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In order for Acer to start manufacturing in China, the management would have to look at various Special Economic Zones, considering factors such as GDP, labor and distance from Hong Kong. Based on these criteria, the city of Shenzhen becomes the most preferable to invest in. Acer was familiar with the Chinese market and culture. China’s population would provide a good market for Acer’s innovative and existing products.
Significant Issues – China’s Potential
China can be compared to India because both countries have emerging economies. The electronics industry is India is expanding, which means China would be an ideal market for Acer to consider. China has a huge population. China has been a booming economy, since mid 1990s. Most SMEs needed PCs to conduct business. In 1996 alone, over 2 million PCs were sold, a 50% increase from 1995. This means China is a promising market for Acer’s PCs and other electronics.
Acer understood China’s market and culture, taking those in consideration when entering a country. Acer has little understanding of Indian culture, so China is poised as the best potential market for Acer’s products. China offers tax cuts for electronics manufacturing companies. It exempts companies from tax for the first two years and reduces tax by 50% for the next three years. China has mature Special Economic Zones, compared to India, making it a preferred investment destination.
When Acer was considering China, China had an unstable political relationship with Taiwan. Direct importation of PCs was hindered by trade restrictions imposed by Taiwan. Although investing in China was lucrative, Acer needed to wait and watch whether the political relationship would improve in future. The USA was a major hindrance at the time, preferring Taiwan instead of China. However, despite the political stalemate, it would be better if Acer did not delay getting into the Chinese market. Delaying would not give Acer any favorable environment for conducting business. Additionally, swift entry to China could offer added advantage to Acer as a first mover.
Human Resource Issues
Solving human resource conflicts would be critical for Acer if it hoped to succeed in the Chinese market. The ability to solve the issues is twofold: firstly, Acer needed to create a highly effective and disciplined workforce in China, an initiative that is critical for success in any manufacturing location. Secondly, Acer had to convince Taiwanese management and families to move to China for about five years. This proved to be challenging, since many were unwilling to relocate to China, compared to Taiwanese living standards, China’s were lower.
Chinese workers were less motivated and were reluctant to work extra hours, as dictated by high production demand. This was a complete contrast from Taiwanese workers. To solve this issue, Acer could:
Firstly, create a friendly working environment by not punishing employees who failed to perform as expected. This would encourage creativity. Acer could allow Chinese workers to suggest better incentives to allow for creativity.
Secondly, Acer could use external rewards, such as better pay, as it has been proved that Chinese people are motivated financially. Taking care of housing and social benefits also works well for Chinese employees.
Finally, internal motivation would work exceptionally well for Acer, as Chinese are always willing to change. For instance, Acer could support and give them an opportunity to learn. With an incentive system and reward measures, Acer could make training the new workforce easier, as well as improve efficiency.
Among China’s five SEZs, Shenzhen is recommended due to it close proximity to Hong Kong. It has ready access to labor. Shenzhen has an easy access to the huge Hong Kong market apart from mainland China. What is more, it is closer to Hong Kong port, so transportation of PCs and other products would be easier.
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The various discussed recommendations show why Acer should proceed and start manufacturing in China. Currently, China is more attractive and promising, compared to emerging economies. Issues, such as motivating the workforce, resolving human resource conflicts, and convincing managers and families to relocate have been discussed. The market is expanding. Shenzhen is recommended as the best starting point besides mainland China. The decision to enter China is, therefore, a good one.