1. Despite its growth and size, why is Inventec not very profitable? Several factors may attribute to the low profitability of Inventec in the past few years. Firstly, they are operating in a dynamic electronic industry with very short product life cycle. The design of a new product may obsolete in a very short period of time, the reliance on frequent technology innovation determined the high industry’s inherent risk. Second factor is the intense competition and the clients and suppliers have comparatively high bargaining power which pushed down the price.
Thirdly, the notebook sector which used to account for 80% of company’s revenue is no longer about adding value. Due to client’s aggressive pricing strategy and Inventec’s relatively small scale, the margin is dropping below 4%. 2. What are the drivers of the average profitability of the original design and manufacturing industry? The driving force of profit in original design and manufacturing industry is the designing process which provide high end services to clients.
And in the manufacturing process, the utilization of facility investment is crucial which may develop the scale of economy and low down the operating costs. And now China is no longer a low-cost area, because everyone has the same cost structure. Therefore, how to utilize the company’s logistic system to provide quick response supply service becomes the key to make profit. 3. What are the key factors that a company like Inventec needs to manage to earn above-average profits in this industry?
One way to remain profitable is to shifting from PC manufacturing from where most of their revenue come to software development and IT consulting and IT system integration services. That will rely more on their innovation capability which can provide high added value rather than cheap operating environment. 4. Why is the Indian software industry, on average, so much more profitable than the Chinese ODM industry? India has world-class technological education and an abundance of highly-skilled engineer, and as more engineer began to stay in india, the country’s IT service began to take off.
And widespread English skills among India’s educated workforce facilitated the industry’s growth. And the companies in india are providing high value added services that can help clients to differentiate their products. 5. What strategic advice will you give Inventec to improve its profitability? First, Inventec should diversify its products and increase its customer base. Second, since software is their strength, the shift towards software business will give another shot to Inventec’s sales as the PC hardware sector is weakening.