Inventec Case Study
Inventec Corporation Case Study
Inventec Corporation lies in the ODM industry which designed and manufactured electronic products for client companies that marketed the products globally. Despite its growth and size, Inventec is not very profitable for the following reasons. To begin with, the ODM industry’s average profitability is low. Net margins of leading taiwan ODM companies range from 1% to 6%. The low profitability is mainly driven by the huge customer bargain power and the fierce competition. ODM’s clients, these global electronic companies face fierce competition themselves and have a need to lower cost. Their strategy to diversify contract manufacturing partnerships reduces their reliance and increase negotiation power against ODM industry. Consolidation within OEM industry further gave them greater bargaining power over the segmented ODM. The fierce competition from both existing competitors in ODM industry and the substitute EMS industry further drives the profitability low. The large manufactory capacity has resulted in ODMs competing with each other for more market shares, which pushed the price down. EMS also provides clients manufacturing, sourcing, procurement, inventory management services. EMS usually doesn’t maintain Intellectual Property and are not likely to compete with OEM clients. This has made them an attractive substitute for those OEM clients who want the design of product to be customized and confidential. In 2004 EMS consumed 61% of contract manufactory revenue. Their willingness to maintain the low profitability put price pressure on ODM industry. To make competition more fierce, new entrants threat arise for ODM industry when EMS such as Flextronics attempted to move to higher margin ODM industry by creating in house design teams and acquiring second and third tier ODMs. The ODM industry’s average profitability is thus squeezed. And for Inventec, the profitability is not the top
Inventec Corporation lies in the ODM industry which designed and manufactured electronic products for client companies that marketed the products globally. Despite its growth and size, Inventec is not very profitable for the following reasons. To begin with, the ODM industry’s average profitability is low. Net margins of leading taiwan ODM companies range from 1% to 6%. The low profitability is mainly driven by the huge customer bargain power and the fierce competition. ODM’s clients, these global electronic companies face fierce competition themselves and have a need to lower cost. Their strategy to diversify contract manufacturing partnerships reduces their reliance and increase negotiation power against ODM industry. Consolidation within OEM industry further gave them greater bargaining power over the segmented ODM. The fierce competition from both existing competitors in ODM industry and the substitute EMS industry further drives the profitability low. The large manufactory capacity has resulted in ODMs competing with each other for more market shares, which pushed the price down. EMS also provides clients manufacturing, sourcing, procurement, inventory management services. EMS usually doesn’t maintain Intellectual Property and are not likely to compete with OEM clients. This has made them an attractive substitute for those OEM clients who want the design of product to be customized and confidential. In 2004 EMS consumed 61% of contract manufactory revenue. Their willingness to maintain the low profitability put price pressure on ODM industry. To make competition more fierce, new entrants threat arise for ODM industry when EMS such as Flextronics attempted to move to higher margin ODM industry by creating in house design teams and acquiring second and third tier ODMs. The ODM industry’s average profitability is thus squeezed. And for Inventec, the profitability is not the top