ACCT 3610 week 5
1.Inventec Corporation Case Study
Q1: Despite its growth and size, why is Inventec not very profitable?
It can be concluded into 3 main factors :
1. Rivalry existed
In the existing ODM industry, there are lots of competitors such as Quanta, Mitac and Compal. Because of the fierce competition, there is increase difficulty for completing differentiation. Moreover, client companies tend to limit ODM use to highly commoditized products commoditized products. There is also inherent risk associated with the need of frequent technology innovation. Low switching costs also weaken the competitive advantage of Inventec since most of the PCs use Intel microprocessors. Moving to China was no longer consider as an advantage for Inventec since other rivalries will have the same cost structure.
2. New entrants threat
Taiwan government did not impose high legal barriers to limit firm to invest in China. Consequently, major ODMS choose to open plants in China and new companies easily enter into the industries which increase the supply of quality goods.
3. Increasing bargaining power
Inventec has a high bargaining power due to the limited list of customers. This disadvantage greatly weaken the ability to switch customers and negotiation power. Inventec has to accept client's aggressive pricing strategies with a low profit margin or else facing client switching their business to competitors in a short period of time.
Q2 What are the drivers of the average profitability of the ODM industry?
The average profitability of the ODM industry is low which only ranging from 1% to 6%. The main reason for this is mainly driven by customer bargain power and high competition. In order to lead the industry, companies need to lower their cost. Consequently, it reduce the reliance on a single partnership as there are 5 leading ODM and client negotiating strength become high. Moreover, china no longer consider as a low cost area which make firms difficult to find
Q1: Despite its growth and size, why is Inventec not very profitable?
It can be concluded into 3 main factors :
1. Rivalry existed
In the existing ODM industry, there are lots of competitors such as Quanta, Mitac and Compal. Because of the fierce competition, there is increase difficulty for completing differentiation. Moreover, client companies tend to limit ODM use to highly commoditized products commoditized products. There is also inherent risk associated with the need of frequent technology innovation. Low switching costs also weaken the competitive advantage of Inventec since most of the PCs use Intel microprocessors. Moving to China was no longer consider as an advantage for Inventec since other rivalries will have the same cost structure.
2. New entrants threat
Taiwan government did not impose high legal barriers to limit firm to invest in China. Consequently, major ODMS choose to open plants in China and new companies easily enter into the industries which increase the supply of quality goods.
3. Increasing bargaining power
Inventec has a high bargaining power due to the limited list of customers. This disadvantage greatly weaken the ability to switch customers and negotiation power. Inventec has to accept client's aggressive pricing strategies with a low profit margin or else facing client switching their business to competitors in a short period of time.
Q2 What are the drivers of the average profitability of the ODM industry?
The average profitability of the ODM industry is low which only ranging from 1% to 6%. The main reason for this is mainly driven by customer bargain power and high competition. In order to lead the industry, companies need to lower their cost. Consequently, it reduce the reliance on a single partnership as there are 5 leading ODM and client negotiating strength become high. Moreover, china no longer consider as a low cost area which make firms difficult to find