Inventec Essay

485 Words2 Pages
Question 1: Despite its growth and size, why is Inventec not very profitable? Inventec is not very profitable due to: 1. Extensive industry competition: a. ODMs are fragmented. There are many existing large ODM competitors such as Asustek, Compal and Quanta who all have larger economy scales than Inventec in terms of their sales revenue. Meanwhile, as OEMs tend to primarily outsource ‘commodity technology’, EMSs and ODMs are increasingly competing for the same client base. b. Low switching cost for OEMs. OEMs often contract manufacturing partnerships among many other ODMs. The switch is easy and cost-efficient. c. the ratio of fixed to variable costs is high: Inventec has to reduce prices to utilize installed capacity. (e.g. its new manufacturing compound in Pudong, Shanghai) d. OEMs own the distribution channel and make the rules. 2. Low barging power of Inventec and strong barging power of OEMs: The PC market is dominated by few big players such as IBM, Dell and HP. The volumes of purchase of these big players are high. Plus the number of ODMs on the market and the low cost of switching, OEMs have a strong barging power over Inventec. Question 2: What are the drivers of the average profitability of the Original Design and Manufacturing industry? Questions 3: What are the key factors that a company like Inventec needs to manage to earn above-average profits in this industry? 1. Cost Because of the severe competition, maintaining a low cost base is the most important factor to earn above-average profit. This can be achieved by 2. Differentiation By differentiating its products, Inventec can stand out of the other competitors and therefore increase the switching cost of its OEMs and enhance its barging power. Differentiation can offer a premium to the unit price. 3. Question 4: Why us the Indian software industry, on average,

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