Inventec Case
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There a several key factors that Inventec needs to manage in order to earn above-average profits in the industry, but there are two that stand out to me. The first is costs. Due to severe competition, maintaining a low cost base is the most important factor to earn above-average profit. This can be achieved by differentiating its products, which is the second factor. By differentiating Inventec can stand out compared to their competition and therefore increase the switching cost of its OEMs and enhance its barging power. Differentiation can offer a premium to the unit price thus help increase profits.
In order to improve profitability, Inventec needs to market the fact that they offer its sophisticated software design together with the hardware manufacturing. Inventec holds significant more software patents that its competitors by taking this competitive advantage, Inventec can obtain a higher price premium and stronger bargaining power. Software development is adding much value to the OEMs and this is a specific strength of Inventec. This vertical integration may also save Inventec a lot of transaction costs and hence give a lower cost base. Its capital utilization can be enhanced as well. Inventecs revenues continually increased year after year, but so did their operating expenses, thus reducing their net income.
Another way Inventec may be able to improve its profitability would be to shift from PC manufacturing from where most of their revenue comes from to software development, IT consulting and IT system integration services. Inventec had developed software solutions for over two decades and some believe they had the expertise, resources and local talent to go after much larger software centered market. The top three Indian software companies are making net margins of 20%, versus Inventecs 1%.