THE ACER GROUP’S CHINA MANUFACTURING DECISION Case Solution
Analysis of country potential
In this section, we will look at the PC market of two merging economies, India and China.
China is one of the fastest growing economies (See figure in appendices), having a large investment from foreign countries. In 1996, 2.1 million PCs were sold, with a value of $2.5 billion that increased by 47% from 1995. On the other hand, in India 845000 PCs with a value of $955 million were sold, this is even less than the half of China’s number.
The degree of familiarity with the local culture is very much important.Until and unless you are not familiar with the local culture,you cannot achieve success over there or it will take a lot of time. In addition to this,cost factor is also very important as China has the cheapest labor in the world and therefore various companies including Microsoft, and Apple have their manufacturing plants in China.
One of the reasons to enter into the Chinese markets is familiarity with the local culture as vice president of the company has some knowledge regarding the Chinese culture and markets which encourages the company to open a manufacturing plant in China. On the other hand, the company is not familiar with the Indian culture that is very much different from China. The familiarity with culture provides an ease in business processes and also leads to less operational difficulties. Doing business in regions with which company is not familiar such as India would likely result in the decreased potential for success. The tax benefit is also another advantage in China, as itis providing tax cuts for manufacturing companies as low as atax rate of 13%. It also gives full tax exemption for the first two years and after that 45% reduction for 3 years. India also provides the same benefits but only in special economic zones.
Larger market size, lower labor cost and familiarity with business culture give an indication to start manufacturing plant in China.
Human Resources issues
Human resource is also a problem for the company, as company has to motivate its managers to shift to China with their families for at least five years. It will be a great challenge for the company, because the families may not relocate to China because China’s standards of living are lower than Taiwan and also the political instability would create difficulties for Taiwan families in China. Another problem company may face is about the workforce in China. The company will need to create an effective and disciplined workforce as some workers may not work for the company because of unstable relationship between the two countries.
The Chinese government is also against the relocation of the families because of an unstable relationship. Another factor is that China is delivering cheaper products and also the established market will create problems for the company as it will need to fully understand the culture of China to capture the market share.
Creating productive workforce
Chinese workers are different from company’s workers as they are less willing and motivated to give extra hours at the time of high production. Workforce affects the operational efficiency of the company.
Relocating Taiwanese managers
As there are high living standards in Taiwan, so Vice-President, Lin has to find a place for his manufacturing plant, where education, safety and good standards of living can be guaranteed for employees who will be coming to China. It seems that Lin has to find a place that satisfies the needs of employees and also meets the other factors such as distance from the company’s headquarter in Taiwan.
Selection of location will be the utmost priority for the company as the location must fulfill the needs of the company and the families.
Location selection (Solution)
In 1998, per capita income of urban areas of China was $15,600 and per capita income in Taiwan was$10,500.The growing per capita income of urban areas is a sign of high standard of living, therefore, locating company’s facilities in an urban area will provide the managers and their families an unsatisfactory standard of living.
Managers will also face trade-off while leaving for another country with a lower level of development as the company will have to make sure that children have a very good school to go to. Other benefits include bonuses for the country risk and other social benefits. As Acer is a multinational company and it has manufacturing plants in different parts of the world, so this will not be abig issue for the company.
Safety is also one of the major issues and this is not in the control of the company, but it can provide training to its managers to avoid any incidents in China and safety should be ensured for housing.
Recommendation or action plan
To solve the problem of productive workforce, company can use following measures
- Rule enforcement:China is a communist country and people have the fear of punishment, this results in the lack of creativity and high level of uncertainty avoidance. On the other hand, worker’s incentive can be the solution in the tightly enforced regulation.
- There is an evidence that money is important in China and it is a motivation for the employees. Chinese workers function in a company where there is low differentiation in pay and also pay is based on individual performance that reflects a need to minimize competition.However, the company can provide external benefits to the workers.These benefits include housing and other social benefits so that they can work overtime when there is a high production demand.
- Chinese people are willing to change so the company can take advantage of this while giving them chance to learn new things.
China has special economic zones and its infrastructure meets the standards and is also perfect for the manufacturing industry.
There are total 4 special economic zones that are near to the large cities of China and are also near to Hong Kong.This can be an advantage in the transportation of goods. Some high tech components are not available locally so those can ship from Taiwan. When it comes to infrastructure, these all special economic zones are same and as we are hiring workers locally, Hong Kong would be better as its population is large enough……………………..
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