Industry Evolution and ODM Firm’s Vertical Integration Decision: The Case of Notebook PC Industry
Date Issued
2009
Date
2009
Author(s)
Lin, Shih-Fu
Abstract
Fast changing technology and intensive competition drive the path of evolution of industry landscape very differently from what have been observed in the past. Notebook PC (NB, hereafter) industry would be a great example as it went through integration, disintegration and reintegration in a short period of time. How Taiwanese NB ODM manufacturers, who have been dominating the global supply for so many years, can cope with such structural change and sustain their dominance and, more importantly, profitability becomes a critical issue to study. Starting with a navigation across 20 years of PC industry evolution, this research illustrates the evolution of NB industry as a L-shaped curve, rather than theoretical “Bell-shaped” or “S-shaped.” In addition, along the decline of desktop PC, NB PC has increasingly substituted desktop PC with an average growth rate of 20%. Despite the fast growth of NB products, the overall growth momentum of PC industry still declines, a trend which indicates the end of maturity stage of the global PC industry. Given this kind of evolution, NB ODM firms are facing the pressure of margin erosion exerted by the brand companies. To enhance profitability, ODM firms undertook vertical integration strategy as defensive measure. However, while the vertical integration strategy may enhance strategic flexibility, it would increase operational risks as well due to over capacity. To digest the extra capacities, ODM firms have to diversify to other business areas. The interplay between vertical integration and diversification characterizes the growth path of NB ODM firms. In order to structurally change such a vicious circle and achieve sustainable growth, NB ODM firms are suggested to enhance the link with the end markets. With careful business configuration along vertical integration, diversification and market extension, ODM firms would be able to keep the margin and enhance their value added. Facing structural squeeze, NB ODM firms shall expand their scope of profit pool through capability upgrading. Strategic implications and future research based on these analytical results are also discussed.
Subjects
NB
industry evolution
ODM
vertical integration
diversification
SDGs
Type
thesis
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