Strategic Analysis of Acer - Case Study Example

Strategic analysis of Acer Lecturer Introduction Acer Incorporated is a multinational electronics manufacturer based in Taiwan. Its productincludes desktops, laptops, servers and storage, peripherals, personal digital assistance (PDA), peripherals and e-business services for business, government, education, and home users. Acer Inc is the third largest computer manufacturer in the world after HP and Dell (Shaw & Kotler, 2009). Acer Company owns the largest franchised computer retail chain in Taiwan, Taipei. The company was founded by Stan Shih, Carolyn Yeh his wife, and a group of five others in 1976 as a Multitech. Acer has since been the third largest computer manufacturing company in the world holding 9.5% of the market share, with its growth being experienced outside USA mature market, largely in emerging nations. The peripherals and PC industry is very competitive and Acer has maintained growth since 1999 with significant growth in revenues. The key competitors in the market include Dell, HP and Lenovo; however there is a fragmentation of the market with 46% of it owned by brands which have market share of less than 4% each. Acer seeks to increase its market share through release of premium PCs under Ferrari brand and expansion in LCD TVs with BenQ brand (Unruh & Ettenson, 2010). This paper seeks to give a detailed report of strategic analysis of Acer Inc. The paper will analyze the environment in which Acer functions and identify the opportunities and threats to which it might expect to have to respond. This will be done through environmental analysis (PESTLE, Porter’s Five Forces, and SWOT). The report will also make analyses of the resources and key capabilities of the company plus the factors that give the company its competitive advantage. This will be done through assessing the Industry Critical Success Factors, analyzing resources and capabilities and link the generic strategy. Finally the paper will assess the extent to which Acer’s existing strategies match its environment and suggest improvements where there is a justification. This will be done through looking at the company’s strategy within its environment and use of the J and S three tests (suitability, acceptability, feasibility and suggested improvements. There will be a final management summary, conclusion and recommendations to the company and sample diagrams of the models of market and environment analysis. The environment in which Acer functions and the opportunities and threats to which Acer expect to have to respond Acer is the third largest manufacturer of electronics (PC) in the world using a transnational strategy for procuring its components in order to maintain cost leadership. Through using SWOT analysis, Porter’s Five Forces, PESTLE, Value chain and strategic maps, a comprehensive analysis of Acer Inc. internal and external forces are reviewed. However, we will focus of Porter’s Five Forces and SWOT analysis in environmental analysis of Acer Inc. in this paper. Acer Inc functions in a very competitive market with market giants such as Lenovo, Dell and HP. However, the strategy of Acer is to remain the third largest manufacturer of PC in the globe in this highly competitive and commoditized industry. The strategy includes development of new technology, acquisitions, solidifying strategic alliances with firms like McAffee and Microsoft, and growing the emerging Japanese and EMEA regions (Shaw & Kotler, 2009). Acer Inc. competes in its functional environment within the industry of PC and peripherals offering personal computer solutions for businesses and consumers. In contrary to its competitors, Acer Inc. provides alternative brands for various segments of customers instead of just one brand wit different variables. This enables Acer to maintain a margin for every brand without any form of cannibalization. Majority of brands within the industry of PC offer one brand. However, only Acer offers various brands for different customer segments. Though Acer takes middle ground on the basis of reputation and pricing, as well as covering the low and premium end of market, other brands operate on a higher or lower pricing provides dependent upon their segment of the market. For example, whereas Lenovo and HP take a higher price position, Dell takes a position of price leadership. The main aspect is that Acer compared to its competitors stands alone in providing a range of products targeting different segments of the market and consumers (Taylor & Nichols, 2010). SWOT Analysis In a SWOT analysis of the company, we will detail only the opportunities and threats facing Acer. Some of the opportunities of Acer Inc. may include: leveraging the relationship with other companies in Taiwan in order to find technology and efficiencies for PCs; and to continue finding new markets as well as increase their brands to fit the needs and requirements of their customers. This would possibly increase their market share and profits. On the other hand, Acer is faced by various threats in the industry and environment in which it functions. Some of these threats include: iPhone and iPad creating a new market with no need for PCs; disintermediation in which manufacturers go to the public directly e.g. Dell; it is becoming challenging and hard to keep and maintain awareness of the brands outside cost leadership; and a killer application developed by manufacturers affecting the whole PC and peripherals industry e.g. Apple (Shaw & Kotler, 2009). Porter’s Five Forces model In an external environmental analysis, we will focus on Porter’s Five Forces. This is a tool of organizational external analysis used to understand where power lies in the situation of business (Porter, 2001). The forces that we consider for Acer Inc include: the bargaining power of customers, the threat of substitute products, and the threat of new competitors entering the market, the bargaining power of suppliers, and the intensity of competitive rivalry. The customer bargaining power is the ability of such customers to put under pressure the firm to alter the prices and affect the sensitivity of price changes to the customers (Porter, 1987). The substitutes of Acer Inc. are HP, Lenovo and Dell since they manufacture same products, desktop and laptops. However, Acer has come out with a line of unique products, Acer Timeline Series offering screen sizes from 13.3 inch to 15.6 inch. Customer loyalty according to Porter means customers prefer to stay with the brand at the moment mostly because may be a company is offering well after sale services. Acer offers a warranty of 3 years for its brands while its competitors do not offer such service to their products. Acer has the trendiest laptop that is long lifetime for battery of up to 8 hours. The products are also ultra thin, less than 1 inch and portable. Acer also has a multi gesture touch pad used like a mouse, with a high definition 16:9. Acer sustains itself in the market through improving its products and considering environmental measures. This will increase barrier to exit. Acer has done this via the Acer Timeline Series manufacture (Porter, 1979). The bargaining power of supplier is high when the market is monopolized and the supplier refuses to supply goods. For example, the main supplier of processor to Acer is AMD and Intel. If they both increase their prices and Acer has no choice of buying from them the processors, the Acer products will also have their prices increased and the consumers may buy other brands from the market (Orit, Leung & Vesting, 2007). PESTLE Analysis Acer Inc is affected by macro environment factors, factors which operate in its external environment. These factors are not specifically about Acer alone but affect the overall operation of the organization and the industry in general. Acer cannot control macro environment factors since they are external factors which are not very particular about Acer. Therefore Acer only needs to manage the impacts of such factors to their sales and branding. Macro environment are described by PESTLE (political factors, economic factors, Social factors, Technological factors, Legislative factors and environmental factors). Acer has managed to tackle these factors through its enabling environment and branding strategies. These factors impact on the market and may limit the share of market held by Acer. The resources and key capabilities of the company plus the factors that give the company its competitive advantage On the foundations of analysis, Acer has adopted various strategies to ensure that it remains competitive and retains its ranking at number 3. Acer strives to find a Blue Ocean against its competitors by using premium branding of its product from Ferrari or any other premium luxury brand and make determinations if it can be derived from green and sustainable materials. The resources and capabilities of Acer are determined by the use of a balance scorecard with alliances in order to help in driving innovation plus a tested and a tried system of sales in order to increase the market share of Acer. The company derives its competitive advantage from various growth strategies. The competitive strategy of Acer is to be a low cost provider, which undercuts rivals in maintaining cost leadership to a wide and larger range of consumers. However, while this olds as the truth for Acer and Emachines, more offerings of premium like Ferrari and Gateway are the main targets of other competitive strategies. Ferrari has embraced a niche market strategy in differentiation basis while Gateway has emphasized on low cost strategy (Nidumolu Prahalad & Rangaswami, 2009). The competitive advantage of Acer is to find new markets to continually drive growth, build the product on the basis of transnational, build alliances with different brands like Ferrari, McAffee and Microsoft, and cover the market with a wide range of brands suiting the requirements and needs of different customer and market segments. Acer Inc. hence derive its competitive advantage from its ability to build quality PCs and peripherals that are innovative and have quality components and well priced to suit local markets and customer needs and requirements (Matthews, 2010). As seen in Porter’s Five Forces analysis, more information is revealed on resources and capabilities of the company, Acer, about the industry of PC and peripherals. Rivalry is one of the fiercest forces with many competitors vying for the share of the market based on pricing. There are also players that are substitute in the market such as Apple which introduces devices like iPad and iPhone challenging the need for PC. There is also much need for power by suppliers with most laptops, 85%, and produces in Chinese factories by Taiwan manufacturers supplying the entire industry. This analysis indicates that the industry of PC is cluttered with various players in what is a commodity product. This puts down the pricing pressure hence diluting the profits (Lubin & Esty, 2010). Acer Inc. has various capabilities derived from it resources. I a conducted SWOT analysis, Acer have various strengths from which it derives its capabilities. Some of these strengths include: 3 tiered pricing structure of medium, low and premium, possession of the emerging nations good enough market, alliances with the Ferrari brand and BenQ, and the demonstrated ability to locate and find new markets. The resources of Acer are however limited by some weaknesses identified from a SWOT analysis (Longhurst, 2010). The market share in establishing markets is declining, and there are also too many brands that can lead to cannibalization. Acer adopted growth strategies by partnering with Wipro so as to gain experience and knowledge about the Indian markets. Initially Acer focused its resources and attention selling to corporate customers and government organizations in order to have a strong consumer chain built. Acer derives its competitive advantage from its marketing strategies as well. It refocuses its efforts to indirect channel driven sales from direct sales. It also builds strong relationships with some of its dealers and provides incentives to its distributing channels for sales promotion. Acer has also focused on retailing in order to increase its horizon. Acer has also adopted slogans like Life is busy which makes it easy to help consumers to better relate with other consumers (Kim & Mauborgne, 2004). The resources and capabilities of Acer are used by the company to gain competitive advantage against it competitors. Acer also derives its competitive advantage through a facilitated growth in the IT segment (Kaplan & Norton, 1996). This competitive advantage is derived from the fact that the company has: an increased consumer demand for notebooks, provision of innovative and new technologies at very competitive prices, the increase in computer use in education, increased people’s wages for helping in increasing sales of PC, and building a strong relationship through having its presence in over 40 customer verticals in various sectors like Education, Banking, Telecom etc. Acer Inc. is however faced by some challenges in deriving its competitive advantage. Some of these challenges include: dealing with ever growing affluence of consumers in Towns and Small cities that provides proper after sale service and sales support in remote countries. Acer Inc. looks forward to increase its growth by 2012 to 20%. Acer also wants to build solutions on education front to tie up with format retail stores such as Metro, Croma and Next in order to reach out to a mass of consumers (Hegarty, 2010). The extent to which Acer’s existing strategies match its environment and suggest improvements The described strategies of Acer match its environment. The nature of the environment in which Acer operates led to its application of transnational strategy. The company sells its products anywhere in the globe and source the production and components from least cost sources. This is in contrary with Dell which applies international strategy for sourcing from a narrow producers range and then manufactures its products close to the market. Even though this offers some efficiency to Dell, it provides a competitive advantage to Acer for sourcing products at a considerably lower price. This is mostly an event in laptops in which Acer product equivalent is cheaper in comparison to Dell (Hill, 2009). The business model of Acer is to offer low cost premium PCs suiting local conditions. This is appeals greatly to the public and is very successful because of the company’s: clearly defined vision, to maintain cost leadership, but allow customers to down or up according to their requirements and needs. This enables emerging consumers in the markets to afford a trusted and quality PC while consumers can choose to upgrade in mature market; distribution that uses known retailers for the growth of the market share; manufacturer sourcing the premium products from the world in which price advantage may be leveraged; innovation pushing the market boundaries to locate and capture new markets; and difference in providing the choice to consumers to buy a product suiting their requirements and needs based on a 3 tiered model (Friedman, 1992). The SWOT analysis indicates that though Acer may continue carving a niche role within the industry of PC and peripherals, there is need for a new market in order to find a competitive advantage outside cost leadership, which is a type of Blue Ocean in which brands may not compete. The Acer’s competitive advantage over the other brands, particularly Dell, is that Acer builds each PC on the basis of transnational, purchasing components from manufacturers considered the best across the globe without any regard to location. This allows Acer a competitive advantage over its competitors building their products close to the market. The value chain of Acer may also use, to produce other goods like GPS units and LCD screen, synergies at a competitive advantage. Through locating marketing, sales and service teams within markets with a highly regarded brand, Acers can be a nimble to the needs of the market, fashion and trend. In addition, Acer may expand the reach of their brand and use the channel to drive and forecast demand by reselling through retailers (Cappel, Pearson & Romero, 2003). Though this affects margin, it has allowed Acer to drive its own growth. The advantage of Acer value chain is its ability to develop products of high quality at low prices suiting the needs of the local market. In the same internal analysis, its proven that brands from Acer have unique value to the company across all segments ranging from physical, financial, organizational and human. However, the values are not rare and other brands have imitated them, particularly in the spheres of financial and physical segments in which features and pricing have been copied by other brands. However, the viability of finances of Acer is very scopable as new opportunities and products allow continual growth of Acer with human talent in the organization. The internal analysis indicates that though the products of Acer may be copied, people may be poached by other competing organizations and prices will be driven down always. The source of advantage enduring is the ability of the organization to innovate business in the competitive environment and the growth of organization itself (Burke, van Stel & Thurik, 2010). In my opinion, restricting of Acer operations allows it to positively grow because it had its operating expenses lowered, and also allowed Acer to offer dual advantages of promoting and pricing its products. Acer Inc. also needs to improve its strong network so as to fully use the opportunities that are presented by the market of India, this will also enable Acer to venture into rural areas and resultantly increase the share of their market. Acer Inc. uses various strategies to match its environment. Some of these strategies include customer organizational model. This supports the business units of the clients. Acer also needs to use aggressive methods of international markets where by the company purchases properties and acquire new companies by taking risks to go in the market overseas (Anthony, 2009). Management Summary The paper reviews the management summary of Acer through a competitive landscape of the industry of the PC and peripherals by analyzing the company strategy, distribution channel, business model, and competencies in order to provide recommendations to the company. Acer Inc. is the third largest manufacturer of PC in the world that uses transnational strategy in procuring it components for the purpose of maintaining cost leadership. In this respect, we have used PESTLE, Porter’s Five Forces model, and SWOT analysis for a comprehensive analysis of the external and internal Acer environment. From this, we have made a series of recommendation to Acer in order to retain its ranking. It is however recommended that Acer adopts Blue Ocean against its competitors by using product premium branding regardless of whether its with Ferrari or any other luxury brand. It is also recommended that Acer uses balance scorecard together with its alliances to drive innovation so as to increase the market share of Acer. Conclusions and recommendation In summary, Acer is a computer and a laptop manufacturer owning the largest computer retail chain in Taiwan. The company was founded by Stan Shih, Carolyn Yeh his wife, and a group of five others in 1976 as a Multitech. Acer is the third largest computer manufacturing company in the world holding 9.5% of the market share, with its growth being experienced outside USA mature market, largely in emerging nations. The report has detailed the strategic analysis of Acer Inc. through environment analysis of Acer, capabilities and resources of Acer, and the extent to which Acer match its environment. I would therefore recommend that Acer to find Blue Ocean within the industry of PC and peripherals, to use sustainability as the major innovation driver, to adopt balance scorecard with its alliances, and to finally assist the distributors in developing a system of sales in order to support its product. References Anthony, SD (2009), ‘Major League Innovation’, Harvard Business Review, October, pp. 51-54 Burke, A, van Stel, A & Thurik, R (2010), ‘Blue Ocean vs. Five Forces’, Harvard Business Review, May, as viewed 29 April Cappel, S, Pearson, TR & Romero, EJ (2003), ‘Strategic Group Performance in the Commercial Airline Industry’, Journal of Management Research, August, vol. 3, no.2, pp.53-60 Friedman, H. 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