Acer Incorporated - Strategies for the Mid-1990s and Beyond
Strategies for the Mid-1990s and Beyond
In the mid-1990s, Acer began to globalize production as well as assembly, building a keyboard and monitor plant in Malaysia in 1994. The company planned a motherboard and CD-ROM factory for the Philippines and hoped to set up production in Argentina, Chile, Thailand, Dubai, South Africa, Brazil, India, the People's Republic of China, and the former Soviet Union.
In 1994, Shih unveiled a plan to "deconstruct" Acer into 21 publicly traded business units by the end of the 20th century. Acer Inc. would continue to own anywhere from 19 percent to 40 percent of the firms' stock, but Shih hoped that their independent status would enable the individual units to compete more effectively by facilitating entrepreneurship, inspiring research and development, and allowing for corporate fundraising through stock and bond offerings. Michael Zimmerman of PC Week speculated on another possible motivation behind the plan, known internally as "21-in-21." His June 1994 piece on Acer noted that "Separating the divisions will also clear a path for Shih to retire and, as one observer said, 'to leave his legacy intact' by not risking the future of his brainchild to a successor." In fact, Shih told PC Week that he "expects to withdraw from Acer and the workforce" by 1999.
Acer Computer International, the company's Asia-Pacific distributor, had its initial public offering in September 1994. The approximately $55 million flotation was oversubscribed by about 20 times. Spinoffs of Acer Peripherals, the corporation's manufacturer of keyboards and monitors, and Acer Sertek, the Taiwanese distribution operation, were planned for 1996. Stock in Acer America and certain Latin American operations was slated to go on the auction block by 1997.
The Economist reported that Acer's revenues had increased by 75 percent from $3.2 billion in 1994 to $5.7 billion and that Shih hoped to increase that figure to $15 billion by 1999 via expansion into consumer electronics including televisions and fax machines. Global sales did strengthen, but Acer's performance lagged in the U.S. market due to intense competition from rivals with stronger brand presence.
Acer America was reorganized in both 1996 and 1997 in an attempt to stem the tide of loss. In 1997 Acer America lost $141 million. This had a significant impact on the company's bottom line because at the time, one third of Acer Inc.'s business was in North America. Its branded PCs were ranked ninth in sales in the U.S. PC market. That same year Acer America purchased Texas Instruments' notebook sector.
On a global scale, Acer was seeing a turnaround; its net profits in 1997 were $115 million, up 22 percent from the previous year. That year Acer negotiated significant partnerships with IBM and Apple to manufacture PCs. At the time it had 37 assembly sites worldwide, but no manufacturing outside of Asia. Later that year the company opened its first manufacturing plants outside of Asia, in Mexico, in order to reduce shipping time to the Latin and North American markets. By late 1998 Acer was the top brand in South Africa, Mexico, and several other emerging markets.
While Acer had successfully concentrated its efforts on emerging markets, corporate leaders were still dissatisfied with its weak showing in the United States and Europe. In the United States, Acer's share of the PC market slipped from 5.4 percent of PC sales in 1995 to 3.2 percent in late 1998. In an effort to recoup some of that market share, Acer America planned to streamline efforts toward less complicated systems targeted toward schools, governments, and businesses.
In 1998 Acer reorganized into five groups—Acer International Service Group, Acer Sertek Service Group, Acer Semiconductor Group, Acer Information Products Group, and Acer Peripherals Group. Two years later that corporate restructuring did not appear to have made a significant impact on the company overall, and stock prices were sliding. Shih restructured again. To dispel complaints from clients that Acer competed with its own products and to alleviate the competitive nature of the branded sales vs. contract manufacturing businesses, Shih spun off the contract business, renaming it Wistron Corporation. The restructuring resulted in two primary units—brand name sales and contract manufacturing. The restructuring also resulted in Acer breaking off several of its smaller operations, including semiconductor design, consumer electronics, and liquid-crystal displays.
Early signs indicated that the spinoff strategy had worked well, especially in Europe, where Acer became a popular PC brand. In 2003, company sales increased 48 percent to $4.6 billion, and helped Acer surpass Japan's Toshiba and NEC, making it the world's fifth largest manufacturer of PCs.
Acer had also adopted a more focused "channel" approach to distribution. Instead of a multi-tiered strategy, the company simplified the sales/distribution process by eliminating direct sales, and fostering closer working relationships with dealers and distributors. Acer also focused on selling to corporations through distributors rather than trying to win the sales from individual consumers.
The restructuring, combined with the 100 percent focused channel strategy, increased Acer's success in the European markets. Acer applied the same channel strategy in the United States, where sales figures eventually began to turn around—so much so that Acer America was on track to break even by the end of 2004. Acer America had also worked hard to reinforce product support services since early 2000.
By late 2004, the industry rankings were in Acer's favor. In Europe Acer was number two in PC brand sales in the second quarter of 2004. In the third quarter, Acer was the top PC notebook brand in Italy and Germany, the region's biggest PC markets. Acer had also climbed to number three in PC shipment volume to the entire pan-European market which included the Middle East and Africa.
Gianfranco Lanci, who had overseen and orchestrated Acer's success in Italy and then throughout Europe, began managing the U.S. market operations. Lanci became Acer president, and president J.T. Wang was promoted to CEO, while Stan Shih planned to retire. After putting it off for several years, Shih finally announced his upcoming retirement, sensing his company was in good hands and positioned for continued growth.
Forecasting into 2005, the company anticipated its global revenue would increase by 30 to 40 percent. Acer leaders hoped to become the world's third largest PC maker by surpassing Fujitsu Siemens Computers and IBM. To reach that goal, Acer planned to further expand desktop market penetration. At the time notebook PC sales represented 58 percent of Acer's earnings. Comfortable with its leading presence in Asia and Europe, the company was ready to position itself to increase sales in China and North America, turning up the competitive heat on rivals Dell and Hewlett Packard.
Join eNotes
Over 3,500 study guides, question and answer forums, literature criticism, reference content, and much more!
Navigate
