Inventec Corporation

Case Two

Inventec Corporation

1. Despite its growth and size, Inventec is not very profitable because the profit margin is very low. Though the company produces and sells tons of products, for each more product it produces, the revenue earned is not much.

The industry is very high competitive with many existing competitors. The entering barrier is not high and some EMS sectors which produce substitute products can also enter into the industry, which makes the industry more competitive and the profit margin even lower.

Because the industry is competitive, the bargaining power of the customers is very high. They deal with several ODM companies to get cheaper prices.

2. The drivers of the average profitability of the Original Design and Manufacturing industry are cost leadership strategies. The companies in the industry need to supply similar product at a lower cost. The leading companies have economies of scale and scope and efficient production.

To cut input costs, most companies move to mainland China to cut down labor costs.

3. The key factors that a company like Inventec needs to manage to earn above-average profits in this industry are horizontal diversification and vertical integration.

Horizontal diversification is that the company can produce more diversified products than other companies in the same industry to attract more customers. Inventec has more horizontal diversification, and some of their products like servers have high profit margin.

Vertical integration is the degree to which a firm owns its upstream suppliers and its downstream buyers. In this case, vertical integration mainly means that a company owns its upstream suppliers. Because the company owns its upstream suppliers, it can have lower input costs and also can produce more efficiently than the companies in the same industry.

4. The Indian software industry, on average, is so much more profitable than the Chinese ODM industry is because their products have high profit margin....