Inventec Case Study

Despite its growth and size, why is Inventec not very profitable?

1. Rivalry among existing organisations

• Concentration and Balance of Competitors

The ODM industry was highly fragmented with a large amount of competitors with a high concentration of market share in certain brands (e.g. asustek, compal, inventec, quanta, wistron etc.).

• Degree of differentiation /industry growth rate

As there are so many companies provide almost identical or similar products, there is competitive pricing as companies try to lower prices in order to gain market share in a growing market.

Client companies tended to limit ODM use to highly commoditized products with widely available designs and so ODM products tended to have a low degree of product differentiation.

The design of a new product may obsolete in a very short period of time, the reliance on frequent technology innovation determined the high industry’s inherent risk.

• Switching costs

There were very little costs involved in switching between different companies (“it might take them three weeks or three months maximum to switch, but they could do it, and they would survive”)

Switching to different companies was also easy as the majority of PCs use Intel microprocessors or Microsoft Windows operating systems.

• Scale/learning economies

As the abundance of companies that had moved to china increased, the average selling price began to decrease as China was no longer a low cost area as everyone had the same cost structure.

2. Threat of new entrants

• Legal Barriers

Since the easing of Taiwan government restrictions of high tech investment in China, all the major ODMs had opened plants in mainland and new firms could easily step into this field, thus increasing supply of quality goods.

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