By Ann Grackin

Virtual Forces

During this economic transformation that the west (and Japan and Korea) are experiencing, China’s experiencing an increase in transfer of manufacturing activities from the West as well as other Asian partners—Taiwan and Japan. While their growth rate of about 7% may be unsustainable, it clearly indicated that being in China is a different universe. South Korea Finance Minister, Jin Nyum stated “China is turning itself into the world’s plant, which will suck all manufacturing facilities into it like a black hole.”

Not just US brands like Dell, Hasbro Mattel, IBM etc., but venerable Japanese brands like Toshiba, Panasonic (Matsushita), SONY, etc. have a huge manufacturing presence in China. Though lower manufacturing costs are generally the outcome, there may be a huge cost at the customer site—the retail store, the office, the installation site.

Customers want Vertical

So, the cost/prices forces are irresistible. But also, the emerging companies that supply components and many now design components (the so-called ODMs) are on the rise. But is this what the customer wants?

Consumers are already extremely confused by the array of choices they need to make. As my mother said, “You just don’t call the phone company and they come to our home with a phone and install it. You call them, then you go off to an electronics store and have to select from over 100 phones and accessories that might work. It’s just confusing!” In business as well, firms are tired of the finger pointing between the technology providers, the consultants, the service providers, etc. And in today’s climate, quite nervous about the risks, too.

No doubt, using trading partners may get you cheaper supply chains and cheaper solutions—sometimes; and using trading partners can get you better technology—sometimes.

But what about that customer? Regular readers will continue with the saga on my mp3 player. Here is how today’s buying situation might play out.

Table 1
Source : ChainLink Research, Inc.

The virtual solution on the outset looks cheaper. And clearly it had its charms. But even in the short run, it truly costs as much, so it’s not much of a feature. The so-called hidden costs—my time—turns out to be quite expensive^[1].

Provide the Total Solution!

And just remember—if you were building a data center or building an exploration site, etc., the complexities are exponential the more partners that get into the act—what to say of the cost—Big Dig anyone? Loss of control, hidden costs and sometimes real technology obstacles may occur^[2]. One must understand the trade-offs. Engineered modules based on so-called core competencies may be critical. But the OEM at some level has got to think about that customer and their ultimate experience. Taking responsibility for the solution—at a $10m project or a $300 purchase is what endears customers to you over a lifetime.

[1] I based this on a $75,000 a year salary

[2] Real was integrated technology with download, rip and transfer, but their mp3 product embedded Xing was horrible!

©2003 ChainLink Research, Inc.