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1. Introduction
1.1 Research motivation
If we look back at the history of Taiwan’s industry, the main characteristic of its development over the past 60 years has been the appearance of OEM / ODMs Since the 1950s, from food processing industry to the textile industry, and further to today’s information technology industry, these industries have contributed significantly to the growing economy of Taiwan and have brought Taiwan to a competitive positions in global supply chains (Lin, 2005). According to MIC (Ye, 2014), by 2010 Taiwanese companies accounted for 90% of global output. This shows the importance of Taiwan’s OEM/ODM sector. Further research on OEM / ODM manufacturers is an urgent requirement.
When analyzing recent profitability, we can see it is declining. The higher costs of human resources and land in Taiwan, as well as the growth of the economies of emerging nations have all contributed to this decline in profitability. The information technology industry is one sector whose profitability has dramtically declined. For example, after 2001, the operation performance of this industry has dropped from an overall profitability in 2000 of 8% to only 0.42% in 2005 (Fan, 2006).
The shrinking of profit margins in OEM/ODM happens steadily. Only branding and marketing can make profits higher (Hu, 2006；Xue et al, 2003). It seems to be an inevitablity during the development of manufacturers. Not only financial factors, but also strategy (competitive advantage) and marketing factors force manufacturers to adopt more services into their products (Mathe and Shapiro, 1993; Mathieu, 2001b;Gebauer and Friedli, 2005; Gebauer et al., 2006; Gebauer and Fleisch, 2007;
Baines et al, 2008). Products and services used to be treated as two independent
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functions in the past. With the blurring of the boundaries between manufacturing and services, the concept of “servitization” appeared. “Servitization” was first mentioned by Vandermerwe and Rada in 1988. They illustrated the process of firms creating value for customers by adding more services with the products. Since the late 1980s,
“servitization” has been widely adopted as a competitive manufacturing strategy and attracted numerous authors to write about the subject; Tellus Institute, 1999;Verstrepen and van Den Berg, 1999; Robinson et al, 2002; Desmet et al.,2003;Lewis et al., 2004;Ward and Graves, 2005;Ren and Gregory, 2007).
The idea of phased paths appeared. Phased paths are seen to provide a safer journey for companies along the road to servitization. For example, Oliva and Kallenberg (2003) focus on the machine industry and identify the key factors when creating “service” in the context of a manufacturing firms. They also explore successful strategies for this transition. Davies (2004) uses the concept of four main value stream stages in the capital goods industry to explain the capabilities needed to be cultivated when manufactures are moving from pure product manufacturing into the provision of integrated solutions. The four capabilities identified are operations, business consultancy, finance and integration. That research mainly focuses on capital goods and heavy industrial goods, seldom mentioned are consumer goods or an even wider industries (Gebauer et al, 2011). The consumer goods industry operates very closely to end consumers and the profit margins made on consumer goods products are relatively small. So there is a great need for detailed research to determine the best way to transitionan into servitization.
Some companies in Taiwan have successfully combatted low or falling profits by following the value-added path of transforming from OEM/ODM to OBM. Therefore, this paper draws on case studies of three OBM companies who once focused on
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OEM/ODM and aims to explore the capabilities and the role of “customer-oriented service” between OEM/ODM and OBM .
1.2 Research objectives
The aim of this research is to explore the customers’ role when OEM/ODM companies in the consumer goods industry go through the process of developing servitization and becoming OBM companies. Dealing with issues like; how many stages may they need to go through and what capabilities they need to develop during the process? Manufacturing companies find themselves in a challenging position of altering developing capabilities and organizational transformation. They have to develop new capabilities and analyse customers’ positions so that they can be better at marketing, selling, delivering, and profit from OBM services. Meanwhile, they also have to recognize new requirements placed on existing functions such as R&D, design and production.
Based on the above purpose, the research questions are:
(1) What is the difference between customers’ role during the process of servitization?
(2) What are the capabilities necessary for OEM/ODM companies to develop during the process of servitization?
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1.3 Research procedure
The procedure of this research begins by researching the subject of; Servitization from OEM/ODM to OBM. Next it reviews literature covering four topics: Servitization motivation, Servitization process, customer’s role in servitization and the value gained from transitioning from OEM/ODM to OBM. Alongside second hand data collection and interview materials, this research develops the findings from case analysis of three companies: ASUS, Lian Yin and DAPHNE. Finally developing conclusions about “the servitization process from OEM/ODM to OBM: The customer perspective”.(Figure 1)
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Figure 1. Research procedure Company data collection
Interview framework
Interview
Case analysis
Result and Conclusion Research purpose
Literature reviews
Servitization Motivation
Servitization Process
Customer’s role in servitization
From OEM/ODM to OBM
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