Competitiveness of East Asian firms: Acer and Hyundai

International Business and the Regions

How far has the competitiveness of two East Asian firms been based on: (1) national networks and institutions, including localised clusters; (2) regional links and networking across the East Asian region; (3) transnational links beyond the East Asian region and; (4) support from the policies of one or more East Asian governments?

Over the last several decades, globalization has been having a tremendous impact on the way many corporations are interacting with customers. Part of the reason for this, is because of advancements in technology and a liberalizing of trade barriers have caused commerce to increase. As, corporations are seeking out those areas, where they can: introduce new products or services and be able to capture as much of the local market as possible. At the same time, they are looking for regions that can help to: reduce their labor costs and import the finished products to various markets around the world. This is significant because, it is showing how a transformation has occurred with the way many businesses are interacting with consumers.

As a result, the competition in many developing markets (i.e. Asia) has become very intense. This has caused many local firms to face increased amounts of competitive pressures. Evidence of this can be seen by looking no further than observations from Chernuniliam (2008) with him writing, "There have been large numbers of takeovers of national firms by foreign-based corporations. In some of these cases, these domestic firms are driven to a situation of having to: hand over the majority or total equity (of their business) to foreign partners of joint ventures. This is because of the inability of domestic partners, to bring in additional capital or other issues. As a result, the replacement of traditional and indigenous products, by modern merchandise is leading to the ruin of conventional craft industries along with the livelihoods of the people in these sectors (for many developing countries)." (Chernuniliam 2008, pg. 90) This is important, because it is showing how competition has become so intense in local markets. That, it is leading to a consolidation of many nationally-based firms for the benefit of foreign corporations.

In the case of Asia, the region has been experiencing tremendous amounts of growth due to: the size of the various economies and the above average development many areas are experiencing. This has a caused a number of firms to begin focusing on these markets as a way to increase their overall profit margins. (Das 2005, pp. 1 -- 12) To fully understand how these changes are occurring requires comparing East Asian firms and the impact that it is having on their businesses. This will be accomplished by looking at: Acer and Hyundai. As, we will be focusing on a number of different factors to include: examining the national networks / institutions, regional links / networking, transnational links beyond East Asia and the support that both entities are receiving from various governments in the region. Together, these different elements will provide the greatest insights as to how globalization is impacting the way the two organizations are conducting business.

National Networks and Institutions

Both firms have tremendous amounts of national networks and operations throughout the region. Over the last ten years, they have been increasing their marketing efforts in a number of economies that can provide them with above average growth to include: Taiwan, China, South Korea, Singapore, Indonesia and India. This is allowing the two corporations to diversify their businesses away from the more traditional consumer markets of the past (i.e. North America and Europe).

Acer is focused on: the production and sales of various computers / electronics devices. Some of the most notable include: desktops, notebooks, tablets, LCD TVs, digital cameras, portable hand held devices and monitors. At the same time, the company is also involved in the delivery of various IT consulting services to corporate customers. Since 1985, they have been focused on developing a presence in those economies that have the potential for long-term economic growth. This led to the opening of a major operations center in Japan during that year. As time has gone by, Acer focused on rapidly expanding into other areas including: China, South Korea, India and Taiwan. The basic strategy that they are using in these localized areas is: to establish facilities that will support the demand of domestic and international customers. This accomplished by building major manufacturing and support facilities that will produce as well as provide these services cost effectively. As a result, the national strategy that the Acer is using is focused on: finding those regions that can keep their cost low and are strategically located close to areas of above average long-term economic growth. (Acer 2007)

Hyundai is focused on the manufacture / distribution of: automobiles, trucks, SUVs and heavy construction equipment. Since the company was founded in 1967, they have been expanding their business by focusing on local domestic markets and growing outward. Over the course of time, this approach has allowed the company to go into various countries (throughout the region) and market their products as a cheap alternative to foreign-based competitors (i.e. North American and European manufacturers). This allowed Hyundai to be able to establish a significant presence in many of the developing economies in East Asia. A few of the most notable include: China, Cambodia, Japan, Vietnam, Laos, Thailand, the Philippines, India, Indonesia, Taiwan and Malaysia just to name a few. (New Thinking 2011) (Steers 1999, pp. 72 -- 89)

The basic strategy that Hyundai is using is: to establish support and production facilities that are close these markets. This helped them to lower their production costs and improve the quality of support services they are providing. Once this occurred, it meant that the company began to create a unique brand image in numerous countries throughout the region. (New Thinking 2011) (Steers 1999, pp. 72 -- 89)

Regional Links and Networking across the East Asia Region

The total amount of revenues for Acer (in Asia) has been a major part of the profit margins for the company. As, this is accounting for: 36% of their total annual sales. (Acer 2007) However, to maximize their earnings, the company has taken steps to reduce their costs and improve the efficiency of their operation. A good example of this can be seen with the corporation outsourcing the majority of their shipping to TNT Express. They are an overnight carrier that agreed to pick up Acer's finished products and transport them to various locations in: Asia, Europe and North America. This is significant, because the use of this carrier helped the company to reduce their costs and increase their profit margins. At the same time, it improved their regional and networking links by: efficiently delivering products to numerous markets throughout the region. (TNT Acer Case Study 2007)

In the case of Hyundai, they have taken a different approach by creating their own division that will handle logistics (Hyundai Logistics). Their objectives are to deliver various raw materials to manufacturing plants and the finished merchandise to consumer markets. To achieve goals, the company is using a number of different tools including: ground, air and rail transportation. This is important, because it has helped Hyundai to be able to establish a way of independently delivering their various products (to a host of countries). As, this allowed them to: develop a various networks and links in East Asia (in order to increase their profit margins). Over the long-term this helped, the company to be able to maintain their low cost structure (making them more competitive). (Lansbury 2007, pp. 74 -- 90)

However, the strategy has also exposed the company to: possible shortages or strikes at a particular plant. A good example of this occurred with a strike at the Hyundai motor manufacturing plant in South Korea, led to a companywide work stoppage. This is problematic, because it is highlighting the weaknesses of: Hyundai's regional links and networking in East Asia. (Jung 2011)

Support from the Policies of One or more East Asian Government?

Anywhere that Acer has any kind of manufacturing or support facilities in East Asia; means that they more likely received assistance from the local government is some form. The reason why, is because they play a vital part in helping to provide the utilities and transportation infrastructure that each facility will requires. To ensure that there is a continuous operation of the plant, Acer, must be able to maintain close relationships with local governments. This is accomplished through working in conjunction with them in construction of facilities for the region. (Acer's Manufacturing Base 2011)

A recent example of this can be seen with the company opening a new IT manufacturing center in the Chongqing province of China. To help construct the facility, the company had to work in conjunction with local government officials, to ensure that everything will operate according to schedule. In the case of the Chongqing plant, the local government was helpful in building infrastructure and keeping regulations to a minimum. This played a major factor in determining: how quickly the plant was able to open and the number of issues that Acer encountered when constructing the facility. Commenting about this relationship the company President Jim Wong said, "Our decision to go west in China is a global strategy. Since December last year, the steps in establishing this manufacturing base have been smooth, enabling our production start in May. Acer is extremely grateful for the support of the Chongqing government and our manufacturing partners to make this a possibility. Major OEM companies have already set foot in Chongqing and all will begin shipping by the second half of this year." He further added, "Key component suppliers have also set up presence here to create a complete supply chain. To begin with, we will produce our notebook and net book PCs in Chongqing and gradually expand our manufacturing volume. By the end of 2011, 30-40% of our total notebook and net book PCs will be produced here." (Acer's Manufacturing Base 2011) This is significant, because it showing how the support that company is receiving from various East Asian governments is playing a major role in determining where specific facilities are located. As, executives will look at a number of different factors to make this decision including: infrastructure, taxes, labor costs and regulations. Therefore, one of the largest variables that will help the company to make these decisions is the policies of the local government. Where, those that are the most business friendly and offer the greatest benefits are selected by Acer (based upon these different factors).

In the case of Hyundai, they have been receiving similar support from various governments throughout the region. What has been happening is many different Asia markets have been rapidly expanding. This has caused Hyundai, to look at constructing other manufacturing and distribution facilities in those areas with the strongest economic growth. As a result, a wide variety of governments have been wooing the company, wherever they are expanding their operations in a particular region. (Hyundai 2011)

A good example of this occurred recently in Indonesia, where the Hyundai announced that they are opening a manufacturing facility for the production of engines. Prior to the announcement, the Indonesian government had been lobbying the company to open the plant in Indonesia (versus other nations throughout the region). One of the main selling points that they were using was that they can offer: better cost benefits, less regulation and superior infrastructure. At the same time, the company had sold 8 thousand units in the country last year. This is significant, because it is showing how various governments in East Asia will create policies that are helping to support the operations of the company. As, these governments will offer Hyundai a number of incentives for relocating to the region. These different elements are important, because they are showing how numerous governments will often create policies that will encourage the company to establish different operations in their country. (Hyundai 2011)