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Called "the region's most impressive technology company" in a 1996 article in The Economist, Acer Inc. is Taiwan's leading exporter and the world's seventh-largest personal computer brand. The company also ranks among the world's ten biggest manufacturers of individual components like keyboards, monitors, and CD-ROM drives, and is America's ninth-largest personal computer producer. By 1995, the company was producing four million PCs annually, 25 percent of them OEMs (products sold under other companies' labels). Under the guidance of Chairman and CEO Stan Shih, Acer used ground-breaking strategies to bounce back from a US $22.7 million loss in 1991, earning US $205 million on sales of US $3.2 billion in 1994. Shih hoped to increase Acer's global sales to US $15 billion by 1999, by which time the company would operate as a "federation" of local manufacturing, assembly, and marketing units.
Acer's founder was born Shih Chen Jung in 1945. A shy youth, Shih blossomed at National Chiao Tung University, where his natural math aptitude helped him graduate at the top of his class. Shih, who later westernized his given name to Stan, earned a master's degree in 1972 and went to work as a design engineer at Qualitron Industrial Corp.
It was not long, however, before the entrepreneurial bug bit Shih; in 1976, he and several friends founded Multitech International with a $25,000 initial investment. The new firm started by designing hand-held electronic games, then expanded into the distribution of imported semiconductors. Shih renamed his company Acer Inc. in 1981. The name was derived from the Latin word for acute or sharp.
The company enjoyed its first international success that year with the launch of MicroProfessor, a teaching tool. The company began manufacturing PC clones--computers and components that were sold to larger companies with strong brand names--in 1983. Acer diversified vertically in the late 1980s, soon becoming "one of the most vertically integrated microcomputer manufacturers in the world," according to Los Angeles Business Journal.
In 1995, Fortune's Louis Kraar called Stan Shih "a fascinating combination of engineering nerd, traditional Chinese businessman, avant-garde manager, and international entrepreneur, with an outsize ambition and vision to match." The young CEO applied all of these talents to his young enterprise. In stark contrast to the micromanagement, nepotism, and profit-taking typical of Taiwanese companies, Shih established a modern, progressive corporate culture. Although Shih's wife, Carolyn Yeh, served as the company's first bookkeeper, the founder vowed that his three children would have to look for jobs elsewhere. Time clocks were anathema, even in production plants. In 1984 he established Taiwan's first stock incentive program. Within four years, 3,000 of Acer's employees were also stockholders.
In 1981, Acer hinted at a sweeping change in strategy with the establishment of Third Wave Publishing Corp. The term "third wave" referred to the most recent phase of the history of Taiwan's computer industry: the first was characterized by trademark and patent piracy, the second by clonemaking, and the third by technological innovation. Instead of simply churning out other companies' designs, Acer began to set itself apart from most of its Taiwanese competitors by doing its own research and development. For example, the company developed one of the world's first Chinese language computer systems. In 1986, Acer was second only to Compaq to introduce a 32-bit PC with an Intel 386 microprocessor.
Acer went public in 1988, having chalked up average annual growth of 100 percent from 1976 to 1988. In 1988, net profits totaled more than US $25 million.
Early 1990s Setbacks
The late 1980s brought internal and external changes that had a devastating effect on Acer. The internal problems were completely unexpected. In 1989, Shih hired Leonard Liu away from a 20-year career with International Business Machines Corp. (IBM), making him president of the Acer group and chairman and chief executive officer of Acer America Corp. Described in an October 1995 Fortune article as "a cerebral Ph.D. in computer science from Princeton," Liu had previously been the "highest-ranking Chinese American executive" at IBM. Liu's managerial style reflected his experience at "Big Blue": in contrast with Shih's traditionally progressive corporate culture, Liu tried to centralize control of Acer. His off-putting approach has been blamed for a management exodus in the early 1990s.
At the same time, the computer industry quickly matured, shifting from a high profit margin business to a low margin commodity practically overnight. Price wars pushed component prices down so rapidly, and a strong New Taiwan dollar made the country's goods so expensive, that it became difficult to make a profit on the finished product.
Acer's sales rose from US $530.9 million in 1988 to US $977 million by 1990, but its profits dropped from US $26.5 million to US $3.6 million during the same period. In 1991, Acer posted its first ever annual loss, US $22.7 million. More than US $20 million of that shortfall came from Acer America, which had struggled since its inception. Acer's stock dropped to 50 percent of its initial public offering price. Shih had to sell Acer's headquarters to make a profit in 1992.
These difficulties, however, did not deter Shih from making several expensive, and oft-criticized, expenditures during the late 1980s and early 1990s. In 1989, Acer invested US $240 million in a joint venture with Texas Instruments and China Development Corporation, a Taiwanese development bank. The cooperative enterprise built Taiwan's first DRAM (dynamic random access memory) factory. Half of its output was sold to Acer, and the other half was sold on the world market. Some industry observers ballyhooed the project, noting a glut in the global DRAM market. Acer also expanded production capacity at its main plant, spent US $36 million on a global marketing campaign, and made questionable acquisitions in the United States and Germany. Financial World's Jagannath Dubashi was skeptical that the company's investments would pay off, noting in her July 1991 coverage of the company that "this new aggressiveness seems both poorly timed and unrealistic." She even characterized the company's bold moves as "a desperate gamble."
At the time, Shih would have been the first to agree with such an assessment. In January 1992, he offered to resign from the company he had founded. Acer's board of directors turned down Shih's resignation, but accepted Leonard Liu's withdrawal three months later. By mid-year, Shih had resumed day-to-day administration of Acer and its American subsidiary.
Instead of being cowed by the setback, Shih was determined to cement Acer's future in the PC industry by transforming it from just another OEM into one of the world's leading computer brands. He would achieve this goal via several revolutionary strategies.
New Methods Pace Mid-1990s Turnaround
In a 1995 Financial World article, Shih compared Taiwanese computer manufacturing to Chinese restaurants, saying that "Chinese food is good, and it is everywhere, but it has no uniform global image or consistent quality." The same was true of personal computers; although most were made in Taiwan, they were sold under several (primarily American and Japanese) brands, with varying levels of quality. Shih wanted Acer to be more like McDonald's, the quintessential fast food restaurant that boasted a strong brand image and strict quality standards.
This unique paradigm shift required a complete overhaul of Acer's production and distribution scheme. Instead of assembling computers in Taiwan, as it had done for more than a decade, the company began to ship components to 32 locations around the world for assembly. Shih compared computer components like casings, keyboards, and mice to staples like ketchup and mustard that could be shipped slowly and stored indefinitely. He likened the motherboard, which had to have the "freshest" technology possible, to the meat in a sandwich. It was shipped by air from Taiwan to each assembly operation. And finally, Shih compared the CPU and hard drive to "very expensive cheese: we try to source them locally." Shih's adoption of this unique strategy earned him the nickname "the Ray Kroc of the PC business."
This production scheme saved on shipping costs and enabled Acer to include the most up-to-date (Shih liked to call it the "freshest") technology available. In Acer-speak, "fresh" meant innovative. Not content to rely on low-end knockoffs of other companies' technology, Acer stayed abreast of the industry's latest developments. In 1992, it launched a multi-user UNIX system as well as 386- and 4865x-based PCs. That year also saw the introduction of an international service and support network, a vital element of any successful PC business in the 1990s. In 1993, Acer unveiled a new PC that came equipped with a RISC (reduced instruction-set computing) chip and Microsoft Corp.'s most recent version of the Windows operating system.
Shih hoped to bring the "fast food" concept all the way to the retail level, so that customers could custom-order computers with peripherals and memory capacity specifically suited to their needs. Acer tested this concept at a company-owned retail store in Taipei. It seemed to be as close as Acer could come to McDonald's-style service: only two hours passed from the time a system was ordered to the time it was booted.
Shih's "global brand, local touch" strategy was closely related to the "fast food" distribution concept. Instead of creating a series of centrally controlled foreign subsidiaries, Acer established a network of virtually autonomous affiliates, much like a fast food franchise system. Each of these affiliates was managed by a group of locals who determined product configurations, pricing strategies, and promotional programs based on national or regional preferences. The affiliate would usually have just one Taiwanese person on staff to facilitate interorganizational communications. Sales & Marketing Management characterized the system as a "revolutionary departure from the traditional hierarchical model of worldwide branches and subsidiaries reporting to a head office." Instead, it was "a commonwealth of independent companies, united only in their commitment to a common brand name and logo."
This strategy gave each Acer affiliate the semblance of a local company, an image that carried with it several benefits. Perhaps most important, it helped to downplay Acer's Taiwanese roots. Despite the country's large strides in the area of quality, "made in Taiwan" continued to carry negative connotations in the minds of many consumers. While Shih was proud of his company's heritage, individual affiliates often found it efficacious to de-emphasize that aspect of the business.
Globalization at Acer employed a third strategy adapted from an Asian chess-like game called "Go." Instead of jumping directly into the world's largest and most important computer markets, Acer conquered the surrounding markets before entering the United States. For example, Acer established itself as the leader in less hotly contested markets in Latin America, Southeast Asia, and the Middle East. By 1995, it was the top-selling computer brand in Mexico, Bolivia, Chile, Panama, Uruguay, Thailand, and the Philippines, not to mention Taiwan.
This combination of tactics worked quickly and well, vindicating many of Acer's previously criticized moves. In 1993, Acer posted record profits of US $75 million; 43 percent of that year's net was generated by the DRAM joint venture, considered "the most efficient in the DRAM industry" by some observers. From 1994 to 1995, Acer advanced from fourteenth to ninth among the world's largest computer manufacturers, surpassing Hewlett-Packard, Dell, and Toshiba. Total sales grew to US $3.2 billion in 1994, and net income increased to US $205 million, as Acer America turned its first annual profit in the 1990s.
Strategies for the Mid-1990s and Beyond
In the mid-1990s, Acer began to globalize production as well as assembly, building a keyboard and monitor plant in Malaysia in 1994. The company planned a motherboard and CD-ROM factory for the Philippines and hoped to set up production in Argentina, Chile, Thailand, Dubai, South Africa, Brazil, India, the People's Republic of China, and the former Soviet Union.
In 1994, Shih unveiled a plan to "deconstruct" Acer into 21 publicly traded business units by the end of the 20th century. Acer Inc. would continue to own anywhere from 19 percent to 40 percent of the firms' stock, but Shih hoped that their independent status would enable the individual units to compete more effectively by facilitating entrepreneurship, inspiring research and development, and allowing for corporate fundraising through stock and bond offerings. Michael Zimmerman of PC Week speculated on another possible motivation behind the plan, known internally as "21-in-21." His June 1994 piece on Acer noted that "Separating the divisions will also clear a path for Shih to retire and, as one observer said, 'to leave his legacy intact' by not risking the future of his brainchild to a successor." In fact, Shih told PC Week that he "expects to withdraw from Acer and the workforce" by 1999.
Acer Computer International, the company's Asia-Pacific distributor, had its initial public offering in September 1994. The approximately US $55 million floatation was oversubscribed by about 20 times. Spin-offs of Acer Peripherals, the corporation's manufacturer of keyboards and monitors, and Acer Sertek, the Taiwanese distribution operation, were planned for 1996. Stock in Acer America and certain Latin American operations was slated to go on the auction block by 1997.
The Economist reported that Acer's revenues had increased by 75 percent from US $3.2 billion in 1994 to US $5.7 billion and that Shih hoped to increase that figure to US $15 billion by 1999 via expansion into consumer electronics like televisions and fax machines. The article also emphasized that "Given the computer industry's history of wild swings, Mr. Shih's success may not last forever; but his company is one of the few large ones in developing Asia that may be able to teach western businesses more than it can learn from them."
Principal Subsidiaries: Hsiang Chih Technology Corp. (99.7%); Yang Chih Technology Corp. (74.98%); Hsin Chi Technology Corp. (85.68%); Li Chi International Corp. (51.5%); Acer America Corp. (United States); Acer Sales & Distribution (Hong Kong; 85%); Acer Japan Corp. (Japan; 83.34%); Acer Latin America, Inc. (United States; 85%); Acer Computer Australia Pty. Ltd. (Australia; 85%); Acer Sales and Service Sdn Bhd (Malaysia; 85%); Acer Computer (South Asia) Pte. Ltd. (Singapore; 85%); Acer Computer (Far East) Ltd. (Hong Kong; 72.3%); Fora Worldwide Corp. (United States; 63%); Acer Computer France (France); Acer Computer B.V. (Holland); Acer U.K. Ltd.; Acer Italy S.R.L. (Italy); Acer Computer GmbH (Germany); Acer Scandinavia A/S (Denmark); Acer Computer Vienna (Austria); Acer Market Services Ltd. (Hong Kong; 67.36%); Multiventure Investment Inc. (99.98%); Chun Chi Investment Corp. (99.99%); Acer Worldwide Inc.; Acer European Holdings Acer Holding International Inc. (85%); Acer Computer International Pte. Ltd. (Singapore; 85%); Long Hsien International Co., Ltd. (99.99%); Long Chen International Co., Ltd. (99.99%); The Third Wave Publishing Corp. (99.99%); Hoison Ltd. (99.99%); Chien Chi Technology Management Consulting Co., Ltd. (99.94%); Te Chi Semiconductor Corp. (67.98%).
Principal Divisions: Acer Peripherals, Inc. (46.35%); Acer Sertek Inc. (48.99%); Kuo Chi Electrical Co., Ltd. (49.99%); Acer Argentina S.A. (Argentina; 42%); SV-Acer Co., Ltd. (49%); Acer Africa Pty. Ltd. (50%).