Advantages and Disadvantages of Taiwan as the Home Base for a Future Global Giant in the PC Industry - Assignment Example

Business Strategy Section A: Strategic challenges confronting Stan Shih as the new Chief Executive Officer Contempt between New and Veteran Employees After operating for the first few years, Shih felt that the company needed new employees who could propagate the company’s culture as well as bring new insights and perspectives. In reality, this was a necessity as Acer was growing fast, and it could no longer rely on the workforce it started with to support all its operations. The company needed new and dynamic personalities with whom it could facilitate future growth (Engel 2014: 36). However, this view was not shared by veteran employees who had been with the company since its founding. They felt that the new employees were opportunistic and foreign. In short, they did not deserve to work for Acer since they did not understand its ethos as much as the veterans did. Shih was confronted by the challenge of reconciling the two camps so as to move the company forward (Chen, Kraemer & Gathii 2011: 3587). Acer could not continue relying on a small and extremely localised workforce to further its global ambitions. It had to hire foreign experts to give it a more global feel and to enhance its image abroad. In this context, the recommendations provided in the case helped Shih to eliminate negativity among existing employees and successfully integrate the two groups for the benefit of the company. Differences between Shih’s Frugal Policy and Altos’ lavish spending Altos’ spending policy was incompatible with Acer’s new cost leadership strategy. The company wanted to create a low-cost policy from which it would derive competitive advantage. However, Altos was hindering this objective by adopting financial measures that led to the firm incurring higher expenses than it should have (Jalilvand & Malliaris 2013: 25). Eventually, the company had to lay off more than 300 workers to prevent the failure of its cost leadership model. This conflict and its eventual outcome are typical of the business challenges faced by most corporations. The module shows that such differences are part of the enterprise life cycle, and the long-term success of any enterprise depends on how well it manages them (Cooke, Searle & OConnor 2014: 35). The module shows that, just like most businesses, Acer reached a stage where it had to deal with change. The “old ways” that were characterised by uncontrolled spending were no longer suited to its long-term ambitions. In such situations, there are always winners and loser depending on the perspectives of each faction (Kaynak, Mockler & Dologite 2014: 46). In this case, Liu and Shih opted to sacrifice 300 workers in the interests of the company. It is apparent that this strategy worked because Acer’s current success is based on cost leadership and highly efficient production. Difficulties in creating product specifications suited to the various global demands that are relayed to the strategic business units (SBUs) by the regional business units (RBUs) As stated in the case, AAC and other regional business units were worried that SBUs based in Taiwan were too detached to come up with product designs that would meet the needs of the global market without compromising those of the local market. Shih was keen on implementing a glocalised approach that would involve Acer operating on a global scale but maintaining a connection with its local divisions (Ghoshal & Bartlett 2000: 135). This was very important because Acer was a local venture and the status of the Taiwanese electronics industry at that time meant that the company carried the hopes and expectations of the Taiwanese government and people. The SBUs created by Shih lacked a clear focus on either the local or global markets. The RBUs, on the other hand, concentrated on the local market and were not convinced by the SBUs’ ability to meet global demands. The solution developed by Shih is based on the information provided in the modules, which suggests that SBUs can facilitate the satisfaction of both local and global needs but require a clear strategic direction to achieve this (Hill, Jones & Schilling 2014:16). For example, the SBUs in Taiwan can be tailored for product design, manufacturing and design. However, in foreign markets like Europe, the same SBUs can create joint ventures with local producers to attain flexibility and save huge start-up costs. Marketing challenges created by the Aspire project Previously, Acer had been marketing products via third-party vendors because it still lacked the capacity to conduct direct marketing. However, the Aspire project required that the company serve its customers directly; this was a new territory that Shih had yet to venture into (Perkins & Muondo 2013: 38). Apart from this, the RBUs’ resource capacity was limited to an extent that they could not fund and develop the idea to deliver the end product. Worse still, the RBUs were also gaining autonomy, meaning each of them could develop the same product. This would have denied Acer the opportunity to develop the economies of scale it desperately needed, especially on the international market (Phillips & Gully 2013:47). The module shows that in such cases, it is best for the company to focus on globalising the product while building the capacity of its local operations. In this case, the Aspire project represented Acer’s best chance of achieving global recognition, and this was practically impossible without economies of scale. As a result, Shih could not allow RBUs to further the project independently, or it would compromise its cost leadership model and come up short against foreign rivals that enjoyed government subsidies and highly liberal economic policies (Samson & Daft 2014: 17). Based on the modules, the approach eventually adopted by Shih was the most feasible at that time and, ultimately, proved to be the right choice. Between 1990 and 1993, the company’s RBU AAC was a huge hindrance to its profitability In the case, it is stated that even in 1994 when AAC returned profits of $15 million, it contributed a meagre 5% to Acer’s total profits. When it is considered that the aforementioned profits were based on OEM sales that had accounted for half of the revenue, this was a worrying development for Shih. The insinuation was that Acer was unable to implement its global blueprint, and Shih needed to stem the tide before its American adventure became a failure (Sitkin & Bowen 2013:61). Using the module, it would be safe to recommend that considering the sensitive financial position of Acer’s American division, the company could not stake its long-term success on very costly and competitive branded PC and PC-related products. It was better for it to focus on its main brands and build on them to establish itself globally and balance its local presence with its foreign presence. It is commendable, however, that Shih viewed the American market as a key market and concentrated the company’s efforts on penetrating it before moving on to other lucrative markets like Europe and Latin America. Using the lessons from the module, it would have also been strategic for Shih to consider the impacts of a new project on the company’s marketing function (St. George & Bartlett 2001:504). Unlike the other strategic challenges, which could be attributed to inevitabilities of the product/enterprise life cycle, this was largely the result of a narrow view of the marketing component. A more holistic and flexible approach to this aspect of the company is integral to Acer avoiding similar situations in the future. Section B Question 1: Advantages and disadvantages of Taiwan as the home base for a future Global giant in the personal computers Industry In the past forty years, the Taiwanese electronics industry has experienced rapid growth that has enabled it to compete directly with its rivals in the United States (Dell, Apple) and South Korea (LG, Samsung). Taiwan is an example of the growth opportunities that can be created in the presence of sound policies and government support. In the PC market, Taiwan has demonstrated that it can produce and export in sufficient volumes to cater for both local and foreign markets (Hoesel 2013: 59). However, what matters most is that the country’s PC industry has graduated from labor-intensive peripheral devices like keyboards, scanners, computer mice, and speakers, and is currently a leading manufacturer of motherboards, portable PCs, displays, and various cards. This section will discuss the advantages and disadvantages of Taiwan as the home base for a future global giant in the personal computers industry. Advantages Taiwanese PC firms have maintained their position as major low-cost, original equipment manufacturing (OEM) producers; this is in spite of the huge increase in the cost of local land and labor. This has been facilitated by two tactical decisions taken and supported by both local enterprises and the government. The first involves a resolution to focus on cloning known PC designs while the second was to engage promptly in the rapid up-scaling of foreign manufacturing in China as well as ASEAN (Association of South East Asian Nations) countries with low cost of labor (Hoesel 2013: 73). Consequently, with respect to cost, Taiwanese PC manufacturers generally outrival their South Korean competitors who have been largely reliant on automating their local assembly lines. In this regard, the South Korean strategy has two huge weaknesses. First, it still depends on market share growth via exports when both Europe and the United States have tightened import restrictions. Secondly, it hinders rapid adjustment to evolving industry demands. In Taiwan, the PC industry and manufacturers are highly sensitive to market demands and technological advancement. By combining greater innovation with an admirably fast speed-to-market, the industry has established a formidable global market position comparatively early in the manufacturing cycle. For example, for years, Taiwanese PC firms have stockpiled design cells for integrated circuits (ICs). In the process, they can now produce new designs in the shortest of times (Hoesel 2013: 18). Within the industry, motherboards can be replaced in between two to three weeks, much faster compared to the most efficient US firms. The genesis of this incredible flexibility is the specific structure of the local supply base, particularly for components, spares, and parts. Flexibility and speed are created by two important aspects of Taiwan’s local supply base (Cooke, Searle & OConnor 2014: 48). The first is a concentration on diverse, volatile and temporary associations that require limited technology and financial transfers. Temporary spot-market relationships and “spider web” transactions (associations that are developed to last for the duration of a specific endeavour) play a crucial role. For example, individual Taiwanese companies can bid for tenders that supersede their capacities and then partner with other firms to fulfil them (Hitt, Ireland & Hoskisson 2014: 31). Secondly, the market is extremely specialised. By focusing on individual processes and manufacturing, buying, and selling in small quantities, subcontractors are not affected by prohibitive fixed capital cost obligations. Consequently, specialisation is relatively more convenient, cheaper, and faster, to shift. When a supplier wins a tender, it collaborates with other firms, usually competitors, to assist in filling the order. The objective is to create more job opportunities to make up for the slim profit margins that can be enjoyed per order, with the result that every manufacturer tries to prevent being limited to a specific production network (Hoesel 2013: 85). In conclusion, Taiwan’s PC industry is very flexible and sensitive to rapid change, but temporary and centrifugal. As a result, it embodies an extreme version of volatile and liberal manufacturing networks, perhaps even more than the extremely flexible manufacturing networks that are common in Silicon Valley. Disadvantages Taiwanese companies are yet to set OEM and ODM (original design manufacturing) to be the primary goal. In managing OEM/ODM processes, Taiwan’s PC industry is based on two types of businesses: quality control and cost leadership (Cooke, Searle & OConnor 2014: 21). As a result, processes that are based on outsourcing face challenges ranging from regular product enhancement, maintaining cost advantages, and waiting for ideal market conditions. The Taiwanese PC sector has a huge advantage in terms of product development and manufacturing (Cooke, Searle & OConnor 2014: 25). One of the latest challenges pertains to opportunity for outsourcing, effectively exploiting available opportunities, and prompt planning. In the foreseeable future, the country will still be grappling with manufacturing-related challenges posed by countries like China and South Korea. This forces Taiwanese manufacturers to keep improving the advantages they enjoy with their excellent product designs. In normal circumstances, the conditions involved in the creation and enforcement of cost advantage entail high product congruence rates, which stem from a mix of sound manufacturing processes, good product designs, and the purchase of production elements like cheap labor and land. Currently, to maintain their cost advantage, Taiwanese PC manufacturer must look to China as their manufacturing sites (Cooke, Searle & OConnor 2014: 56). Taiwan’s PC sector also faces the challenge of propping its brands to be a core objective. Although original brand manufacturing (OBM) is equivalent to business-to-consumer (B2C), most PC manufacturers in Taiwan are inclined towards B2B business because the sector depends on OEM or ODM for the growth of their international markets. Consequently, the main components they manufacture must be based on B2B commerce (Cooke, Searle & OConnor 2014: 107). In fact, their goals should be based on both B2C and OBM, but several obstacles hinder such a possibility. These include but are not limited to the fact that Taiwan’s PC producers must operate in mainland China as efficiently as they operate domestically and cannot develop their own B2C businesses unless they view the market in mainland China as their local economy. PC manufacturers in China must create global and B2C brands that are based in mainland China in accordance with requirements set by China. If these challenges remain unaddressed, Taiwan’s PC sector will find it hard to develop more international, B2C brands based in their own country (Ghemawat & Hout 2008: 52). The Taiwanese government ought to not only exploit the industry to help producers collaboratively promote the country’s brands, but also to encourage manufacturers to be ready to engage in and support the ultimate objectives and be open to revealing the correlation between their brands and Taiwan. Question 2 Strategic challenges involved in entering new Markets through Brownfield and Greenfield methods Since brownfield companies are often formed for specific modes of manufacturing, once important changes are necessary, it is convenient to look for a greenfield venture and form another outfit instead of improving an old one. Similar hindrances apply when it comes to developing new products and services for various industries and sectors (Ghemawat & Hout 2008: 38). More often than not, brownfield markets are expansive and have, over a long period, created repeat customers and rivals, sound business relationships, practices and technologies, effective government regulation, and supporting and customied infrastructure (Verbeke 2013: 65). On the other hand, the greenfield strategy is suited to markets that are young, generally small, feature limited government intervention, have little to no advanced infrastructure, have dynamic and emerging commercial relationships, have newly acquired rivals and customers, and few established technologies and policies. As a matter of fact, most of the innovative companies that dominate the technology and e-commerce segments (e.g., Apple, Google, Amaon, Facebook, Microsoft, etc.) achieved their highest levels of success using greenfield strategies. Others include Ford and General Motors (GM), which exploited greenfield methods to enjoy sustained periods of success. Compared to a brownfield strategy, a greenfield approach features fewer restrictions in terms of target markets and brand perception (Ghemawat & Hout 2008: 86). However, it also requires excellent management to succeed, usually in the form of visionary leadership (e.g., Steve Jobs). For example, using the greenfield strategy, it is possible to have a young, casually dressed, socially limited IT expert heading the innovative and growth strategy of a company (Idowu & Caliyurt 2014: 37). However, in the brownfield strategy, commercial links usually determine the difference between failure and success. In general, this is one of the most manageable aspects of the difficulties of using a brownfield strategy in entering new markets. Currently, sustainable innovation is compensating for the problems experienced in entering mature markets using either strategy (Verbeke 2013:41). In such markets, whose expanse and reliance on outdated policies have proven unfeasible, brownfield and greenfield strategies offer limited flexibility and manoeuvrability. In this context, the phrase “the dose is the poison,” which is often used in the field of pharmacology, applies for businesses that attempt to enter established and mature markets using the brownfield and greenfield strategies (Phillips & Gully 2013: 27). Most medications are usually ineffective in low doses and poisonous in high doses; their effectiveness depends on how large the window between the lower and upper thresholds is. The same logic applies for brownfield and greenfield strategies. They are appropriate when used sparingly and highly disruptive in case of overreliance when they have become widespread and are used intensively to support entrance into new markets. The brownfield and greenfield approaches are normally bogged down by the structure of the market in which it is applied. The more entrenched the market is, the higher the chance that the strategies will fail. This is because markets with sound technical infrastructures facilitate old systems and consequently hinder change (Hoesel 2013: 19). Established markets pose various challenges for enterprises that rely on brownfield and greenfield approaches. For example, new product and tasks that are designed for stable markets must always be altered in terms of their general ability to suit the auxiliary systems that constitute the other dimensions of the infrastructure. In this case, reference can be made to the US government’s first attempt at developing a high-speed rail system, known as the Acela. By the time the passenger cars and the locomotive were redesigned to move at higher-than-average speeds on existing limited rail stock, they were too heavy to run at high speeds (Pride & Ferrell 2014: 58). Exploiting the best wind needed the construction of new transmission lines, whose cost would compromise other important new projects. By contrast, products launched in the formative stages of entirely new markets, such as PCs, the internet, tablets, and semiconductors, can entrench themselves as the foundations of emerging systems that can then take root around them. Businesses that use brownfield and greenfield strategies to enter new markets struggle when they encounter markets whose economies are entrenched. In such markets, such economies determine the benefits and costs, the value proposition, and the business proposition. For example, the business proposition for firms that use either approach can be obstructed by direct and indirect waivers for incumbent rivals (Jex & Britt 2014: 63). Direct waivers are offered in the form of favourable market conditions, tax breaks, extra funding, and land grants. Finally, brownfield and greenfield policies are also severely blunted in markets where political interests are deep-rooted. In such markets, businesses that use either strategy find it extremely difficult to achieve desired levels of flexibility and, ultimately, become unresponsive to change (Lechner & Boli 2014: 29). Innovations can be obstructed and, in extreme situations, completely vetoed by the legal and regulatory environment. Companies that rely on brownfield and greenfield blueprints also encounter active opposition from established rivals and other entities that would be favoured by a prolonged status quo. References Chen, C., Kraemer, J. & Gathii, J. (2011) Understanding locals compensation fairness vis-à-vis foreign expatriates: the role of perceived equity, The International Journal of Human Resource Management, vol. 22, no. 17, pp. 3582-3600. doi:10.1080/09585192.2011.560873 Cooke, P., Searle, G. & OConnor, K. (2014) The economic geography of the IT industry in the Asia Pacific region, New York, Routledge. Engel, J. 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