Multitech international

Introduction:

Founding:

Stan Shih, along with others, founded a company named Multitech International in 1976 with $25,000 and 11 employees (Acer Group, 2009). The intention was to contribute to society through the sharing of knowledge and they played a significant role in popularising the role of computers in Taiwan. During the same year they established a manufacturing facility in Taiwan.

Renamed Acer:

Multitech was formally renamed Acer in 1987 and became a public company in 1988. Shih was instrumental in guiding the company through many restructurings, and retired in 2005.

The current management:

Acer is now led by J.T. Wang (CEO and Chairman) and Gianfranco Lanci (President) and comprises a family of four brands: Acer, Packard Bell, Gateway and eMachines. Acer is also among the top three companies for total PC shipments, and is second in notebooks. In 2008, Acer had 6,000 employees working for them in over 100 countries worldwide and consolidated revenue of 16.65 billion US Dollars which represents an 18% annual growth (Acer Group).

Growth to a global marketing company:

Over the years Acer Inc. has grown from a local manufacturing company in Taiwan to a global marketing company with a multi brand strategy. Although Acer started out as a manufacturing company in 1997 and had production facilities in several countries, it is now focused more on brand marketing, as it sees little value in manufacturing. Within the computer market, Acer has executed a well developed diversification strategy which has helped it expand into related markets. In a relatively short period, Acer has developed from a small company into an international organisation. Acer has moved towards achieving its corporate objectives through a series of well executed strategic acquisitions. In 2007 and 2008 Acer completed the merger of Gateway Inc., Packard Bell Inc. and E-Ten InfoSystems Co. Ltd. To stimulate growth further Acer moved into a related mobile phone market in 2009, introducing their Tempo line of smart phones - operating with Windows Mobile (Whitney, 2009).

Acer - a successful international organisation:

Acer disintegrated vertically, outsourced its lucrative contract manufacturing and focused mainly on brand marketing. In doing so, Acer moved up the value chain but still rely extensively on partners and suppliers to deliver quality products. The success of Acer's strategy was due to the implementation of the Channel Business Model; initiated and executed by Wang and his management team. According to this model, partners and suppliers were encouraged to participate with Acer in creating an efficient and lean supply chain. This has propelled Acer into a successful international organisation and provided customers with competitive pricing, fresh technologies and quality service (Acer Group).

The international, regional and industrial environment in which Acer operates

Acer mainly manufactures computers and related accessories such as: laptops, desktops, LCD monitors, projectors, storage devices and mobile phones. The Taiwanese company, Acer, markets these products under four brand names; Acer, Gateway, eMachines and Packard Bell (Acer Inc - SWOT Analysis, n. d). This is an important aspect of Acer's brand strategy.

Currently the computer industry is highly competitive. The recent economic crisis has slowed sales in a market that was already saturated. The Computer industry has been one of the worst affected markets. Despite the current economic climate, Acer has maintained their position as one of the most successful computer company in the world. In October 2009, Acer achieved second place globally. Acer is currently third in the Latin American market, fourth in the Asian market, ninth in the United States market and Acer has been ranked number one in more than 10 other countries (Liu, n. d, p.142).

Acer is not without its problems though; the current global financial crisis has affected the business of Acer in North America. While market shares in Europe continue to expand, the market shares listed in North America have been falling over the last few years (The History of Acer, 2009). At the same time the business of Acer in the Asian region has increased. The recession has caused comparatively less economic damage to countries like India and China.

International and global strategy: is Acer a global firm? HOW/ WHY?

A global firm is an organization which has multinational branches across the world. Global firms can apply a global or localized strategy. Acer operates in more than 100 countries and employs around 40,000 people worldwide, confirming it is a global firm. Acer has a part global environmental strategy which is applied to the whole organisation internationally and a part localised assembly strategy.

Acer, at present has 12 factories and 39 assembly centres operating in different countries. Acer sold around 7.5 million personal computers in 1998. Acer has an excellent global sales network with over 200 agents and more than 10,000 retail locations worldwide (Liu, n. d, p.142). It is operating in majority of the regions and actively participating in global business and social matters.

Acer is a socially committed organization which has engaged in a conscious effort to make environment friendly products. This environmental strategy was developed by the management and is implemented in all parts of the company globally. Acer gives guidelines to all employees - associates, franchisees and suppliers, on preserving the environment. Since the establishment of the Acer factory in 1981, it has tried hard to eliminate the environmental pollution caused by their factory. Polluting chemicals, such as CFC cleaners, have been completely eliminated from Acer circuit board production.

Market Structure:

A common market:

In the computer industry, the value chain typically involves: research, design, manufacturing, sales/marketing and after sales service. Acer now focuses purely on the sales and marketing part of the value chain.

Oligopoly:

An oligopoly market structure is characterised by fewer organisations competing in a common market that is mature and where growth in sales is slow. Other typical characteristics of this market structure are high entry barriers, differentiation and ability to set price.

The market in which Acer operates can be termed as an oligopoly market because a relatively small number of sellers dominate the market. HP, Dell and Acer are sensitive to the pricing of their products relative to each other and use marketing strategies to differentiate themselves from each other. These companies apply a low cost strategy, combining relatively lower prices with some form of added value. While developing marketing strategies Acer takes into account possible responses from HP and Dell. For example, when Acer entered the Netbook market segment faster than Dell and HP, it seized large chunks of the market share by introducing simple computing devices for as low as $300 (Einhorn, 2009). Moreover, Acer used its lean supply chain to its advantage by introducing laptops that are cheaper than the competition, which created new challenges to its competitors who were unable to match these prices.

Competitors and the degree of rivalry.

The computer industry has undergone massive global expansion over the last ten years which has aided the internationalisation of companies like Acer. Computers have reached the maturity stage in their product lifecycle which has produced an environment where there is great competitive rivalry. There are now many companies similar to Acer such as: Toshiba, Sony, Panasonic, Dell and many more. Due to the standardisation of computers, companies sell similar products making differentiation within the market difficult. Companies have had to be innovative to maintain customer interest which has been achieved by constant technical innovations. This has meant whilst production costs may have decreased, research and development costs have soared.

Although this has been costly for existing companies is has the advantage of reducing new entrants to the market. Companies, such as Acer, control a huge market segment through brand loyalty which reduces the ability of new entrants as they would find it difficult to match the large scale of these companies. Existing companies have large resources of experience and knowledge. For new entrants this would be difficult and very expensive to match. New companies would struggle to achieve the economies of scale required to maintain the constant costs needed for research and development.

The threat of new entrants is also reduced by the strong power of suppliers and buyers. The computer products currently produced are relatively standardised which has meant maintaining customer loyalty is difficult. The risk and cost to customers of switching to another provider is relatively low. This reduces prices of products and therefore minimises profitability. This is expanded further by the strong supplier power. The expectation from buyers of complementary products, such as Windows 7, fuels this strong supplier power. The increasing power of multidimensional distribution companies, such as Tescos, Currys, Argos, John Lewis, Asda/Wall Mart and PC World, has also increased problems of competitive pricing.

Acers value chain and vertical boundaries:

The value chain:

In the PC industry, the value chain typically involves research, design, manufacturing, sales/marketing and after-sale service. Acer started out as a manufacturing company and in 1997 had production facilities in several countries (besides Taiwan) and was originally one of the few computer companies that had manufacturing capabilities to produce complete product lines (Tsai and Cheng, 2006).

Recently Acer has tried to separate its Original Design Manufacturing (ODM) business from brand marketing in an attempt to move up the value chain. Acer decided that manufacturing had little value compared to R&D and brand marketing. From 2000 onwards, Acer shifted from a purely manufacturing company to a company that focuses mainly on brand marketing. Implementing this supply chain strategy essentially meant vertical disintegration causing Acer to outsource the manufacturing contract to other manufacturers.

The supply chain:

Due to the outsourcing of manufacturing explained previously the Acer depends heavily on the performance of its supply chain (SOMO 2009). Acer has attempted to resolve these issues by creating extended corporate policies to improve supply chain responsibility. Acer now owns significant portions of companies within their supply chain to enforce improvements throughout the chain. For instance in 2005, Acer had a 32.5% stake in Wistron Corp, which owned Wistron Infocomm located in the Philippines. The aim of this venture was to allow Acer greater input into processes and working environments. This has also dramatically reduced communication costs between the companies and allowed cheaper manufacturing.

Although success has occurred in reducing costs the company has created problems of ethical work practises. Slob (2005), who conducted a research for SOMO, found that 30% of employees in Wistron Infocomm work 72 hours per week and women have to work overnight which is against the Philippine Labour Code. These practices must be monitored or Acer might risk damaging its brand name in countries where these practices are not acceptable.

Mergers Acquisitions and Joint ventures

Acer is utilizing merger and acquisition strategies to gain a greater market share, increase its economies of scale and expand into new demographic and geographic markets across the globe.

In 2007, Acer announced plans to acquire its US rivals Gateway Inc. By 2008 they also had acquired more than 75% shares of Packard Bell. The two brands, Gateway and Pakard Bell are part of Acers strategy to penetrate into the American market.

Acer started to use Linux as the operating system for notebooks and laptops from 2008 onwards. This aimed to promote the free Linux software and to help minimize the cost of laptops.

The Far Eastern Economic Review rated Acer as the Number One in Taiwan's leading enterprise, three years running. Apart from that, in 2000, Acer received Reader's Digest recognition as the "Super Brand" in the computer category for the 2nd consecutive year. Acer's motto is to give fresh technology to everyone, everywhere (Liu, n. d, p.142). The use of a multi brand strategy allows Acer to access a larger number of people and this method has been successful in the last few years, generating a large amount of revenue which can be put back into further research and development costs (Acer group).

Diversification

Acer is a diverse company producing a broad spectrum of branded IT products, e-business solutions and services. Acer is one of the biggest suppliers of multi brand IT products including components and software in China. At present, it employs 13,400 people supporting dealers and outlets in 130 countries around the globe. Its founder and chairman Stan Shih designed and created the first desk top calculator in Taiwan. This was the first of many successful products including the Dragon Chinese-language terminal and an Apple clone that became the company's first IBM compatible PC. Since then, the Acer franchise has become Taiwan's first and largest computer retail chain. As the firm continues to diversify, it has expanded into consumer electronics. The introduction of new inexpensive videodisc players, video telephones, and other devices aimed at boosting its global market share.

Acer is composed of several companies mostly acquired through ventures or mergers and several companies bought by stockholders. Its first joint venture was with Texas instruments which are commercially known as TI - Texas aimed to design and develop memory chips in Taiwan. Later on, Acer bought Texas Instruments' notebook computer business. It is an action the catapulted the company to lead the IT industry market. The acquisition of TI-Texas paved the way for Acer to commence information appliances with products that enabled the playing of CD-ROM's via TV sets and other innovative task related functions.

The Growth of Acer has not been entirely smooth. The introduction of cheap personal computers from many rival companies shook market performance and Acer had to cut jobs in the US, finally withdrawing from the US retail market. Shifting its focus, the company began to provide online software, hardware and support for users, launching a digital service business. Acer developed strategies for more ventures and mergers to expand in the area of internet start-ups.

Acer suffered a tremendous financial blow when its large customer, IBM cancelled orders for desk top computers. The cancellation brought a temporary halt to the PC market that precipitated Acer's huge financial downturn. Eventually, the company had to cut jobs in the US and Germany and close numerous plants worldwide.

As part of Acer's strategy to get back to the IT industry and regain its hold of the market, the company sold off its contract manufacturing and peripheral units then changed its name to Wistron and BenQ respectively. Acer also to merged with its distribution unit and carried the name Acer Sertek. Retaining the Acer name is a technique that the company employs to maintain its stronger brand's market competition.

Acer still possesses huge assets and capital resources and even if it merges with Wistron and Sertek, the company's name remains. When the company's founder became a member of the board of directors of Wistron Acer, Incorporated, J.T. Wang became Acer's CEO that gave birth to Acer Incorporated (AI).

Acer Incorporated continued the same platform of developing, manufacturing, and distribution of IT products. For the purpose of integrating resources, expanding business scale, and building up efficiency and competitiveness, Acer-Sertek Incorporated (ASI) was merged with AI. The merging of ASI and AI revoked the cross-holdings between two companies whereby it was resolved that AI is substantially the economic acquirer and ASI the acquired.

It can be seen from the history above that AI has been a constantly diverse company. The diversification has been achieved through the constant merging and acquiring of other companies. This method of acquiring new recourses and assets has been highly successful for Acer. It has enabled the company to expand their product ranges into new but related areas.

The HRM and Labour issue in Acer:

According to the Acer Group Labour department, it could split into two main parts: manufacturing workers and office employees. The following section focuses on these two sections and describes their current situation.

Human resource developing (HRD)

Acer has spent time searching for the best HRM strategies to fit their organization and this has not been without mistakes. Acer realised that they had to work hard to improve their HR quality to compete with other big IT company like IBM, HP and Sony. Acer has implemented changes in team structure, reorganising people into small teams with specific unit tasks such as research and development, manufacturing, marketing etc. Each team then collaborates to share information and new innovations. This has improved efficiency of the company and has enabled each unit to be more innovative.

Acer implemented a learning approach for their HR developing since 2000. In an interview with ZDNet Taiwan Group General Manager (1999), Wang stated that "Acer allows employees to make mistakes," (Magasaysay, 1999). Acer management viewed that acceptable mistakes would improve the ability of employees to solve the problems, a skill which could be valuable in the future. This method is highly suitable for the computer industry where employees need to be highly innovative. A flexible working environment allows employees to develop new ideas in a creative and healthy way.

Reward and motivation

Acer has tried to encourage employees to buy a small share in the company. By encouraging employees to be shareholders in the company, Acer believed there would be increased motivation in the work place. Acer's strategy for motivation should prove effective, according to the Maslow's hierarchy of need (1943), employees would have an increase in self-actualization. Employees would share the successful happiness of Acer by their hard work and also an increase their income.

Labour issues

Acer has developed large manufacturing facilities for individual components. These components are sent to smaller assembly sites situated close to the customer. This allows products to be produced quickly and cheaply by creating economies of scale. Shipping costs are reduced as products are already near to customers once assembled (Sahai 2000).

Acer has recently (2005) started outsourcing the production of components to less developed countries like the Philippines. In these countries the cost of labour is significantly low. Computer companies have high costs for materials and hardware and with the necessity for low selling prices, Acer have chosen to reduce costs by reducing labour costs (Slob 2005). Whilst this has been a success for Acer, this process may not be viewed ethically in some countries and this may need reviewing in the future.

Conclusion

Acer is a diverse company with an interesting brand strategy. This strategy is currently sustainable and should enable Acer to continue to grow as a company, provided that their brand image remains positive. It is recommended that Acer continue to promote their environmental policies and review the ethical practices of their suppliers. With the recently acquired new brand labels it may be possible for Acer to diversify into new product ranges based upon their core competence - technological innovation.

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