Case of Study Inventec CorporationCASE OF STUDY INVENTEC CORPORATIONDespite its growth and size, why is Inventec not very profitable?There are several reasons may Inventec is not very profitable: Firstly, this company is operating in a dynamic industry with very short product life cycle. Secondly, the grade of competition is extremely and the clients and suppliers have high bargaining power. Additionally, even though this market is growing these ODMs have low gap between revenues and costs, which give them poor manage margin. Moreover, Inventec had a narrower client base in its principal product Notebook PC (more 80% of sales, years 2004-06) and in 2005 it affronts a war price because its competitors used aggressive pricing strategy. Finally, the underutilization of Inventecs plants in China (ROA 3.2%)
\\ is forcing the company to grow the production of Inventec’s second and third generation products such as Chromebooks and smartphones, which are less than 4% of total sales.This business is being driven through a “flexible pricing structure” as well as “continuing a large segment strategy.” Inventec’s revenue has been growing almost 2% this year and in 2010 it had 9,000 units shipped in South Korea. (There are around 4,100 units in North America).However, India has not gone for that high performance market while the global markets have been declining, mostly as a result of low and high cost of production of PCs (see report from PC World Report last month. Inventec’s revenue is forecast to drop to 1,500,000 at this time). The reason for this inefficiency is evident in its efforts to produce and sell a higher quality PC compared to the international competitors. It also has a “southern strategy” which focuses mainly on selling to domestic customers, not expanding beyond a given market. However, in China this can be a problem because it has to reach its customers first. In particular the North American consumers pay at least 2% to 5% of their total market share of Inventec in North America.The problem arises due to the limited budget of Inventec, which needs to generate high volume of products in order to compete on a market wide basis. The government needs to decide on the best way to achieve that mission while also making sure profitability is ensured. The need for increased financial services to fulfill those services will also be a reason for in-depth cost study (DPA) work. (This also includes DPA evaluation of Inventec’s business. The study can help to assess costs on the part of Inventec in relation to DPA.)The project of Inventec is to develop better PC sales platforms for both Windows and Mac OS on the same platform.”On the one hand, PC customers have to pay more for premium quality products such as Invenio and Inktron,” says the CEO of Inventec.In the previous round of investments in mobile computing and computing PCs, Inventec was facing several questions: “How would this fund a new product range to improve the competitive advantage to consumers? How would the market respond to the new PC market?” To this end the company put its own projects aimed at meeting those questions: “Inventec has to develop a strong and fast PC brand (it is also a brand based on the mobile platform which means the products and brand might change when the consumer goes to different types of devices or phones) and develop a strategy to differentiate it for customers. Also the market will take its view towards new PC products which can be sold via the mobile platforms. In fact As of now, Windows 9 does not generate enough revenue from mobile devices to pay for the new PC platforms. The product we need more money to achieve is not available in mobile products.” Inventec is looking at some other options as well. “We will also focus our efforts on bringing products to the new mobile platforms where Inventec might not be able to
\\ is forcing the company to grow the production of Inventec’s second and third generation products such as Chromebooks and smartphones, which are less than 4% of total sales.This business is being driven through a “flexible pricing structure” as well as “continuing a large segment strategy.” Inventec’s revenue has been growing almost 2% this year and in 2010 it had 9,000 units shipped in South Korea. (There are around 4,100 units in North America).However, India has not gone for that high performance market while the global markets have been declining, mostly as a result of low and high cost of production of PCs (see report from PC World Report last month. Inventec’s revenue is forecast to drop to 1,500,000 at this time). The reason for this inefficiency is evident in its efforts to produce and sell a higher quality PC compared to the international competitors. It also has a “southern strategy” which focuses mainly on selling to domestic customers, not expanding beyond a given market. However, in China this can be a problem because it has to reach its customers first. In particular the North American consumers pay at least 2% to 5% of their total market share of Inventec in North America.The problem arises due to the limited budget of Inventec, which needs to generate high volume of products in order to compete on a market wide basis. The government needs to decide on the best way to achieve that mission while also making sure profitability is ensured. The need for increased financial services to fulfill those services will also be a reason for in-depth cost study (DPA) work. (This also includes DPA evaluation of Inventec’s business. The study can help to assess costs on the part of Inventec in relation to DPA.)The project of Inventec is to develop better PC sales platforms for both Windows and Mac OS on the same platform.”On the one hand, PC customers have to pay more for premium quality products such as Invenio and Inktron,” says the CEO of Inventec.In the previous round of investments in mobile computing and computing PCs, Inventec was facing several questions: “How would this fund a new product range to improve the competitive advantage to consumers? How would the market respond to the new PC market?” To this end the company put its own projects aimed at meeting those questions: “Inventec has to develop a strong and fast PC brand (it is also a brand based on the mobile platform which means the products and brand might change when the consumer goes to different types of devices or phones) and develop a strategy to differentiate it for customers. Also the market will take its view towards new PC products which can be sold via the mobile platforms. In fact As of now, Windows 9 does not generate enough revenue from mobile devices to pay for the new PC platforms. The product we need more money to achieve is not available in mobile products.” Inventec is looking at some other options as well. “We will also focus our efforts on bringing products to the new mobile platforms where Inventec might not be able to
What are the drives of the average profitability of the Original Design and Manufacturing industry?The ODM as the name say they designed, manufactured and often shipped products directly to clients customers. But the drivers which contribute to the average profit margin of the ODM industry are:
The process of designing and manufacturing goods (low cost and economies of scale)The low-cost distribution (competitive advantage)The lower labour costThe supply chain and logistic system (crucial role)What are the key factors that a company like Inventec needs to manage to earn above-average profit in this industry?There are numerous factors that Inventec may consider to earn above-average profit in this industry. Firstly, Inventec have to cut its high operating costs, and provide services and products at relatively competitive lower prices. Secondly,