Factors key to Acer’s success

According to the study from Personal Computing Industry Centre (PCIC) in 2006, competitive advantage in the PC industry derives from high volume of sales, a completed distribution channel and good customer relationship rather than product innovation.〔26〕

Before 2000, Acer was a company with vertical integration which pursued the

synergy among R&D, production, and marketing functions. However, the inefficiency and high production costs were caused by the lack of competition for R&D and production parts. Therefore, after the re-engineering in 2000, Acer implemented

“multiple suppliers” strategy, which sought for the best suppliers. From owning 100%

share to less than 1% share, Acer gradually withdrew its investment in the original supplier-Wistron. By cooperating with the suppliers which can really provide better quality and lower prices, Acer saved a huge amount of production costs and was capable of lowering the price for both channels and consumers.

Given that the raging price war has derived from high degree of competition in the PC industry, the trend which happened to desktops once was shifting to notebooks

24

and leading them quickly to head toward commodity.〔5〕 Because consumers preferred to try notebooks as well as other consumer electronics in the physical stores, the company with better physical channels had better opportunity to access those laptop users. Acer was one of the vendors benefited most from this trend.

Among all product lines, the sales of notebooks had been very outstanding and accounted for 75.1% of total sales in 2004 (Appendix C).

As a whole, given the market-wise issues mentioned above, the competitive

advantages of Acer included the low pricing strategy, the ability to develop notebook, and the channel strategy focusing on partner relationship. Given that the

competitors such as HP and Dell were also able to implement low pricing strategy and develop notebook, the key advantage that enabled Acer to outperform was most likely to be its channel strategy.

Again, by analyzing the theoretical propositions which may affect Acer’s channel selection, we check the result respectively and test the validity of the propositions:

(1) Environment

According to our previous analysis, the market uncertainty made the channel integration in European PC market more difficult. Both Acer’s sharply growth and Dell’s modification of direct channel model prove our proposition. Multiple Channel is the suitable choice for most of the PC vendors.

Furthermore, the uncertainty caused by competition and internet has made the market volatility and diversity higher during these years. Until now, multiple (dual, hybrid) channels become even more suitable than single (direct, indirect) channels in European PC market.

(2) Partnership

According to our proposition, Acer can obtain more advantages from its partnerships through hybrid channel strategy. The results of much faster growing market share and enhancing cooperation validate our analysis.

Since both HP and Dell had implemented dual channel strategies (both direct and indirect channels), which raised the channel conflict, Acer’s channel partners tended to maintain stronger relationship with Acer to compete with HP and Dell, a situation which also enhanced the advantages derived from Acer’s hybrid channel strategy.

25

Besides, all the partnership advantages were further strengthened by Acer: more benefits were shared with the partners and better communications were built through new systems. The possibility of channel conflict was minimized. This situation made the use of intermediaries even more preferable.

(3) Producer’s Power

According to our previous analysis, the use of hybrid channel should minimize the conflict in light of Acer’s low producer’s power in 2000. The enhanced cooperation and trust with the channel partners prove our proposition.

With the rising market share and the switching barrier built by enhanced

relationships, the producer’s power of Acer became stronger. This made dual channel strategy (use of both direct and indirect channels) a possible option to reach more customers and achieve higher profitability. However, the potential benefits of this change must be compared with the negative effects caused by raising channel conflict. The consequential channel conflicts may put Acer in the risks of losing trust and partnership advantage built by the hybrid channel strategy.

(4) Internationalization Process

According to our previous analysis, the use of hybrid channel by Acer was to fit the local market. Again, our analysis is verified by the growing market share and enhanced cooperation with local partners.

During these years, Acer’s internationalization process has been at the same stage (selling through subsidiary) in which all channel models are possible.

(5) Organizational Structure

According to our previous analysis, Acer’s Hybrid Channel was the best choice in a heterarchical stage to achieve best efficiency of different business units. Cooperation with channel partners was very important in this stage. The continuing enhanced cooperation and resulting sales growth both prove our analysis.

Acer Europe’s organization structure changed considerably after the reorganization in 2000. However, it maintained a heterachical structure in which hybrid channel was still the most preferable choice.

(6) Previous Experiences

As Acer successfully copied the Italian experience to other European countries, the

26

use of hybrid channels was reasonably maintained and implemented in more areas.

(7) Product-Technology Life Cycle

In the previous analysis, even though the proposition supports the use of Dual Channel, we argue that Acer should not use it amid its low awareness. The result of surging sales growth suggests that our argument is right. The availability created by Acer’s channel partners was greater than that it could gain from building direct channels (especially internet).

In 2009, the shipment of PC products declined in European market for the first time (Appendix D). Notwithstanding the effects of severe economic situation, this

declining also shows a downward trend of PC product life cycle. European PC market has already gone through growth stage, maturity stage, and finally to decline stage.

Companies used multiple (dual, hybrid) channel in the maturity stage to serve the customers and hybrid or direct channels in the decline stage to decrease the costs.

Acer’s use of hybrid channel met both stages.

By checking the propositions with the reality during year 2001~2009, we confirm our analysis to be correct. Furthermore, we make suggestions on Acer’s future channel selection by developing following two tables:

European PC vendors’ situation in 2010:

Issues

Dual Hybrid Direct Indirect

Environment Partnership

Product-Technology Life Cycle

Table 5

27

Acer’s situation in 2010:

Issues

Dual Hybrid Direct Indirect

Producer Power

Most parts of the tables still support the original result--- Hybrid Channel. Only the issue of Producer’s Power indicates an option of Dual Channel. Acer reasonably ignored this option because it already made efforts to build firm relationships with channel partners, which created Acer’s competitive advantages. A dual channel strategy would have caused channel conflict which may damage those advantages.

Acer had no reason to take the risk of making its previous effort in vain. Therefore, we argue that Acer should maintain Hybrid Channel as its channel strategy.