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 ...view middle of the document...
And for Inventec, the profitability is not the top among leading firms, with net margin of 1.2% compared to Asustek’s 6%. Majority of their revenue comes from manufacturing of hardware for OEM, which has a lower margin. Since Invectec has a preference for top OEM, they are at a disadvantage position during contract negotiation. Furthermore, the increased value of their software was lost due to the ever tightening squeeze on hardware supplies. Their relatively small scale compared to other first tier ODMs worsens their profitability.
To improve the profitability, company like Inventec should develop their competitive advantage and maintain customer satisfaction. Their patents and designs differentiate them from their EMS substitute. To distinguish from competitors and retain OEM clients, high quality service should be maintained. Customers’ requirements such as peculiar design and fast delivery should be satisfied. Expansion into brand product should be carried out with cautious to avoid direct competition with OEM clients. Efforts such as expand the scales should also be made to enlarge the negotiation power with OEM clients.
For Inventec, efforts to improve profitability should be focused more on Software Development option. Most Inventec patents were for software solutions. Their strength in software can add unique value to clients. India software industry’s success is a good lesson. As they focused solely on software platform, it is easily recognized as a value-added product with...