`Laptops from Lapland`- the story of ACER computers

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`Laptops from Lapland`- The story of ACER computers

1 . Introduction

This seeks to answer to given questions in `International Marketing ' involving ACER Computer 's decision to expand it production capacities in servicing the increasing demand for computers in Russia

2 . Questions and Answers

2 .1 Question No . 1 . What factors in the marketing environment were responsible for Acers choice of entry mode into the Russian market (1 /3 of marks

The factors in marketing environment that were

responsible for Acers choice entry mode into the Russsian market include the following

2 .1 .1 The law-abiding business environment and highly developed infrastructure

Good business thrives in good business environment . Between Russia and Finland , although Russia is the target market , the former offers more protection for business . This is confirmed by case facts saying , Finland , with its law-abiding business environment and highly developed infrastructure , offered a vision of everything Russia was not Valuable goods that went into airport cargo terminals also came out again . Public utilities worked . The law of contract counted for something . There was even a special customs regime tailored to firms trading with Russia , allowing them to bring in goods from outside the European Union and re-export them to Russia with a minimum of formalities . Foreign investment trends reflected this benign regime Given the environment in Finland , which is unmatched in Russia , ACER had chosen to put its factory in Lappeenranta , Finland

2 .1 .2 . The friendlier environment in Finland

Business thrives where there are supportive people and organizations . Finland does not only encourage business , it also helps them . Case facts confirms this saying , A government agency , the invest in Finland Bureau , showed Acer around and introduced it to Finnish firms that might help it settle in . Acer struck up a partnership with Wilson Finland , a subsidiary of a Swedish-owned international freight firm , which was a big carrier of goods between Finland and Russia and stood to benefit from the business Acer would create . Wilson helped Acer negotiate attractive terms for a light industrial building in Lappeenranta , and put up some of the capital

2 .1 .3 Finland factory capacity is capable to meet demand in the Russia Market

Choice of strategy must involve proper production planning to meet target market needs . This requirement is satisfied by factory in Finland . Case facts say that with the contract for Acer 's new factory signed in October 1995 , where the capacity to produce 7 ,000 units a month under a single shift would be able to accommodate Acer 's most optimistic projections for Russian sales growth until at least the end of 1996 . Under the arrangement , bulky and low-value components would be shipped by sea from Asia , which will take more than a month but the vital organs of the computer , mainly microprocessors and hard-disk drives , will be flown in from Asia and the United States within a few days of being ed (Paraphrasing made

2 .1 .3 . There is an advantage of giving yellow computers the appeal of white computers which is more favored by Russian customers

Russian customers regard white computers to be better than others and making them in Finland , would it favorable to ACER . Case facts confirm this saying An incidental benefit of assembling in Finland was that it would give Acer 's computers more appeal for some Russian consumer : The Russian computer trade divided computers into "white ones , made in Europe or America "red " ones , assembled in Russia and yellow " ones , from Asia , rated somewhere in between . White computers were popularly supposed to be the best made , and commanded a premium in the shops . Finnish assembly would make Acer more of a "white ' brand and less of a "yellow " one

It would not be a surprise to see ACER making its factory in Finland . Case facts even state the first computers that emerged from Lappeenranta at the start of 1996 , were brought into Russia by the half-dozen main distributors with which Acer had established close ties This proves that distributors are willing to go to Finland for the Russian market with ACER just doing the production , hence avoiding all other risks in putting a factory in Russia

2 .1 .4 . Discouraging developments in Russia for local manufacters

Business reacts to events in the environment . ACER for its part has lessons to learn from those who put their factory in Russia like the case of IBM . Case facts say that in 1993 it had elected to assemble its computers in Russia , upgrading a relatively modem production line installed by the Soviet authorities in the dying months of communism at a town near Moscow called Zelenograd . It was promised exemption from import duties by the federal government for components to be brought in but Russia 's parliament opposed the deal , and duties were levied on IBM all the same . What made it worse was the fact that IBM found itself competing against Russian importers of finished computers to which the government itself had granted tax-exempt status . As one would like to think , the necessary consequence is that these importers could undercut IBM in the Russian market , even on its own-brand products . Hence , IBM halting its assembly operation should not be surprise (Case facts (Paraphrasing made . ACER does not want this to happen

Moreover case facts provide the climate for foreign investment has not improved notably since and hence there is basis not to put factory in Russia in only to treat the same way

2 .2 . Questions No 2 . Given an improvement in the marketing environment what would Acer 's options be for entry into the Russian market ? Given one strength and one weakness of each option , and state your own preference with reasons (2 /3 of marks

2 .2 .1 First Option - Maintain status quo . When we say there is an improvement in marketing environment , we could actually assume many things . Could it the security problems in bringing the goods to Russia Could it the too complicated tax laws being relaxed ? Could it be better laws at Russia to implement the fire code and building code Since the question does not tell us let us assume that there is us better security of business men from hi-jackers and robbers in the highways where the goods must pass through in bringing the same to Russia

Strength - Acer will continue to enjoy the strengths it had when in decided to put a plant at Lappeenranta , Finland . This advantages amounting to strength include , friendlier business environment , the law-abiding business environment and highly developed infrastructure , capacity to meet computer demand in its Factory in Finland , the advantage of the appeal of `white ' computers over the `red computers and avoiding all the discouraging factors of putting up factory in Russia (Case facts

Weakness - It will not take advantage of the increasing demand for computer where local manufacturer like Vist could eventually dislodged foreign suppliers because of the higher importation cost . Customers value lower cost . Lower cost will not come if ACER will have its product sold with importation cost added

2 .2 .2 Second- Maintain Finland but make the integrate distribution business too

This could be done by utilizing the road from Russian city of St Petersburg , which and 1 , ooo kilometers from Russia 's capital , Moscow This was not chosen by ACER because of the security problems . But with improved marketing environment , it is assume that the problems would be corrected

Strength- This will give ACER a shorted lead time , assuming the criminal elements in the place are neutralized . This could then encourage ACER to take advantage by adopting integration by distribution also to maximize profits

Case facts say that the route is Russia 's shortest one to the West and so is favored by people trading in expensive and perishable goods With travel time faster it could deliver the goods to satisfy customer 's demand on time

Weakness - One weakness in this option is that the probability of hi-jack occurring will always be there , which could put Acer 's business in a very dangerous situation . But since the problem assumes the marketing environment improves and security problem is assumed eliminated , this weakness could not take much weight

2 .2 .3 Third Option- Put up a factory in Russia

This option will allow ACER to minimize on importation cost which will make compete with any local manufacturers or assemblers

Strength- One strength of this option is shorter lead-times between assembly and delivery and which would allow its computers to be priced more competitively . It also means lower cost because of possible exemption from importation . Note however that the exemption is not with the power of the federal government but with the parliament and which may still be withdrawn

This is supported by case facts which provided : Acer believed it could do even better in Russia if it assembled computers locally instead of shipping them in from distant plants . Shorter lead-times between assembly and delivery would allow its computers to be priced more competitively : component prices tend to fall with time , so more recently made computers tend to be cheaper . Acer could also adjust its specifications more readily to match local demand

Weakness- The weakness again will resurrect the problems that had happened in the past and which are clear in the facts of the case

One weakness is the contradictory and ill drafted tax , which impossible to obey . Taxation problems could cause ranging from pecuniary penalties to closure . Case facts support this by saying One thing to fear in Russia was the tax code-a collection of more than 4 ,000 legal documents so contradictory and ill drafted that it was impossible for any firm to obey it in full , and easy for a company to be slapped with a bill for more in tax than it grossed in sales . Dealing with the tax bureaucracy could become a near full-time occupation for a law-abiding chief executive

This is one of the reasons why Acer operated purely as a representative office in Russia , since it was just covered by much more modest reporting requirements , and could concentrate on building its brand (Paraphrasing made

3 . Conclusion and Recommendation

Between setting and not setting up factory in Russia , not setting up is the best decision in the near future , because of the many problems associated with putting up and the recent experience of some companies . The decision to maintain the factory in Finland offer better options , although ACER is traveling the long way since safer and surer business weigh better . Although , as we said marketing environment improvement would produce cut in lead time which would be material because , customers value the availability of products in time . Having increasing sales for the past three years there is reason to pursue the option of doing business with Russia with the factory still in Finland

There is good reason to recommend second option since it does not mean the problems in Russia are unsolvable . ACER could insure its cargo when traveling to minimize the risk using the road from Russian city of St . Petersburg . However , there are just too many problems that my be encountered like complicated tax code and the bureaucratic problem in Russia which may discourage ACER from integrating its business by doing the distribution itself . Hence , I would go still to maintain the status quo

Work cited

The Economist (September 6 , 1997 , `Laptops from Lapland`- the story of ACER computers

The Economist (September 6 , 1997 , `Laptops from Lapland`- the story of ACER computers

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