Analysis of Air Conditioner Compressor Industry in Taiwan－Case Study of Rechi Precision Corp.

Summary of Thesis

Topic of Thesis：Analysis of Air Conditioner Compressor Industry in Taiwan－Case Study of Rechi Precision Corp.
Name of Institute：Graduate Institute of Finance, National Taiwan University
Graduate Date：July 2004
Name of Student：Chen Lee-Chin
Advisor：Dr. Yang Chau-Chen
Abstract：
How to survive and sustain growth momentum in the highly competitive and fast change environment has always been a critical issue for academia and business. To expand economic scale and to integrate supply chain shall be essential and inevitable for HA firms in a relative small domestic market, such as Taiwan. Japanese HA firms may overcome the industry drawback of slim margin with their advantage of huge capital and high globalization. For most of Taiwanese HA SMEs, confronting with challenge from Japanese HA firms, the key to win the battle in the short run is to exert their existing advantage of cost efficiency and to expand the market share in addition to develop their core competence that supports the firm to grow. In the long run, they have to keep up faster rollout of new products with lower cost.
Main topics of this research with respect to the industry of compressor for air conditioner (“the Industry”) are:
1. To discuss the current status and the problems being confronted with the Industry.
2. Trend of the compressor industry in the future.
3. Strategies for global competition
Rechi Precision Corp. (“Rechi”), the largest compressor manufacturer in Taiwan and top-four player in the world, was chosen for the Case Study of this research. After the overall and in depth research, this research is trying to:
(1) Analyze the growth path of Rechi from the perspective of integration of supply chain;
(2) Discuss the financial strategies required for expansion of vertical integration and growth thru internationalization in an attempt to boost up revenue and to accomplish the competitive advantages, including control over supply chain and cost efficiency.

Based on the case study of Rechi, this research made the following conclusion and recommendation for the Industry:
1. Conclusion: The Industry is highly cyclical and climate related. Price war frequently happened due to the cut in price of air conditioner every year and the massive expansion of capacity.
2. Recommendation: The short-term goal should first focus on “cost efficiency” while expanding the capacity; maintain competitive pricing but not get stuck in price war while trying to increase the market share. Secondly, move to proactive “Brand Name” model from passive OEM model so as to improve profit margin. Thirdly, closely monitor the rivalry from competitors in South Korea. Try to reach mutual understanding or make alliance with them to avoid direct pricing competition. As to the long-term goal, to achieve horizontal integration, one stop shopping service. To engage sales and pricing agreement with good customers to reduce expansion risk.