Who's the Winner?
The Financial Times recently heralded the maturing of BPO as a strategic driver for business transformation. The article reminded us that outsourcing enabled American firms to focus on their core competencies, insisting that these competencies including product innovation and important research & development would remain in-house. However, this interesting article in Business Week highlights how that pledge is now passé.
The reach and impact of Asian contract manufacturers and design houses have expanded to touch nearly every industry. The likes of Dell, Motorola and Philips are buying complete designs of some digital devices from Asian developers, tweaking them to their own specifications, and slapping on their own brand names. Similarly, Boeing Co. is working with India's HCL Technologies to co-develop software for everything from the navigation systems and landing gear to the cockpit controls for its upcoming 7E7 Dreamliner jet. Pharmaceutical giants such as GlaxoSmithKline and Eli Lilly have joined forces with Asian biotech research companies in a bid to cut the average $500 million cost of bringing a new drug to market. And Procter & Gamble Co. says it wants half of its new product ideas to be generated from outside by 2010, compared with 20% now.
The numbers are pretty overwhelming too. Of the 700 million mobile phones expected to be sold worldwide this year, up to 20% will be the work of Taiwanese ODMs. About 30% of digital cameras are produced by ODMs, 65% of MP3 players, and roughly 70% of personal digital assistants (PDAs). In a previous post, I had discussed how the Taiwanese companies believe that they are outsourcing marketing and branding to the rest of the world. That's not farther from the truth. Whether its HTC, which creates and manufactures smart phones for such wireless service providers as Vodafone and Cingular as well as equipment makers or Quanta, whose engineers are working on next-generation displays, digital home networking appliances, and multimedia players, the providers are not getting ideas from their clients, they are innovating on their own.
It is interesting that although a majority of the American firms are cash-rich - the 80 tech players in the Standard & Poor's 500-stock index have a total of $229 billion in cash and equivalents on their balance sheets, more than twice what they had at the end of 1999 - they're tightening their R&D budgets. The cash is directed towards acquiring companies and some of it makes its way back to shareholders. True, most firms still house their critical design strengths. But, as the limits of outsourcing innovation are pushed, it does raise some interesting questions - where will companies direct their profits? More important, what is the future of the firm? And finally, who's the winner? Initial evidence suggests that American firms can orchestrate global manufacturing and design networks to their benefit. Yet, as HTC and Qantas move up the food chain, they have a shot at becoming industry leaders. Which leads me to the conclude yet again - the fate of a firm is increasingly decided, not by ownership and protection of capabilities, but creative and effective coordination of such capabilities around the world.
The reach and impact of Asian contract manufacturers and design houses have expanded to touch nearly every industry. The likes of Dell, Motorola and Philips are buying complete designs of some digital devices from Asian developers, tweaking them to their own specifications, and slapping on their own brand names. Similarly, Boeing Co. is working with India's HCL Technologies to co-develop software for everything from the navigation systems and landing gear to the cockpit controls for its upcoming 7E7 Dreamliner jet. Pharmaceutical giants such as GlaxoSmithKline and Eli Lilly have joined forces with Asian biotech research companies in a bid to cut the average $500 million cost of bringing a new drug to market. And Procter & Gamble Co. says it wants half of its new product ideas to be generated from outside by 2010, compared with 20% now.
The numbers are pretty overwhelming too. Of the 700 million mobile phones expected to be sold worldwide this year, up to 20% will be the work of Taiwanese ODMs. About 30% of digital cameras are produced by ODMs, 65% of MP3 players, and roughly 70% of personal digital assistants (PDAs). In a previous post, I had discussed how the Taiwanese companies believe that they are outsourcing marketing and branding to the rest of the world. That's not farther from the truth. Whether its HTC, which creates and manufactures smart phones for such wireless service providers as Vodafone and Cingular as well as equipment makers or Quanta, whose engineers are working on next-generation displays, digital home networking appliances, and multimedia players, the providers are not getting ideas from their clients, they are innovating on their own.
It is interesting that although a majority of the American firms are cash-rich - the 80 tech players in the Standard & Poor's 500-stock index have a total of $229 billion in cash and equivalents on their balance sheets, more than twice what they had at the end of 1999 - they're tightening their R&D budgets. The cash is directed towards acquiring companies and some of it makes its way back to shareholders. True, most firms still house their critical design strengths. But, as the limits of outsourcing innovation are pushed, it does raise some interesting questions - where will companies direct their profits? More important, what is the future of the firm? And finally, who's the winner? Initial evidence suggests that American firms can orchestrate global manufacturing and design networks to their benefit. Yet, as HTC and Qantas move up the food chain, they have a shot at becoming industry leaders. Which leads me to the conclude yet again - the fate of a firm is increasingly decided, not by ownership and protection of capabilities, but creative and effective coordination of such capabilities around the world.
posted by Deepa at
9:56 AM
