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Japan Saying ‘Sayonara’ to Vertical Manufacturing |
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Written by Chelsey Drysdale
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Wednesday, 17 October 2007 |
EL SEGUNDO, CA – To say that Japanese OEMs have been shy about using contract manufacturing services could be the understatement of the year, says iSuppli Corp.
In fact, there remains significant doubt about the willingness of Japanese OEMs to take advantage of the benefits of contract manufacturing. Given the enormous presence of Japanese OEMs in the electronics supply chain – from dominance in consumer electronics, to their penetration into notebook PCs, to influence in the LCD-TV, wireless handset and gaming console segments – it’s surprising that the global outsourcing trend is not catching on in Japan, iSuppli says.
According to iSuppli research, Japanese OEMs believe manufacturing is a national competency; these companies are reluctant to relinquish control or to trust outside parties with their intellectual property as it relates to products and operations, and Japanese OEMs prefer to maintain tight control over their supply chains.
There also could be an unwillingness to employ EMS providers for fear of replicating the mistakes made by some larger OEMs that have been outsourcing the longest. These companies erred by outsourcing many activities that should have been kept in-house, squandering their competitive advantage, according to iSuppli.
“Why to outsource, what to outsource and what to watch out for when outsourcing has become as important as outsourcing itself,” said Dan Hawtof, vice president of professional services at iSuppli. “Finding the right outsourcing model and how to control various types of partners is equally important – and one major step toward embracing contract manufacturing for Japanese OEMs.”
Despite this, a number of contract manufacturers are focusing on the Japanese market, iSuppli reports. One such local provider, SIIX, has been providing manufacturing services for several Japanese OEMs for communications, automotive, consumer and audio. Other recent deals, such as the flat-panel television agreement between Celestica and Panasonic, and Toshiba’s efforts to accelerate its mobile PC relationship with Compal, signal that many Japanese OEMs might be considering expanding their outsourcing budgets in the near future.
This may be the result of declining market shares for most Japanese OEMs during the past 36 months. In an effort to preserve what they have gained, these OEMs are turning to third-party manufacturers for help.
“If Japanese OEMs want to hold onto their dominance in certain markets, they will need to redefine their value proposition in the international market,” said Adam Pick, principal analyst for EMS and ODM at iSuppli. “Focusing less on manufacturing and more on product design and marketing will free these companies from putting all their eggs in one basket and will open up a wide variety of new international markets. This also bodes well for both EMS providers and ODMs that stand to gain from such initiatives.”
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