Reference no: EM131283760

Acer Inc. is a leading marketer of notebook and desktop PCs. The company, which posted sales of $21.3 billion in 2010, also produces other products such as the new Iconia tablet. As Taiwan gained a reputation as the "tech workshop of the world," Acer became Taiwan's number-one exporter. Stan Shih, the company's founder, built Acer into one of Taiwan's most successful companies. Despite Acer's success, the company had trouble breaking into the American market. In the late 1990s, Shih noted, "In the United States and Europe, we are relatively weak. The local players there are very strong. The problem is that we don't have good experience in marketing in those regions. It's a people issue, not a product issue."

Shih discovered that building enterprise brands is easier than building brands in the business-to-consumer market. "Business-to-consumer brands have more value but also face more challenges. People involved in businessto-business are usually rational, but consumers in business-to-consumer are usually emotional in choosing their brands," he said. In 2000, Shih refocused Acer's distribution and marketing on the vast, fast-growing China market. He envisioned establishing a solid market base in greater China (mainland China, Taiwan, and Hong Kong) and expanding from there to the rest of the world. "The market in China is very critical for Taiwanese companies to become global companies," Shih said. "Innovation is not necessarily related to whether you are smart or not. The reality is that if you don't have a big market it's not easy to innovate because the return on investment is too low.

The potential of China is not just big markets and low-cost labor. Actually, it's also for highly educated engineers or professionals." Shih understood the need for Acer to develop a strong brand image in China. "The challenge for this region is really the poor image that is often associated with products here," said Shih. Shih knew that a company should be stable and secure in the local market before pursuing regional, then global markets. He continued, "Another important feature is also the government and the general public. They have to understand the role of supporting activities for local brands. If they do not support or use the locally made products, there will be no improvement in this area." Ronald Chwang, Acer's chief technology officer, anticipates that Acer's knowledge of China's market will help the company achieve its growth and market share objectives; as he puts it, "Now we have a market where we understand the culture and the people's needs.

That should enable Acer to move a lot of hardware." As Acer Group CEO J. T. Wang noted recently, "China and Taiwan share not just the same language and culture, but a lot of our Taiwanese suppliers are already there. We can take our brand global by building a strong home market." Still, Acer faces tough competition in China. Lenovo, a local mainland brand, dominates with about one-third of the market. Wang believes Acer is well positioned to overtake Lenovo and other local mainland firms to become the leader in PC sales in China. Shih believed Acer would have an advantage compared to local PC makers because Acer is "more global."

At the same time, Shih was convinced his company could compete with better-known global companies that are entering China because Acer is more "local" than they are. Acer's international identity gives the company access to advanced business practices, technology, and economies of scale that companies like Lenovo do not have. "We have more technology. . . . We have more global exposure. . . . We have more international know-how," Shih said. Shih made a strategic bet that the company's notebook computers would help Acer establish a quality name and high-end image. Meanwhile, Lenovo acquired IBM's ThinkPad notebook business. Keenly aware of the importance of scale in the global computer market, Acer acquired U.S.-based Gateway in 2007.

In 2004, at the age of 60, Shih retired. "This way the company can have new blood," he said. "Acer is solid and stable, but a little bit old-fashioned. Sometimes we are not aggressive enough among the middle and high level managers." The move paid off: Acer is currently the top notebook brand in Europe, and its low prices are a crucial selling point in key emerging markets such as India and Eastern Europe. Propelled by high demand for the low-cost Aspire One netbook and other products, Acer vaulted past Lenovo and Dell to become the world's second-largest PC marketer by computer shipments. Will the new leadership team headed by J. T. Wang be able to replicate Acer's European success in the United States and Asia?

Discussion Questions

1. How does the "global markets/local markets" paradox figure into Stan Shih's strategy for China?

2. Acer is now the world's second-largest PC company, behind Hewlett-Packard. How can it sustain its growth?

3. Despite strong competition from Dell and Hewlett-Packard, Acer's U.S. market share increased from 1 percent in 2004 to 16 percent by the end of 2009. What are Acer's prospects for gaining further share in the United States?