Global supply chain Assignment 1

7/27/2019 Global supply chain Assignment 1

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Case Study Analysis: The Acer Groups China Manufacturing Decision by Neha

Malu

Acer group, one of the largest PC manufacturers in the world was founded by Stan Shin. Its

global mission statement was fresh technology enjoyed by everyone. Acers goal was to achieve a

global vision with a local touch.

Acers fast food model was based on the concept of fresh products served to market. In 1997

despite this strategy Acer faced $75 million loss. There were internal and external reasons for this.

The primary reason being, Acer had high inventory levels. This was due to long supply chain

network which caused time lag between the local sites, Central Kitchens and the global market

which was changing rapidly, making products obsolete quickly, also the organizational structure

before 1998 had no strong coordination between manufacturing, logistics and marketing, which made

it more difficult to control the demand and supply of the PC market, the inventory was ordered on

market forecast and the local managers decided the quantity and timings so it was tough to predict

global demands locally all these reasons led to losses due to high global inventory management.

Other reasons being Acer had to face Global ISO compliance along with various regional ISO

regulations which incurred additional logistics costs; the channel inventory was managed by local

employees which were not very skilled causing damages and adding up the inventory costs. Acer had

large diversification of products and capital intensive products had competition were size of the

company mattered and Acer was not very big company with sales of 6 million again leading to

losses. The long supply chain also caused cash flow problems, pressure to reduce cost, delay in

competing at the global markets leading to loss of market and spoiling brand, all leading to huge

losses of US$75 million.


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Acer had decided to setup a manufacturing plant in China because it was in Third World

country and it knew Chinese culture and marketing in China. The differences in Chinese and

Taiwanese culture which would impact the decision of building manufacturing plant in China are: A.

Political issues of Taiwan and issues with China: Due to political unrest between China and

Taiwan, Acer might have to face losses due to the Taiwan mainland investment policy. B. The

important issue was the safety of Taiwanese employees in China was questionable as there was

significant crime rate registered for Taiwanese in China. C. Transportation restriction between

China and Taiwan: There was no direct transportation link between China and Taiwan for shipping

goods either through air or sea; they had to be shipped via Hong-Kong. So, Acer might face

difficulties in the fast food model as the Hsinchu, Taiwan factories supplied the raw materials. D.

Human resource management: Training of the Chinese workforce efficiently and on time would be

tough as the Chinese work force were not flexible about their work times, resistant to creativity and

initiative, pressure to hire local authority despite lack of expertise. Also another issue Acer had to

face was Chinese culture, it made the managers resistant to go to China as the factors like good

education for children, lack of equal opportunities after return, resistant to relocate, lower standard of

living were affected

While deciding a location in China manufacturing Acer should take into account factors like

land, labor, capital sources, production, markets, logistic and tax incentives. It is recommended that

Acer should go forward with the China proposal by partnering with a Chinese manufacturer.

Partnering with Chinese company can reduce Acers disadvantages. These barriers include issues

with transportation, issues with Taiwan, political issues. China is currently booming land of

opportunities. Acer knows Chinese market and culture. Acer can be at a positional advantage as the

land for manufacturing, warehouse, unit production cost can be cheaper in China. The problem of


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long supply chain can be solved by taking suppliers to China as Acer did before. As the

organizational structure of Acer was restructured it can be used to control inventories, increase

communication and work towards long supply chain. The introduction of new products can give Acer

considerable market size in China. The human resource can be given incentives, rewards, training

and partnering with the Chinese company can help address these issues. Also, along with partnership,

there is optimism about the political restrictions and regulations to be removed, which could further

have benefits as tax incentives, direct shipping, etc which can boost up Acers business further in

China. Just as the GO game strategy, Acer should further increase its villages around China. If the

partnership doesnt work out, Acer has a huge PC production capacity, so Acers manufacturing

factories from other locations can be used to outsource the IT, PC companies in China.

Before partnering, firstly the government rules must be dealt with carefully. The research for

potential Chinese company should be done. And subsequently other factors such as supply chain

network, infrastructure, manpower, should be checked. Then the deserved partner should be selected.

This leads to the process of trainings, knowledge transfers, capacity building, etc. As the progress

towards the partnership continues, the phase of monitoring the progress comes in. The profits,

sustainability of the partnership must be evaluated.

Over all, Acer should go forward with its Acer manufacturing decision by partnering with a

Chinese company which can reduce the limitations of Acers China manufacturing. This could lead

Acer towards the goal of achieving global vision with a local touch. Also it could lead a step further

towards the acquiring market in the cities like US.

Reference: "7 Keys to facility location," SCMR May-June 2008http://www.entrepreneur.com/article/73784

"The tax factor in global site selection," Supply Chain Quarterly (Quarter 1/2010)
http://www.entrepreneur.com/article/73784http://www.entrepreneur.com/article/73784http://www.entrepreneur.com/article/73784

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Global supply chain Assignment 1