Acer's Globalization Challenges

By Ngoie Joel Nshisso International Business Ph.D. program Northcentral University December 2010 Acer, Inc. - Taiwan’s Rampaging Dragon Company overview Acer, Inc is one of those rare success stories that started as a small and local business. His visionary founder considered Acer’s rocky path as way to strive for success and growth that carve the journey toward globalization. The short birth story of Acer indicates that the company was “founded in 1976 with US$25,000 in capital and 11 employees” (Acer 2010, para 3). With a passion about sharing knowledge as a way of contributing to society, Acer has grown over time to become one of the major players in information technology (IT) innovation beyond its Taiwanese borders. Throughout his existence, Acer achieved following millstones: “commercialization of microprocessor technology, creation of a brand name and market globalize, transformation from manufacturing to services and strong worldwide presence with a new multi-brand strategy” (Acer 2010, para 1). The highway to globalization continues to present to Acer many challenges along the road. Next paragraphs will attempt to identify one of key problems and issues that impact Acer’s operations at the global level. Problem that affect Acer Acer can be described as a company born to go global. The early expansion was “partnership with dealers and distributors in Indonesia, Malaysia, and Thailand. By 1992, Acer was established in China, Taiwan, Europe, Africa, North and Latin America with its headquarter in Singapore” (Christopher, Sumantra, & Paul 2008 p. 42, 46). Despite this extraordinary expansion, the company failed to align its management style consisting of “substantial decision-making responsibility to employees to harness the natural entrepreneurial spirit of the Taiwanese” (Christopher, Sumantra, & Paul 2008 p. 41). This laissez-faire style created an absence of specific or combination of headquarter’s management orientation toward subsidiaries. The company did not have a well defined management orientation between ethnocentric, polycentric and geocentric. Before exploring Acer’s management orientation problem, it is important to first understand the concepts of ethnocentric, polycentric and geocentric management orientation. According to Warren (2002), ethnocentric orientation means “company personnel see only similarity in markets and assume the products and practices that succeed in the home country will be successful anywhere. In the ethnocentric company, foreign operations are viewed as being secondary or subsidiary to domestic ones” (p.12). Also termed “home-country attitude, the ethnocentric attitude can be found in companies of any nationality with extensive overseas holdings” (Christopher, Sumantra, & Paul 2008, pg 58). The polycentric or host-country orientation describes “management’s often unconscious belief or assumption that each country in which a company does business is unique. This assumption lays a ground for each subsidiary to develop its own unique business and marketing strategy in order to succeed” (Warren 2002, p.13). Christopher, Sumantra, and Paul (2008) suggest that executives in the headquarters of such a company have a belief that “host-country cultures are different and that foreigners are difficult to understand. Local people know what is best for them, and the part of the firm which is located in the host country should be as local in identity as possiblequot;
(p. 59). A company with a world or a geocentric orientation “views the entire world as a potential market and strives to develop integrated market strategies” (Warren 2002, p.13), in this perspective Christopher, Sumantra, and Paul (2008) argue that geocentric orientation “involves a collaborative effort between subsidiaries and headquarters to establish universal standards and permissible local variations, to make key allocation decisions on new products, new plants, new laboratories” (p.60). Key issues impacting the problem The absence of specific or combination of management orientation of Acer’s headquarter toward subsidiaries mentioned above may have been the cause of several issues affecting Acer’s expansion and profitability. Among them, this study will look at two: loss of money, absence of communication and integration. ,[object Object]

Because of a lack of clear marketing plan to increase sales volume aligned with increasing costs of operations and competition, “Acer had been losing money since 1987” (Christopher, Sumantra & Paul 2008, p. 52). When a business loses money year after year it becomes less competitive, less attractive and moreover, it loses competent workers. At the height of its financial troubles, Acer laid-off “300 employees” (Christopher, Sumantra & Paul 2008, p.49).

Absence of communication and integration Acer was ruined by the absence of communication and integration about R&D, a department that often turns out to be more geocentric for multinational companies. A closer look at figure 1 shows that Acer doesn’t have global nor local R&D departments in its organization structure. This can explain the reason why Christopher, Sumantra and Paul (2008) suggested that Acer’s CEO “knew little of the project featuring voice recognition, ease-of-use, and cutting-edge multimedia capabilities undertaken by Acer America Corporation (AAC) Acer’s North American Subsidiary” (p.40). Alternative solutions The problem of management orientation identified within Acer will find its solution in a concordant policy pricing and the company’s environment scanning with the use of SWOT analysis. ,[object Object],Policy pricing would be chosen among the three alternative approaches to global pricing: extension/ethnocentric, adaptation/polycentric and invention/ geocentric that Warren (2002) briefly defines in the following terms: Extension/Ethnocentric This policy requires that the price of an item be the same around the world and that the importer absorbs freight and import duties. This approach has the advantage of extreme simplicity because no information on competitive or market conditions is required for implementation. The disadvantage is that extension pricing does not respond to the competitive and market condition of each national market and, therefore neither maximizes the company’s profits in each national market nor globally. Adaptation/polycentric The policy permits subsidiary or affiliate managers to establish whatever price they feel is most desirable in their circumstances. Under such an approach, there is no control or firm requirement that prices be coordinated from one country to the next. The only constraint on this approach is setting transfer prices within the corporate system. Such an approach is sensitive to local conditions, but it may create product arbitrage opportunities in cases in which disparities in local market prices exceed the transportation and duty cost separating markets: manager can take advantage of these pricing disparities by buying in the lower-price market and selling in the higher-price market. There is also the problem that under such policy, valuable knowledge and experience within the corporate system concerning effective pricing strategies are not applied to each local pricing decision: managers can price in the way they feel is most desirable, and may not be fully informed about company experience when they make their decision. Another disadvantage is that this approach may send a signal to the rest of the world that is contrary to company interests. Invention/geocentric Using this approach, company neither fixes a single price worldwide nor remains aloof from subsidiary pricing decisions but instead strikes an intermediate position. A company pursuing this approach works on the assumption that there are unique local market factors that should be recognized in arriving at a pricing decision. These factors include local costs, income levels, competition, and a local marketing strategy (p. 377- 380). ,[object Object], The SWOT analysis describes the internal strengths and weaknesses, opportunities and threats of a company. Ferrell, Hartline, and Luc. (2006) define SWOT analysis as: Basic, straightforward model that provides direction and serves as a basis for the development of marketing plans. It accomplishes this by assessing an organizations strengths (what an organization can do) and weaknesses (what an organization cannot do) in addition to opportunities (potential favorable conditions for an organization) and threats (potential unfavorable conditions for an organization). SWOT analysis is an important step in planning and its value is often underestimated despite the simplicity in creation. The role of SWOT analysis is to take the information from the environmental analysis and separate it into internal issues (strengths and weaknesses) and external issues (opportunities and threats). Once this is completed, SWOT analysis determines if the information indicates something that will assist the firm in accomplishing its objectives (a strength or opportunity), or if it indicates an obstacle that must be overcome or minimized to achieve desired results (weakness or threat) (p. 12). Using SWOT analysis to determine which policy price to use for the company to forecast profit at global level, managers can for example learn that the proposed price for their products will be strength therefore present market opportunities or a weakness that will threaten effort to enter the market by considering the five forces model. Porter’s five forces As organizations develop their competitive advantage, they must pay close attention to their competitors through environmental scanning. One of the tools used to analyze and develop that competitive advantage is the Michael Porter’s five forces model. Paige and Amy (2008) suggest that they are “useful tool to aid organizations facing the challenge decision of entering a new industry or industry segment. They include: threat of new entrants, threat of substitute product, bargaining power of suppliers, bargaining power of buyers, and rivalry among competitors” (p. 17). The next section presents brief details for each force. Threat of new entrants Paige and Amy (2008) argue that “threat of new entrants in the five forces model is high when it is easy for new competitors to enter a market and low when there are significant entry barriers entering a market. Threat of substitute products The availability of substitute products places limits on the prices market-leaders can charge in an industry; high prices may induce buyers to switch to the substitute. Bargaining power of suppliers If suppliers have enough leverage over industry firms, they can raise prices high enough to significantly influence the profitability of the industry. Bargaining power of buyers The ultimate aim of industrial customers is to pay the lowest possible price to obtain the products or services that they use as inputs. Rivalry among competitors Rivalry among firms refers to all the actions taken by firms in the industry to improve their positions and gain advantage over each other. Rivalry manifests itself in price competition, advertising battles, product positioning, and attempts at differentiation. Rivalry among firms is a position force if it pushes them to innovate and / or rationalize costs. When it drives down the prices to affect profitability, it creates instability and negatively influences attractiveness of the industry (p.279-282). Conclusion and recommendations For Acer to achieve its global market aspirations, it should be noted that making profit and maintaining control of headquarter and subsidiaries are challenges to tackle with a sustainable policy pricing in opposition to its “frugality culture and a poor man’s philosophy that consist of pricing products with low margin to ensure turnover, avoiding the use of debt by resisting public offering, and encouragement of employees to supplement their income with a second job” (Christopher, Sumantra, & Paul 2008, pg 41). In combination of management orientation and SWOT analysis for Acer as a global company, it can be advised that pricing approach should consider local competition. Under this consideration, a pricing line using for example a mark-up that will allow to sell some products at a price lower than the competitors and some other products at higher margins to maximize the profitability of the full line. A second advice would be to consider local income levels and set a price that provide normal margin after considering full manufacturing costs and advertising programs. The third recommendation will be to have the headquarter price coordination for accounting purpose and product arbitrage. Final recommendation will be that pricing experience of the entire firm be leveraged and applied wherever needed. Taking in accounts the above considerations, the geocentric approach can be recommended to Acer because it “lends itself to global competition strategy” (Warren 2002, p. 380). Figure 1: Organization References Acer group (2010). Milestones and innovations. Retrieved November 18, 2010 from http://www.acer-group.com/public/The_Group/milestones.htm Acer group (2010). Organization. Retrieved November 22, 2010 from http://www.acer-group.com/public/The_Group/organization.htm Acer Group. (2010). Overview. Retried November 18, 2010 from http://www.acer-group.com/public/The_Group/overview.htm Christopher, B., Sumantra, G., & Paul, B. (2008). Transnational management: text, cases, and readings in cross-border management. New-York, NY. McGraw-Hill Irwin Ferrell, O., Hartline, M., Lucas, G., Luck, D. 1998. Marketing Strategy. Orlando, FL: Dryden Press. Paige, B., & Amy, P. (2008). Information systems for decision-making. New York, NY. The McGraw-Hill Companies. Philip, K., & Kevin, L. (2006).Marketing management. Upper Saddle River, NJ. Prentice Hall Warren, J.K. (2002). Global marketing management. Prentice hall, Upper Saddle River, NJ

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