Acer Incorporated - New Methods Pace Mid-1990s Turnaround

New Methods Pace Mid-1990s Turnaround

In a 1995 Financial World article, Shih compared Taiwanese computer manufacturing to Chinese restaurants, saying that "Chinese food is good, and it is everywhere, but it has no uniform global image or consistent quality." The same was true of personal computers; although most were made in Taiwan, they were sold under several (primarily American and Japanese) brands, with varying levels of quality. Shih wanted Acer to be more like McDonald's, the quintessential fast food restaurant that boasted a strong brand image and strict quality standards.

This unique paradigm shift required a complete overhaul of Acer's production and distribution scheme. Instead of assembling computers in Taiwan, as it had done for more than a decade, the company began to ship components to 32 locations around the world for assembly. Shih compared computer components including casings, keyboards, and mice to such staples as ketchup and mustard that could be shipped slowly and stored indefinitely. He likened the motherboard, which had to have the "freshest" technology possible, to the meat in a sandwich. It was shipped by air from Taiwan to each assembly operation. Finally, Shih compared the CPU and hard drive to "very expensive cheese: we try to source them locally." Shih's adoption of this unique strategy earned him the nickname "the Ray Kroc of the PC business."

Company Perspectives:

Acer ranks among the world's top five branded PC vendors, designing and marketing easy, dependable IT solutions that empower people to reach their goals and enhance their lives.

This production scheme saved on shipping costs and enabled Acer to include the most up-to-date (Shih liked to call it the "freshest") technology available. In Acer-speak, "fresh" meant innovative. Not content to rely on low-end knockoffs of other companies' technology, Acer stayed abreast of the industry's latest developments. In 1992, it launched a multi-user UNIX system as well as 386- and 486-based PCs. That year also saw the introduction of an international service and support network, a vital element of any successful PC business in the 1990s. In 1993, Acer unveiled a new PC that came equipped with a RISC (reduced instruction-set computing) chip and Microsoft's most recent version of the Windows operating system.

Shih hoped to bring the "fast food" concept all the way to the retail level, so that customers could custom-order computers with peripherals and memory capacity specifically suited to their needs. Acer tested this concept at a company-owned retail store in Taipei. It seemed to be as close as Acer could come to McDonald's-style service: only two hours passed from the time a system was ordered to the time it was booted.

Shih's "global brand, local touch" strategy was closely related to the "fast food" distribution concept. Instead of creating a series of centrally controlled foreign subsidiaries, Acer established a network of virtually autonomous affiliates, much like a fast food franchise system. Each of these affiliates was managed by a group of locals who determined product configurations, pricing strategies, and promotional programs based on national or regional preferences. The affiliate would usually have just one Taiwanese person on staff to facilitate interorganizational communications. Sales & Marketing Management characterized the system as a "revolutionary departure from the traditional hierarchical model of worldwide branches and subsidiaries reporting to a head office." Instead, it was "a commonwealth of independent companies, united only in their commitment to a common brand name and logo."

This strategy gave each Acer affiliate the semblance of a local company, an image that carried with it several benefits. Perhaps most important, it helped to downplay Acer's Taiwanese roots. Despite the country's large strides in the area of quality, "made in Taiwan" continued to carry negative connotations in the minds of many consumers. While Shih was proud of his company's heritage, individual affiliates often found it efficacious to de-emphasize that aspect of the business.

Globalization at Acer employed a third strategy adapted from an Asian chess-like game called "Go." Instead of jumping directly into the world's largest and most important computer markets, Acer conquered the surrounding markets before entering the United States. For example, Acer established itself as the leader in less hotly contested markets in Latin America, Southeast Asia, and the Middle East. By 1995, it was the topselling computer brand in Mexico, Bolivia, Chile, Panama, Uruguay, Thailand, and the Philippines, not to mention Taiwan.

This combination of tactics worked quickly and well, vindicating many of Acer's previously criticized moves. In 1993, Acer posted record profits of $75 million; 43 percent of that year's net was generated by the DRAM joint venture, considered "the most efficient in the DRAM industry" by some observers. From 1994 to 1995, Acer advanced from 14th to ninth among the world's largest computer manufacturers, surpassing Hewlett-Packard, Dell, and Toshiba. Total sales grew to $3.2 billion in 1994, and net income increased to $205 million, as Acer America turned its first annual profit in the 1990s.