5910case2

Case 2 Inventec Corporation

Name: Zhang Zhang

Student Number: z3426055

1. Despite the size and growth, why is Inventec not very profitable?

a) The life cycle of a product is very short in the digital product industry, which is the inherent risk of this industry. The demand of new products is strong. The existing products, therefore, have limited time to make profit if they are profitable, and then be soon replaced by new generation digital products.

b) Brutal competition and intensive rivalry among the existing ODM & OEM firms force the profitability go down. Firms like Compal, Quanta and Asustek provide almost the same service as Inventec, making Inventec cut down his price to standstill.

c) There are also a high threat of new entrance. Since 2001, the government restriction of high tech investment in China has been easing. This signal showed the barrier of new entry has become smaller, and the 6/7 lower cost of the mainland Chinese labor force also seems attractive to other companies that are planning to start there ODM or OEM business.

d) The customers of ODM firms have strong bargaining power. The number of customers of Inventec is extremely limited and they are all big customers. The cost overweigh the saved if Inventec lost any of their customers. Plus, the principal clients of Inventec start their aggressive pricing strategies, dropping their gross margin of notebook PCs below 4%, which will indirectly be terrible price squeezing and margin erosion to Inventec.

2. What are the drivers of the average profitability of the original design and manufacturing industry?

a) Lower labor cost

b) Lower land cost, material cost.

c) Lower transportation cost. Place close to transport hub and reliable and smooth logistic system.

d) High efficiency of innovation to meet the fast changing demand of consumers....