The Case Study on Hon Hai-Sharp Alliance: A Strategy Perspective
Date Issued
2012
Date
2012
Author(s)
Huan-Hsin Sung, Jeremy
Abstract
When consumers around the world pick up a computer or other gadget sold by Apple, Samsung, HP or Sony, they often buy it based on the strength of brand. Generally speaking, brand companies enjoy most of the profit in the value chain. Yet many of those items are actually built by Asian suppliers. For example, TAIWAN is home to a constellation of companies most people have never have heard of, making electronic gadgets and components for others with household names. However, Hon Hai might be an exception. In this thesis we will discuss three types of vertical integration: Full Integration, Quasi-integration and Tapered Integration. And discuss cases that who take vertical integration as their most important business growth strategy, such as Hon Hai, Sharp and Samsung.
Hon Hai has grown at an astonishing rate these years. In sad contrast Sharp, like the rest of Japan''s electronics companies, has gone blunt. On March 27th Hon Hai, which is also known as Foxconn, agreed to buy about 10% of Sharp for ￥66.9 billion ($0.8 billion). For a similar sum its chairman, Terry Gou, and other investors are buying half of Sharp''s 93% stake in a 10G factory in Sakai, Japan, that makes large liquid-crystal display (LCD) panels. Most of Sharp troubles can be explained by declining sales and prices of LCDs and LCD televisions, which account for something like 40% of its revenue. The Sakai factory, which opened in 2009, has been running at half its capacity. If LCDs have become such a miserable business, why is Hon Hai so keen to get into it? Just as plausibly, however, Mr Gou is making a bet on its continued success in his vertical integration business model. He may reckon that Apple will, as has long been rumored, soon start making televisions—and that his wealth and Hon Hai will continue to growth and profit again.
According to the case studies and the literature review, we find electronics companies will choose vertical integration when transaction cost is too high, or when time to market and time to volume are the key success factors. Other reasons including that when technical advances in one subsystem can give market power to its owner or market power in one subsystem encourages engineering integration with other subsystems to develop proprietary integral solutions. On the other hand, when the relentless entry of niche competitors hoping to pick off discrete industry segments, or when the bureaucratic and organizational rigidities that often settle upon large, established companies; these forces of disintegration will push toward a horizontal and modular configuration.
Subjects
Vertical integration
Business growth strategy
EMS industry
LCD panel industry
Hon Hai
Foxconn
Type
thesis
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