Shih hopes that Acer can concentrate on two core business areas going forward: the creation of value, focusing on innovative applications for a quality lifestyle and services that suit consumers’ needs; and the pursuit of balanced interests, creating a new mechanism to work with all stakeholders to create value and share benefits.
Value creation and a balance of interests are what Taiwan’s high-tech manufacturers are now actively pursuing. For value creation, it is undeniable that their past strategy was low-cost, a competition based on the price-performance ratio, making products of about the same performance and quality as those of industry leaders but priced much lower. Based on their resources and technological competitive position, local manufacturers pursued a catch-up strategy, chasing the market leaders as closely as possible to secure a foothold. From the viewpoint of market differentiation, the price of the market leaders’ products stays high, creating a demand for low-priced alternatives, which Taiwan makers satisfy.
From a competitiveness perspective, the low-cost strategy is one way of competing in the market, utilizing economies of scale and the experience curve to bring costs down. This allows functional operations of the organization, such as production, marketing, human resources and R&D, to achieve optimal economic effectiveness.
Alternatively, the production base can be relocated to save on tariffs, reduce inventory risk and avoid losses from transportation. Such relocation can also exploit market proximity to fully understand consumer demand, enabling rapid response and improvement in product design and function.
But competition based on low costs also has its own risks. To achieve economies of scale, large investments in new equipment and facilities are required. In the event of a major change in market demand before associated costs can be recovered, or if competitors make similar massive investments to produce oversupply, or if newer or more effective technologies or machinery are rolled out, then the competitive landscape can change overnight. Additionally, setting aside environmental considerations and sustainability in the quest for cost savings can create even bigger problems for society down the road.
Only when an absolute advantage on cost is secured, giving the maker bargaining power over end consumers or upstream suppliers, can it produce a reasonable return on investment. If this threshold of advantage is not high enough, the firm can very easily lose its market position under price competition.
In the past few decades, Taiwan’s high-tech manufacturers have not just suffered from a paradigm shift, but face low-cost competition from mainland China and the threat of over-investment and over-capacity, making the low-cost strategy unsustainable. It has reached the point where a change of course is mandatory. If domestic firms think of how to grasp the demands of human nature and meet customer needs by really creating value for them, the firms will have a chance to return to their former glory.
With regard to balanced interests, Taiwan’s fast-moving small and medium businesses formerly competed alone within a vertical division of labor framework against the large manufacturers of South Korea and the U.S. But the next stage of market competition will be based on the integration of hardware, software and services. The key issue has become how to integrate and muster cross-sector forces to expand the market collectively. If various resources could be pooled, including production, R&D and human resources, not only could the overall success rate be boosted, but the risk from failures could also be spread. In the process, attention must be paid to balancing all forces and interests to stimulate all stakeholders to head toward a common goal. Only then will integration be sustainable.
This is an era where cooperation is required to achieve a situation in which everyone wins. With the operating environment changing almost instantly, and technology making huge strides by the day, all parties must cooperate to boost competitiveness and avoid detrimental impact from changes in the external environment. Taiwan manufacturers today are faced with a particular threat from foreign competition. They must present a common front, with the government playing an active matchmaking role.
In summary, it is hoped that Acer’s transformation will be successful, and that Taiwan’s high-tech industry can change its mindset to make smooth upgrades possible and create greater value for a global clientele. (SDH)
(This commentary first appeared in the Economic Daily News Dec. 24, 2013.)