 1 to 10, where 1 is the worst and 10 is the best, we will rate Stan Shih
8 over 10 since he is not only dedicated, and patient but also open-minded and
influenced. Although he made some inappropriate management decisions when he
trusted his staff too much, he managed to correct the mistakes and efficiently come up
with a valuable strategy for the whole company.

We will rate Leonard Liu 6 over 10 as he managed to bring an world-class

professional way of management to Acer. That really created a foundation for the
company to form its own strategic activities. But he made many mistakes with his iron-
fisted management that caused Acer’s both financial and directional loss.

Recommendations

About the operation, Acer should produce low-variable-cost products like

keyboards, scanners, CD-ROM… at high volume to exploit economies of scale. Also
they need to apply different producing strategies by considering the labor cost, making
automatic factory for assembly in US and other European countries, and using real
workers to create product parts in Asian area like China which has low cost for labor.
We suggest Acer to produce different products based on similar technology to exploit
economies of scope.

About marketing, we suggest Acer to use different marketing strategies in Asian

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market by focusing on low-cost products and gaining more market share in America by
launching many range of products from low-cost to high-quality and focus in some
niche markets. They also need to build up the brand awareness to gain more end users
and possibly create their own fan community both in and out of Taiwan. With diversified
product lines, Acer can exploit the umbrella branding with related products by using
economies of scope. Their way of conducting marketing focuses on mass community by
giving customers deals like student discount or loyalty program. They should open
experience store in order to attract customer to get familiar with all products and then
win potential customers.

In research & development (R&D), Acer should prioritize the research activities as
this will push their abilities to capture the trendy technology, especially designing, user
experience, user interface, etc. They also should give users a better impression. It is a
good idea to exchange staff temporarily to exploit the learning curve. The R&D team
needs to work closely to RBUs to understand the market.

In human resource, it is urgent for Acer to build new effective recruitment policy.
Besides, they need to invest more in training for current human resource to have more
suitable upcoming managers in the future.

About Aspire, Acer should keep on spreading in the U.S. to exploit the positive sign
in the market and capture more market share. Developing new model based on current
technology to exploit new segments like computer games to attract more customer is
also a very sustainable idea. Plus, they should produce and launch cheaper series in
China with high volume.

In conclusion, technology industry is not only a lucrative but also a highly

competitive industry. Although Acer has been adapting itself well to the industry, the
battle with other competitors still is very tough and unpredictable. With suitable
activities, Aspire can become Acer’s rising star and then urge other strategic factors to
effectively form and contribute smoothly to the main strategy./.

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