THE ACER GROUP’S CHINA MANUFACTURING DECISION Harvard Case Solution & Analysis

THE ACER GROUP’S CHINA MANUFACTURING DECISION Case Study Solution

Introduction

Acer is a Taiwan-based company which manufactures computer components, laptops, and PCs.Earlier it was selling electronic parts but with the passage of time, Acer successfully managed to became a global PC manufacturer. It is the third largest PC manufacturer in the world.In theFY 1997, the company sold 6 million PCs and 4 million monitors and reported sales of $6.5 billion with net income of $89 billion. Under the leadership of Stan Shih, company’s vision was to turn itself in to a global company with a “local touch”. The way to attain “Local Touch” is through global expansion of its manufacturing operations, product adaptation that suits to the needs of the consumer and flexibility to react to the market changes. In addition to increase its manufacturing plants in different countries of the world, company’s global strategy is to shift the assembly of computers from Taiwan to other parts of the world where PCs would be distributed. This distribution model is called as “Fast Food”. It would ensure faster reach of supplies, reduced inventory and quickly respond to the market changes.

The main target market of Acer is the emerging countries as its strategy is to capture the market share of small regions and slowly and gradually strengthen its position in larger market places. This concept is taken from “Go Game” of China in which players try to capture the surrounding areas of larger cities and after capturing those small areas, players attempt to attack larger cities. This strategy is called as “Go game Strategy”. Acer captured large markets of Japan and the US by dominating in smaller markets of third world countries.

This case explains the importance of defining the optimal solution to start the manufacturing setup in China. China is the fastest growing economy in the world and this market will give a competitive edge to Acer and will also help the company to sustain its revenues.

Pestle China

Political Factor

China’s political system helps the country to boost its economy. It has the strong policy for investors to invest in various sectors and the government is also supporting the companies, in terms of fewer taxes and other benefits. The government has a strong commitment to businesses that will help them to increase production. (Adamkasi, 2015)

Economic Factors

China’s economy has achieved excellent growth during the past five years. China’s excellent rate of savings, abundant number of skilled workers and its large exports help it to boost its economy. In China, the rapid growth of urban areas has significant impact on the special economic zones. Companies are starting their manufacturing plants in China because of cheaper labor cost.

Social Factors

Social factors include population growth rate, lifestyle, religion, and education. The literacy rate of China is over 80%.China promotes education by providing various scholarships at primary and secondary level. In China, there are 400 million internet users and people often shop online.

Technological Factors

Technological factors also contribute in the manufacturing of new products and in the distribution system. China does not have safe online payment system and because of that buyers face problems regarding online payment. A credit card is used across the globe as a fast and effective online payment system but Chinese markets have low credit card penetration.

Environmental factors

In China, people have awareness regarding the environmental protection. Technological advancements in a country make everything speedy and easy.Less number of vehicles are used for environment protection for less emission of pollution in the air.

Problem statement

The company can face several problems in China regarding the difference in culture, political issues relating to unstable relationship between the countries and risk imposed on investment decisions.

Vice President, M.Y Lin is focusing on targeting the smaller market for some period of time and when there will be a stable relationship between the two countries then his company will enter into the Chinese market. But the situation is not good as Chinese businesses will never allow other company to come in China and capture the market share. Therefore, all the problems clearly specify that company should focus on external issues rather than internal issues.

Situation Analysis

M.Y Lin company’s vice president said that setting manufacturing plant in China is the part of the company’s global strategy. M.Y Lin was familiar with the Chinese culture and market and it is one of the reasons for establishing the manufacturing plant in China. The company sees China as an opportunity to get the competitive edge and expand its operations with either a new product line or existing one.Moreover, there are mainly four issues for the company to face while entering into China.Whether implementing the plan of entering into China would bring more benefits than choosing other emerging countries in the world in which company might find more opportunities.

THE ACER GROUP’S CHINA MANUFACTURING DECISION Harvard Case Solution & Analysis

 

 

Culture and political background

A major problem for Acer is China’s political situation and unstable relations with Taiwan as China claimed that Taiwan is the part of their country but Taiwan denied that claim. Additionally, the company cannot transport goods from China to Taiwan as it is prohibited by the Government of Taiwan and the government has also prohibited domestic firms to invest in China. However, investing in China will give greater benefits to the company in terms of market reach and transportation. The company has to forecast whether the political instability would improve or stay unchanged. Additionally, if any variations in the political situation or business policies in the country are expected,the company should wait to take the full advantage of entering into China.If no changes are expected the company should start as soon as it can, because the sooner the company enters in this market the sooner it will be able to capture the market share.

On the other hand,president of Taiwan wanted independent relationship with the United States of America and the US also showed support for Taiwan independence. (Li, 1996)That demanded relationship from the government worsened the relationship between China and India. In 1990s, the situation became even worse when China threatened Taiwan to take hostile measure if it did not stop the independence movement. After this dispute between China and Taiwan any favorable policy welcoming a business relationship cannot be anticipated.However,Taiwanese companies can demand economic benefits of Taiwan while investing in China.The Taiwan government after considering the benefits for its country may then allow the domestic companies to invest in the mainland..................

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