CASE II INVENTEC CORPORATION
1. According to industry structure and profitability analysis, these are some reasons lead low profitability of Inventec. First, rivalry among existing firms; more competitors enter into this filed especially in China, the average selling price continues to erode, even some of them have to choose price war. At the same time, India companies provided high profit margin software and IT service which left the low profit margin manufacturing to traditional ODM companies. Second, threat of new entrants is high; as the growth of EMS facilities was rapidly over last decade through vertically integrated, and they had more sophisticated production engineering and greater manufacturing capacity than ODMs. By 2004, most of the leading EMS companies extended client lists to break into ODM sector. As OEM R&D budgets shrank and product life cycles shortened, they looked to outsource aspects of design along with manufacturing, thus ODM and EMS were increasingly competing from same client base. Third, barging power of buyers is more strengthen than ever. OEMs began to move to diversify contract manufacturing partnerships and more consolidations made them had more barging power to ODM especially Inventec principle client’s aggressive pricing strategy on Notebook PC. Furthermore, according to Inventec executive, the switching cost of their clients became lower than before.
2. ODMs provide design and manufacturing electronic products service for client companies that marketed the products globally. The biggest profitable part of ODMs is intelligent property. However, the ODMs do not control the distribution channel, and the most software patents embedded in its hardware products which the added value of the software was lost to ODMs. ODM industry was sensitivity to the product cost, since the major Taiwan ODM moved to mainland China, almost every companies had same cost reduction structure. The lower labor cost cannot longer be the...
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