What is the story of Asus and Dell?
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Logistic Outsourcing is a growing trend today, both able to cut production and management costs, and improve the level of customer service, however, in practice it is never so simple. A decade ago, Asus was a name no one knew about. But nowadays, you can see the Asus logo computers, Zenfone phones selling very well. What is the path of success of this Taiwanese company? What is the story of Asus and Dell?. Let us find out more –
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AsusTek Computer Inc. (ASUS) is a Taiwan-based multinational corporation specializing in manufacturing electronic items such as motherboards, laptops, servers, mobile phones and other computer products.
Asus was founded in 1989, when four engineers who worked for Asus T.H. Tung, Ted Hsu, Wayne Hsieh and M.T. Liao decided to establish their own company to boost Taiwan’s IT industry.
They chose the name Pegasus, the winged magic horse that symbolizes artistic and academic inspiration in Greek mythology. But then the name was shortened to Asus with the aim of putting the company’s name at the top of the list of companies thanks to the rhyme “a”.
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What is the path of success of Asus?
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Contrary to the present, Asus was then a small company in Taiwan, specializing in motherboard manufacturing. After Asus received a contract to produce 486 motherboards for Intel processors in the late 80s, the company began to focus more on hardware manufacturing. In this way, Asus began public offering of shares in 2005 and has been growing ever since.
Asus motherboards were installed on 29.2% of all desktops sold in 2009. In the same year, the company’s revenue reached $21.2 billion.
To make the business more convenient, in 2007, Asus split into three companies called Pegatron (specializing in the production of PC components and OEM devices), Unihan (specializing in manufacturing non-PC components) and Asus focused on the production of laptops, tablets, servers and smartphones etc…
From humble beginnings as a motherboard manufacturer with few employees, Asus has risen to become Taiwan’s leading technology business with more than 12,500 employees worldwide.
Nowadays, it is easy to see the image of cheap Asus laptops, pretty good quality, or Zenfone phones selling very well. They all carry the logo of Asus. And even the iPhone you hold in your hand has some components made by Pegatron, a company separated from Asus itself.
So where does this “horse god” success come from? There is an incredibly well-known story that is mentioned by many as a reminder and also a business lesson for all companies now.
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Outsourcing Logistics Lessons between Dell and Asus
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This is the secret to the success of small companies like Asus and also a lesson for companies who want to accelerate the efficiency of capital use but gradually lose their identity like Dell.
Dell began taking big steps in the 1990s. Initially, the company only produced simple computers at low cost and mainly sales through mail or via the web. Dell then moved to produce more advanced computers. The second milestone in Dell’s development path was the company’s start-up production of assembled computers, allowing users to customize their own products by selecting the devices they wanted to assemble into a complete computer.
Dell would assemble and then move the goods within 48 hours – a remarkable achievement at the time. Dell’s next phase was marked by the company’s decision to use its capital more efficiently, profiting more from the money. These three milestones are the main strategies in Dell’s path to success.
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However, one surprise is that Asus itself is the reason that led Dell to the third milestone. Like Dell, Asus began by supplying simple devices such as power drives to Dell at a lower price than Dell’s own production.
Dell was one of the world’s leading branded computer manufacturers. It had its own factories to produce the most important components such as motherboards, RAM or monitors. Asus was then just one of the contractors underperforming small board components and other less important equipment.
But it all changed from here. One day, Asus came to Dell with a lucrative offer: “We have produced very good electric sockets for you. Let us provide motherboards for computers too. Motherboard manufacturing is not your strength but our strength. We will offer these products at prices 20% lower.”
Dell analysts found that if they let Asus produce the motherboard, they could not only do better, but could also help Dell clear the portion of assets involved in the production of motherboards off the balance sheet.
One of the methods used to calculate the effectiveness of capital use is RONA (Return on Net Asset) or the division of the company’s income on real assets. A company is judged to be making more profit by increasing revenue or reducing real assets.
Increasing revenue is somewhat more difficult than reducing real assets because they only need to outsource some steps to do this. If Dell can hire Asus to produce motherboards, it is a way to increase RONA. Dell told Asus: “Thank God, it’s a great idea. You can produce motherboards.” This agreement is beneficial for both parties.
Sometime later, Asus went to Dell again and said, “We have produced for you very good motherboards, why not let us assemble the whole computer for you? Assembling components is not only about helping you succeed. We can help you erase all assets related to the remaining production in the balance sheet and even reduce the price by 20%”.
Dell analysts saw this as an opportunity to make more profit. The more real assets are reduced, the more the profits will increase. This process continued when Dell hired both supply chain management and their own computer design.
Dell had almost outsourced everything inside the company’s personal computer business. They gave Asus everything except Dell’s logo. Dell’s capital efficiency increased very high because the company had very few assets left.
In 2005, Asus officially announced its own computer brand. Asus took everything they learned from Dell to apply to its products.
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It started with the simplest action in the value chain, then from one decision to another, Dell gradually gives everything to Asus.
The rising profitability figures make Dell feel like they’re succeeding and on the right track, but these numbers don’t reflect the consequences of Dell’s future.
Dell has for too long not shipped a product of its own. They are overly dependent on Asus and lost their creativity, which was their former strength. Dell may have succeeded in trading primarily for profit, but Dell outsourced something very important that the new firm can now recognize.
Unwanted ending for Dell
Success sometimes has to come from the hardest things. Asus had got what it wanted after many years of hiding behind the shadow of the “giant” and accepting to do what others do not want to do.
Growing as it is today to become one of the world’s leading personal computer providers comes from the right path but also a lot of thorns that Asus has experienced.
Dell started as the most attractive computer company, but within a few years, those computers no longer bear Dell’s identity. Dell does not transport its own devices, nor does it provide services related to its computers. It simply let the Taiwanese company label “Dell” on their devices.
Asus took advantage of everything it learned at Dell, from manufacturing, assembling and even supply chain management. Asus’s computers are intrigued by the advertisement: “The quality is as good as Dell at a price 20% lower”. Asus’ years of anonymity were over and well-compensated. And that’s the secret to ASUS’s success.
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