NINE MILE

Management Consulting

Managing Global Firms: The Subsidiary Perspective

February 2013

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Copyright 2013. All Rights Reserved. The Nine Mile Management Consulting Group

Nine Mile Management Consulting Group

February 2013

Managing Global Firms The Subsidiary Perspective Acer Inc. & Acer America Corporation Acer Inc. experienced tremendous growth in the mid-1990s, even given the trend of sinking gross margins in the PC market. Organized in a client-server1 structure, Acers Strategic Business Units (SBUs) and Regional Business Units (RBUs) could undertake subsidiary initiatives 2 with limited resistance. The Acer Aspire, launched in 1995, was an external initiative undertaken by Acer America Corporation (AAC) to create an out-of-box experience (OOBE)1 in response to unmet market demands for an easy-to-use PC. Troubled Sales Performance Two-and-a-half years after Aspires launch, the troubled sales performance in the US/worldwide was largely due to a number of convoluted and interacting factors between the RBU responsible for this products inception (AAC) and Acers HQ, namely: (1) product development and integration, (2) strategic formulation and execution, and a (3) lack of marketing coordination; the symptoms of these problems perpetuated Aspires off-target sales. Product Development & Integration: Through design capability deficits at AAC (US) and not reaching out to internal SBU engineers (Taiwan), AAC decided to proceed independently and employ a US-based third-party to design a sleek case in non-standard colours1. By bypassing Acers SBUs, problems with troubleshooting issues and integrating computer parts in the final PC outer casing became difficult because different sub-assemblies were managed in different countries. The extra coordination required between AAC and Taiwanese suppliers meant product delays, added costs for specialized components, and significant post-launch customer complaints due to quality. Globally, each country integrated different components/parts for their locally configured PCs to deliver to their target segments; this led to non-uniformity of brand image with over 100 different Aspire versions. Strategic Formulation & Execution: The Aspire adopted a middle-of-the-road strategy not emphasizing either of Porters generic strategies: cost leadership or differentiation3. It was positioned

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February 2013

within the 5% margin window between low-end competitors such as Packard-Bell and high-end competitors such as IBM. With no clear value-proposition to end-consumers both in the US and globally, as well as a lack of clearly defined business strategy, the continued price-wars between competitors led to further decreasing margins and sales performance. Lack of Marketing Coordination: The lack of global marketing coordination to achieve a global brand inline with CEO Shihs vision also meant that the sales performance of the Aspire varied widely from one geography to another. Despite marketing efforts, the Aspire was not able to truly achieve OOBE strategy in either the US or globally as evidenced by the sheer number of customer support calls after launch it did not fulfill the ease of use and operation requirements that were set forth from product development activities. Managerial Response The managerial responses to Acers problems were with mixed success as outlined through an evaluation of changes (or lack thereof) made to their: (1) product, (2) marketing strategy, (3) organizational structure, and (4) management roles & responsibilities. Product: Initial management response to technical issues were not addressed in a timely manner and moreover, the knowledge acquired by AAC was often-times not transferred to other RBUs local adaptations of the Aspire often still had the same configuration issues as in the US. Managements response had been poor at creating centralized information exchange and task forces for resolving technical issues. Management brought about drastic product changes by the fifthgeneration Aspire, which used all standardized parts and colour scheme. This decision by

management effectively ensured that further integration issues related to product development would be minimized which will support the companys success in future launches. Marketing Strategy: The localization efforts achieved by each RBU to cater the Aspire to their markets was a successful tactic in some countries but failed in others. What was made clear was the

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February 2013

lack of an overarching strategy and directives from Acer Inc. to its subsidiaries regarding how to establish a global brand during the few years after launch. By its fifth-generation Aspire, they had developed a business-level strategy of competing via cost-leadership. Their marketing, positioning, and operations strategy was successful at reducing the price point and relying on low-price, highvolume retailers such as Wal-Mart and Sears for distribution the adoption of this strategy meant that management was now able to fully articulate Acers competitive positioning relative to its peers, i.e. to create market-entry with new consumers through price reductions. Organizational Structure: The organizational structure and the independence of the

subsidiary created by the client-server framework ultimately led to coordination problems. During development of the Aspire, the lack of coordination between AAC and SBUs was apparent however, management did not take any substantial action at that time. The process of increasing the

interconnectedness of RBUs and SBUs and opening up channels of information flow via realignment of their organizational structure was not established. Management Roles & Responsibilities: The management culture in Acer was, [E]very man is the lord of his castle.1 Formal management roles and responsibilities did not change, however after the launch CEO Shih urged Michael Culver to take on more an informal leadership as a means of opening up channels of communication in regards to new products and performance. This informal appointment ultimately creates confusion in the traditional company hierarchy and gives Culver a lack of authority. In regards to the operations of AAC the only mentionable change made was a threeperson advisory team to oversee business improvements. In the end, Acer Inc. as the parent organization made strides towards product redevelopment and to a certain degree their marketing strategy yet they failed to address organizational issues and the re-assignment of management roles and increasing responsibility.

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February 2013

Global Brand Image CEO Stan Shih received considerable pressure to give up on the global Acer brand and capitalize on the component business. Though the Aspire launch sputtered, Acer should proceed to build a global brand, leveraging their global resources (manufacturing and assembly plants) 1, as the Acer brand sits at number eight globally (1998). Global Strategy: Acer requires focus on its Global Brand, Local Touch vision and

customization of its products and business-level-strategy for each region; if executed correctly Acer would develop a global marketing strategy that encompasses the entire brand and offerings on a consistent regional basis. In a landscape where PC-technologies are viewed as impersonal Acer needs to implement a shift from techno-centric to consumer-centric marketing4. Furthermore, they need to continue striving for an OOBE strategy in order to create a unique value proposition relative to competitors. Having achieved the above, Acer would then be in place to position itself as a differentiator and command a greater price slowly phasing out low price market-entry channels. Organizational Structure: In order to further their global brand image organizational structure must support their marketing/product localization strategy while creating centralized functions to spread a coherent vision across the organization. To implement this, areas of business operations related to product development, integration, and components must be centralized in innovation centers, to create what CEO Shih values, i.e. innovalue, 4 or value created through innovation. By centralizing their R&D functions, technical problem resolution occurs efficiently. However, product development arms should exist within each RBU to apply their Local Touch vision. Acer also requires centralized a centralized marketing department and regional ones in their RBUs to coordinate discussions of brand image. Each subsidiary contributes a level of expertise understanding of consumer demands and regional competition to effectively gain competitive edge.

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Management Philosophy: Management in RBUs have adopted an independent mentality on the one hand this is beneficial since each RBU understands the importance of subsidiary initiatives, but on the other it creates problems of communication, flow of knowledge, and unity in the organization. To implement this approach, the client-server framework should be tweaked to the terminal-mainframe approach whereby terminal arms of the organization all have the ability of contributing directly to the mainframe where the mainframe synthesizes and updates its corporate level strategy based on these inputs. Management is then required to not act independently, but act in the best interest of the Acer organization and decisions of one RBU could be globally implemented. This not only creates a more responsive organization, but helps to promote their global branding strategy.

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References 1 2 Acer America: Development of the Aspire, HBS Case #9-399-011. Birkinshaw, J. and J. Fry. (1998). Subsidiary Initiatives to Develop New Markets. Sloan Management Review, 39, 3, 51-62. Porter, M.E. (1985). Competitive Advantage. Free Press, New York, 1985. Temporal, P. (2001). Branding in Asia: The Creation, Development and Management of Asian Brands for the Global Market. Wiley, Revised Edition. Hans, M. T. & Nohria, N. (2004). How to Build Collaborative Advantage. Management Review, Fall 2004, Vol. 46, No. 1. MIT Sloan

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