台灣代工廠商之委外決策探討-以E廠商之個案研究為例

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(1)國立臺灣師範大學管理學院管理研究所碩士論文 Graduate Institute of Management College of Management National Taiwan Normal University Master Thesis. 台灣代工廠商之委外決策探討-以 E 廠商之個案研究為例 Outsourcing Decision of a Taiwan-based ODM-A Case Study of E Company 方郁嘉 Fang Yu-Chia. 指導教授：蕭中強博士 Advisor：Chung-Chiang Hsiao Ph.D.. 中華民國 101 年 7 月 July, 2012.

(2) 台灣代工廠商之委外決策探討-以 E 廠商之個案研究為例. 國立臺灣師範大學管理研究所碩士學位論文題目: 台灣代工廠商之委外決策探討-以 E 廠商之個案研究為例學生:方郁嘉指導教授:蕭中強. 摘要台灣高科技代工產業近幾年來在高度的競爭壓力下，在組織上有重大的改變。針對不同的組織規模，是否採取併購策略以建構完整的供應鏈以減少溝通或科技技術的落差，抑或是採取委外代工以節省設備及人力成本，進而增加效率成為台灣本土高科技代工產業的重要課題。為此，本研究以台灣傳統主板代工廠商為例，探討企業如何制定委外代工的決定，並進而了解委外代工對企業短期與長期上的影響。在過去，針對委外代工的因素眾說紛紜，像是交易成本、代理成本、資源依賴度、委外滿意度、企業企圖心與核心能力等。並且也有許多研究針對國外知名電腦品牌廠商的委外決策進行研究，卻鮮少看到有研究針對台灣傳統主機板或電腦代工廠商的委外決策進行討論。因此，本研究根據台灣本土個案的特性，將針對成本面，資源依賴度與核心能力進行分析。研究結果建議，代工廠商應了解自己的核心能力與價值去發展自己的委外代工的策略，以減少代工廠商對委外廠商產生資源依賴度過高的情形。雖然在短期內有可能因為資源分配或資金不足的原因，使代工廠商不得不將部份依賴度高的流程委外作業；在長期來看，代工廠商還是應該減少依賴度高的委外項目，並將其轉化為自己的核心價值與能力，方能在競爭激烈的代工市場中佔有一席之位。 I.

(3) Abstract Outsourcing Decision of an ODM-A Case of Taiwan Local ODM Company E COMPANY Yu-Chia, Fang. Advisor: Professor Chung-Chiang Hsaio. Master of Business Administration National Taiwan Normal University, Taipei City, Taiwan. Motherboards ODM environment was getting more and more competitive in the past two decades. To survive in this aggressive environment, ODM need to decide which strategy they should use. In order to get rid of all the gap between the suppliers, so build a completely supply chain? Or, outsourcing to third party to make their business more efficiency? Several studied had focus on the big computer company such as Dell or HP to analyze their outsourcing decision, but it is hard to find one study focus on the Taiwan local ODM companies like E COMPANY. So, in this study, we understood how an ODM company making the decision of outsourcing through studying the case of a Taiwan local ODM E COMPANY. We analyzed E COMPANY’s outsourcing business through three concepts: cost, resource dependency and core competence. In the end, writer suggested that ODM need to understand what is their core competence and value to make their outsourcing decision and need to avoid outsourcing the business which might cause high dependency to their third party vender. In the short time, there is no choice but outsourcing some of their important business to their vender due to the cost concern. But considering the long term business, ODM should decrease the high dependency degree to their vender and should develop this high dependency business to be their core competence.. Key words: outsourcing, core competence, resource-base theory II.

(4) Table of content 摘要 ........................................................................................................................................................... I Abstract .................................................................................................................................................. II Table of content ..................................................................................................................................III Table of figures .................................................................................................................................... V Table of Tables ................................................................................................................................... VI Chapter 1 Introduction........................................................................................................................1 1.1 Motivation ........................................................................................................ 1 1.2 Purpose ............................................................................................................. 2 1.3 Research procedure .......................................................................................... 3 Chapter 2 LITERATURE REVIEW..............................................................................................4 2.1 Outsourcing....................................................................................................... 4 2.2 Core competence ............................................................................................ 10 2.3 Resource-based theory ................................................................................... 14 2.4 Resource Dependence Theory ......................................................................... 14 Chapter 3 RESEARCH METHODOLOPY ............................................................................. 16 3.1 Qualitative research ......................................................................................... 16 3.2 Case study ....................................................................................................... 16 Chapter 4 CASE STUDY ............................................................................................................... 17 4.1 Outsourcing question preface ......................................................................... 17 4.2 E COMPANY history and industry analysis ....................................................... 19 4.3 E COMPANY outsourcing feature .................................................................... 25 4.4 E COMPANY core competence ........................................................................ 28 4.5 E COMPANY outsourcing analysis.................................................................... 30 III.

(5) CHEAPTER 5 DISCUSSION ...................................................................................................... 33 5.1 Research result and suggestion ...................................................................... 33 5.2 Limitation ........................................................................................................ 34 REFERENCE ....................................................................................................................................... 35. IV.

(6) Table of figures Figure 1: research procedure ................................................................................ 3 Figure 2: Alternative Modes of IT governance, Loh & Venkatraman(1992) ........ 8 Figure 3: Competitive advantage versus strategic vulnerability, Quinn & Gillmer (1994) .................................................................................................................. 9 Figure 4: Four concepts of Core competence , Javidan, M.(1998) ...................... 11 Figure 5: 2007~2010 ASUS ODM partner and quantity comparison (excerpted from Global sources, 2009) ................................................................................ 21 Figure 6: three concepts of in-house or outsourcing (Brandes, 1994) ................. 30. V.

(7) Table of Tables Table 1: different aspect of core competence ..................................................................................... 12. VI.

(8) Chapter 1 Introduction 1.1 Motivation Globalization (or globalisation, also mundialisation or mundialization) has to do with processes of international integration arising from increasing human connectivity and interchange of worldviews, products, ideas, and other aspects of culture( Al-Rodhan, Nayef R.F. and Gérard Stoudmann,2006; Albrow, Martin and Elizabeth King,1990). After the term of globalization become famous in the world, companies tried to focus on the activities which have more advantage of getting the profit margins, and outsourcing other activities to third parties. But how can a company estimate which activities should be outsource? And what kind of activities should be done in house? In 1937, Coase purpose a concept, transaction cost, to help people understand the question of how a organization can exist in the market and how a company to decide their scope. After Coase, Williamson (1979) base on the transaction theory suggested if one company get the source by market purchasing cheaper than do it in-house, then company should take the strategy of market purchasing. In contrary, if the cost of in-house is lower than purchasing from market, then company should broaden the organization’s scope and make this transaction internally.. But, when we face the issue of outsourcing, cost obviously is not the only item we should consider about. The famous manager Peter Drucker supposed that if an enterprise wanted to improve their productivity, the only way is focus on their core compatibility and make other business activities to be outsourced(1993, Post-Capitalist Society). 1994, Hamel and Prahalad proposed core competence need to have three factors: the value of customer, competitive difference and expansion. Therefore, when an organization is trying to figure out whether they should take the 1.

(9) strategy of outsourcing or not; they should also consider that is this business their core competence. Also, company need to avoid organization become inelasticity due to high dependence.. In the past, a lot of research studied outsourcing theory based on the structure of international big company like Dell but seldom research was focus on the traditional ODM (original design manufacturer) which has more complicated produce structure. So, this study was trying to understand how an ODM to make an outsourcing decision, and also hoped that can help ODM to get their competitive advantage after making the outsourcing decision.. 1.2 Purpose In order to understanding the issue of outsourcing more completely, we analyzed the Taiwan local motherboards ODM-E company through both of theory and practice. In this study, we tried to figure out what kind of business E company needs to use outsourcing strategy and is it good for company if considered in both long term and short term. So, we list four different activities which E company faced to decide whether they need to use outsourcing strategy or not when they got a new award from a new customer. 1. PCB (printed circuit board) manufacture 2. Product certification 3. Software 4. Regulatory and EMC (electromagnetic compatibility). We discussed these four activities by analyzed is it E company’s core competence, does it will make E company dependents on their venders, what kind of risk they might face when they have high dependency with their suppliers, and also 2.

(10) the cost of outsourcing. In the end of this study, we also discuss the long term and short term effect of different outsourcing activities. 1.3 Research procedure The procedure of this study is step by step through set up the topic, relevant literature collection and analysis, research structure development, research object selection, analysis and explanation. In the end, we try to consulate some conclusion and give some suggestion.. Set up the topic. Relevant literature collection and analysis. Research structure development. Research object selection and analysis. Conclusion and suggestion. Figure 1: research procedure. 3.

(11) Chapter 2 LITERATURE REVIEW 2.1 Outsourcing. (1) Outsourcing definition In the past two decades, economics environment has really huge changes in the whole world. Several terms like globalization, economics scope, and horizontal organization became more and more popular. More and more companies start to emphasize the economics scope and decrease the business cost. According to Jenster and Pedersen (2000) research, globalization makes company need to extend their business to whole world and their competitors were not limit to their own country or sole product market. So, companies tired to cooperate with other companies by professional job assignment.. Actually, before 1960, some companies already transfer some administration activities to external organization (Mcfarlian & Nolan, 1995). 1993, Labbs thought outsourcing is transfer the internal functional activities which was needed for managing a business to external professional party through signing the contract. By this way, companies can focus on what their good at and let other companies to do what they are not good. This cooperate mode people called outsourcing. Alpar and Saharia(1995) thought outsourcing is the abbreviation of outside resource using, so it means the activity of making the value is from outside instead of from inside.. 4.

(12) Charles and James (2000) defined outsourcing as companies according to the service contract to transfer the responsibility of managing to the third party. Charles and James also separate the outsourcing to five categories: 1. Contracting out the activities Organizations assigned the activities which doubted internally among their supply chain to another company. This kind of activity is always the low skilled peripheral service such as cleaning. Contracting out the activities is one kind of short term problem solving strategy, and the main purpose is to solve the urgent problem instead of planning the strategy for the company’s perspective. 2. Outsourcing the service Choosing the professional external serving supplier and making the organization can redefined their company’s value and refocus on valuable activities. After accumulated their professional knowledge, serving supplier might extend their serving range. Sometimes, organization can get some benefit through this kind of cooperation. It is because that organization can focus on the activities which they are good at and have the competitive advantage. 3. In-sourcing Through improve one field’s ability to conclude third party’s job. Hence, this skill can be reserve inside of the company and decrease the cost of this activity.. 5.

(13) 4. Co-sourcing The relationship between company and the supplier is kind of like the employer and the employee. Company dispatch their own stuff or manager to supplier’s organization, so makes the relationship between the company and their supplier tighter. Why there are some companies want to use this kind of strategy? When the company doesn’t want to lose their professional knowledge permanently, this strategy can help company still keep their knowledge and make the win-win situation for both their company and their supplier. 5. Benefit-based relationship Benefit-based relationship is a long term cooperate relationship. In the beginning, both sides need to invest in this relationship, and then base on the agreement to share the benefit. Among this relationship, the company and their vender are more like partners instead of employer and the employee. But, if there is no benefit is generated through this relationship, then the supplier’s can’t get any recompense.. (2) Outsourcing strategy Loh & Venkatraman (1991) build one outsourcing model from two aspects: Internalization of human resources and Internalization of technological resources. This model included eight types of outsourcing strategies depend on the different level of internal human resources and technological resources.. 6.

(14) 1. Complete outsourcing: Supplier in charge of whole activities like design or implement the produce activities. Supplier need to take all the risk of the resource and the involvement of the company who outsourcing to supplier is really low. For example, in this study, I companyoutsourced whole product design and manufacture activities to ODM-E COMPANY, this kind of strategy is kind of the complete outsourcing strategy. 2. Time-Sharing outsourcing: Supplier provides technology and human resource. Company provided related information and let supplier to implement the manufacture activities. For example, E COMPANY provided their PCB vender about their layout and schematics information and then their vender need to manufacture their PCB to E COMPANY to do PCBA. 3. Rental contracts: Supplier provides complete or special technology supply service; company has enough human resources but lack of completely technology 4. Systems integration outsourcing Supplier needs to have the abilities of system management, planning and implement. Company expects to link their internal system to the supplier’s system. E COMPANY tests EMC inhouse first and seeks external laboratory to do more EMC/EMI testing. Through this way, E COMPANY can integrates the information between their own laboratory and external laboratory and provide more complete test report to their customers.. 7.

(15) 5. Installation/ procurement contracts Supplier builds the technology system; company provides necessary information to supplier. 6. Facilities management outsourcing: Supplier needs to have the high technology; company have high technology system but without professional human resources. 7. Maintenance/ programming contracts: Supplier provides system development and maintenance labor; company owns the system but lack of the human resources 8. Complete inhouse operations: Company is in charge of all the business activities.. High Internalization of Human Resources. Complete Inhouse operations. Rental Contracts Time-sharing outsourcing. Installation/ Procurement Contracts Systems Integration Outsourcing Facilities Management Outsourcing. Complete Outsourcing. Maintenance/ Programming Contracts. Low Low. Internalization of Technological Resources. High. Figure 2: Alternative Modes of IT governance, Loh & Venkatraman(1992). 8.

(16) Quinn & Gillmer (1994) though when manager need to make an outsourcing decision, they should think three important questions. 1) What is the potential for obtaining competitive advantage from this activity, does it take account of transaction costs? 2) What is the potential vulnerability that could arise from market failure if the activity is outsourced? 3) What can we do to alleviate out vulnerability by structuring arrangements with suppliers to afford appropriate controls yet provide necessary flexibilities in demand?. Potential competitive edge. Strategic Control (Produce Internally) Moderate control needed (special venture or contract arrangements) Low control needed (Buy off the shelf). Degree of strategic vulnerability Figure 3: Competitive advantage versus strategic vulnerability, Quinn & Gillmer (1994). 9.

(17) 2.2 Core competence (1) Core competence definition Through outsourcing, company can focus on the issue of how to improve their core competence and get the professional knowledge and resource form their vender to increase the service quality for their customer (Charles, L. G and J.essinger,2000). 1990, Hamel and Prahalad first brought up the concept of core competence in HBR. They defined core competence as integrated the technology and skill of organization, and accumulate this ability through the organization learning to the level which their competitors are hard to imitate. This ability can create customer specific utility and high added-value. Hamel and Prahalad thought core competence need to have three characters: customer value, competitive differentiation and extension. So, it means core-competence need to have the feature to attract their customers, and this attractive should be unique and hard to imitate by other companies. Extensibility means this ability can be extended to a bundle of new product or the concept of serving. And also core competence should not own by single team or member, this ability should universal inside the organization (Hamel and Heene, 1994). Coyne, hall and Clifford proposed "a core competence is a combination of complementary skills and knowledge bases embedded in a group or team that results in the ability to execute one or more critical processes to a world class standard". They thought perspicacity, perception and the implement ability of the basic employee are three key points of core competence (1997). Hitt and Hoskisson(1999) pointed out that core-competence are the resource and ability of company, and it is also the origin of the competitive advantage for company. 10.

(18) Javidan(1998) proposed that core competence can be separated to four level base on the value and difficulty(Figure 4). These four level including: core competencies, competencies, capabilities and resources.. Figure 4: Four concepts of Core competence , Javidan, M.(1998). (2) Core competence aspect Leonard-Barton(1995) thought core competence as least including four aspects: Employee knowledge and skill, physical system, management system and value and norm. And, these four aspects have interdependent relationship. Actually, not only Leonard-Barton proposed the aspects of core competence. In the past, several researchers had proposed different module of the core competence aspects (Table 1).. 11.

(19) Leonard-Barton (1995). Rod Coombs (1996) Knott and Pearson (1996). Petts (1997). Employee Knowledge and Skill Physical System Management system Value and Norm Investment mode Harvest mode Employee core competence: Skills, Tacit and working Habit Company internal system: Management, physical environment…etc. Socialization system: organization culture, value and norm. Skill identification Organizational learning Knowledge embedding Rapid deployment Reconstructing Innovation. Table 1: different aspect of core competence. (3) Core competence and outsourcing Schwenker & Senia( 1993) proposed five key point questions for the company who face the outsourcing problem base on the core competence concept. 1. What is the core business of company? 2. What is the non-core activity and can it be outsourcing to external supplier?? 3. What is the benefit of out-sourcing? 4. Which supplier can provide these non-core activities? 5. Which supplier is the best fit for the outsourcing requirement?. 12.

(20) In this study, we try to understand how a Taiwanese local company makes the decision of outsourcing when they got a new order from a new customer. We separate the activities which E company has to consider the outsourcing strategy as below: 1. PCB manufacture technology: E company has their own factories for PCB, PCBA (printed circuit board assembly) and system assembly, but due to the technology of new order from I company is too high, so E company has no choice but outsourcing their PCB to third parties. 2. Product certification: I company has higher product certification standard than E company’s old customer like Dell or Acer. And the equipments of product certification are really expensive and hard to get from retail market. First trade with Intel, E company choose outsourcing the certification to the third party, but from second trade, E company considered whether they should do it in-house or not. 3. Software: E company has their own BIOS (basic input/output system) design engineers but for I company, the best way to secure the software’s quality was using their old partner A company which was specialize on the software design. But, due to all the venders of I company need to cooperate with A company, A company faced the problem of human resource shortage. This problem also makes E company need to take the risk of inflexible schedule and resource. 4. Regulatory and EMC: E company also has their own laboratory of EMC, but if I company need to get the certification from E company, E company need to apply to be a certificated laboratory which need to spend a lot of time and money.. 13.

(21) 2.3 Resource-based theory This theory emphasizes the resource the most important factor when a company is making the decision. Company should use their advantage including the unique product or competitive price to resist the change of the environment and earn the extra profit. This kind of resource should have the character as below: valuable, rare, imperfectly replicable/ imitable and insubstitutability (Barney, 1991; Williams, 1992). Based on the theory of economics, Penrose(1959) thought if company wanted to get the benefit from their business activities, company needs not only advantage resource but also the ability to using those resource. So, Wernerfelt (1984) proposed the term of resource-Based Theory and try to explain that using the resource-based concept to make the decision is better than others. Aaker(1989) thought the development of company strategy has two big direction to consider: one is what is the way to compete; the other is where can you compete. Aaker thought the origin of resource is from organization internally- the capital and ability. If company can use these two resources well, then they can generate best competitive advantage. 1986, Barney also proposed that company can accumulate their resource and ability to develop long term and sustainable competitive advantage.. 2.4 Resource Dependence Theory Resource dependence theory pointed out the resource in the environment is not endless; company can’t get the resource from internal and external without limitation. So, the key of making the decision are understanding and well-using the internal recourse and ability. Resource dependence theory researchers proposed that organizations have different dependence level with different resource no matter it is 14.

(22) internal or external resource. (Kotter, 1989). Zeithaml (1994) emphasized organization need to adopt the uncertainty of external environment, overcome the problem of independent on external resource, manage and control the resource actively. So the key point of making the decision is how to get the important resource smoothly and stabilize the relationship between organization and the environment. Teng, 1995, though when internal lack of resources and abilities, organization will tend to seek the resource form external. So, organization needs to get the support from external environment to exist in the environment (Pfeffer & Salancik, 1978).. Even though resource-base theory and resource dependence theory have different view of how companies get their competitive advantage, but both of the theories think when a company lack of the resource they need to get the resource from external environment.. 15.

(23) Chapter 3 RESEARCH METHODOLOGY. 3.1 Qualitative research Qualitative research is researcher aimed at one specific event or question to do the explanation research. It is a tool for understanding one event’s meaning or structure (Parker, 1994). The information got by qualitative always shown by words and the analysis of information always presents by concept (Saunders, Lewis & Thormhill, 1997). Compare to quantification research, qualitative research emphasizes the process and meaning which can’t be count by numbers (Denzin & Lincoln,1994). Even thought the meaning between quantification and qualification is contrary, but it doesn’t mean they are conflict. In fact, we can see a lot of quantification research also use qualitative information and vice versa (Bryman,1989).. 3.2 Case study Case study is a basic research method in social technology research; it is also a strategy of empirical research (Yin, 1989). Yin thought that when the research purpose is studying a method or reason of a phenomenon, or can’t control from outside, it is an event which happened in this moment instead of a history event can use the method of case study. Case study can use every kind of tool to do the research without any limit, so researcher can use both quantification and qualitative research base on their research requirement and purpose.. 16.

(24) Chapter 4 CASE STUDY 4.1 Outsourcing question preface At the end of 2011, 25 years old Taiwanese OEM/ODM company E company. got a big mother board order from one famous customer I company(ICBD) which E company never cooperate with. This huge order not only helps E company’s shipment quantity increase average 250 thousands per month but also makes her stockholders get back their confident for the E company’s future. In order to support this brand new business, E company immediately built a team to in charge of this project. But except the exciting for the huge quantity of the shipment, this team also faces a big challenge. The manager of this project found out that their factory’s product certification equipments can’t catch the standard of their new customer. But if they need to purchase the equipments, the equipments are quite expensive and have the risk that they might not catch their customer’s aggressive schedule. The only way to solve this urgent problem in the short time is that they need to find the third party which already be certificated by I company to do the product certification. Three months later, when E company still snowed under their first mother board business with I company, E company got their second business N product from this new customer. This new product is not only just a mother board product like before Intel’s traditional product. This new product is a system product including small size mother board which cut in the mobile solution in the desk top mother board. For I company, they really want to push this smallest desk top to the market. In another way, E company also wants to keep tightly partnership and show their excellent work to their new customer I company. For the E company team which support I company project, they might not that happy like I company and other people in E comapny. It’s because that now they have another big decision need to make by them. First, if E company only want to trade with I company one time, the best way to reach I company’s product certification is outsourcing to the third party. But it’s obvious that 17.

(25) E company will not give up this chance to cooperate with one of the biggest CPU manufacture company in the world. However, can E company get enough project to cover the cost of those equipments is still a big uncertainty for the E Company’s I company team. Second, for a traditional desk top mother board manufacture like E company which already have their own PCB factory for last two decade, lack of the skill of the mobile solution is also become a big problem when they get the award of the N Product. In the past two decades, E company put all of their sources on the standard mother board size like ATX (advanced technology extended) or micro ATX. For the N Product, there is no way but outsourcing their PCB to their other vender. It’s also a good time for E company’s manager to think about whether it’s a good idea for E company to improve their PCB factory’s ability.. 18.

(26) 4.2 E COMPANY history and industry analysis (1) ODM ODM is the abbreviation of the original design manufacturer (ODM) which designs and manufactures a product which is specified and eventually branded and sold by another firm. ODMs allow the brand firm to produce (either as a supplement or solely) a product even without having to engage in the organization or running of a factory. Due to the popularity of international trade and professional service age, ODMs play more and more important roles in the world. The traditional model between ODM and brand firm is usually like ODM produce goods for a foreign company which sees some advantage in the transaction (such as low labor inputs, transport links or proximity to markets). Another reason for the ODM is that some countries’ laws possibly prohibit direct ownership of assets by foreigners, allowing a local firm to produce for a brand company for either the domestic market or export. Another famous name of this kind of model is named "outsourcing". In Taiwan, there is a lot of computer ODM such as Compal Electronics, which famous as making notebook computers and monitors and operating as a mass producer for numerous brand companies. For Compel, they assisted brand firm by low labor costs, low-cost transport, and the near commodity nature of the physical inputs.. 19.

(27) (2) E COMPANY E company was established in 1987, had just passed their 25th birthday. In the first decade, E company was the first mother board OEM which design and manufacture the mother board for almost all the famous computer company. Such as Dell, Lemel and Genuin. In 1996, E company developed their system fabricate production line in American subsidiary. And then soon in 1999, E company officially extended their field to the system design, manufacture and marketing business. From now on, E comapny’s main focus had expanded to not only motherboards, but also desktop and notebook computers, graphic cards. When E company tried to develop their own brand’s product, a lot of Taiwanese company like ASUS and ACER which were also the manufacture vender for the International computer brand before had already launched their own brand product to worldwide market successfully and tried to separate their OEM and brand department. For example, 2008 ASUS tried to separate their OEM business from her own brand business, so she built another company to handle her OEM’s business which called Pegatron Corporation. Now, ASUS already put their order to another OEM instead of put all their order in Pegatron(table 1). In another hand, Pegatron also tried their best to develop their relationship with their other customer. And due to Pegatron was managed by ASUS, Pegatron has plentiful capital and resource to develop their supply chain and knowledge. Now, Pegatron had become the biggest ODM in Taiwan and also the biggest competitor for E company to get the order from I company.. 20.

(28) Figure 5: 2007~2010 ASUS ODM partner and quantity comparison (excerpted from Global sources, 2009). Compared to E company’s competitor like Pagatron and MSI, E company doesn’t have that much capital and resource to develop their supply chain. So the decision of whether they should take the issue to be outsourcing or not is really important for the E company’s I company team. (3) Competitors The market research firm iSuppli issued a report in 2006 which demonstrated that 82.6% of PC notebooks' components are made by Taiwanese ODMs. 2003, the biggest three computer ODMs are Quanta, Hon Hai and Compal. Later, Pagatron join in this competitive war. However, the manufacturer such like Wistron, Inventec is still very powerful. Below we listed some of famous Taiwanese ODM.. 21.

(29) Foxconn: Foxconn which is known as the group of Hon Hai specialized in computer, communications, consumer electronics, digital content and even the high-tech automobiles parts production. Foxconn is currently the world's largest electronic professional manufacturer with more than 120 million people and the world-class IT (Information technology) customers. Their ODM business scope is really wide, from the newest technology as tablet to the traditional and mature ODM business as motherboards. Foxconn is famous for their high quality motherboards and excellent Apple’s iphone series. Quanta: In the beginning, Quanta is the largest ODM in the world for notebook. Their famous product includes the ThinkPad and MacBook. Quanta's notebook business also includes the world's leading IT brands such as HP, and SONY. 2007, the shipment of notebook computer first time over one hundred million units and the notebook market share is 38% become the first ODM in the world. Their famous product includes 80% of the IBM ThinkPad (later, Lenovo ThinkPad) and Apple’s MacBook Air. Compal: 2009, Compal which always the second largest notebook computer contract manufactures first time shipped out more than Quanta. After 2009, Compal competed with Quanta to be the first notebook ODM in Taiwan. Compal's main business is LCD monitors and LCD TVs. The SONY Trinitron, Mitsubishi Zuanshi Long Today Eizo, Mitsubishi ultra-high-end LCD monitors all made by Compal,. Compal has a really famous customer called DELL. Pagatron: Pagatron was separated from ASUS. In early 2008, ASUS finally completed the separation of brand and ODM business, and the subsidiary is the Pagatron which is responsible for the ODM business for a variety of IT products, among the product notebook computers is the main products for their ODM business 22.

(30) (also including 100% of the ASUS notebook). A lot of researchers thought this separation of ASUS is really a wise decision. In 2011, Pagatron got the order of the iPad 3 (now is The New iPad contract) due to their good reputation and the strategy of word of mouth. After the separation, Pagatron owns ASUS original OEM strength and solid foundation, so the shipment volume is increasing steadily nowadays. And also, Pagatron is the biggest competitive for E COMPANY in this case due to their experienced ODM history. Listed three of Pegatron’s important factors as below: 1. Talented Employees Pegatron employed highly talented in-house design teams that perform at a high level by internalizing and executing innovation ideas. 2. R & D capability Fueled by the spirit of innovation and development, Pegatron work to maintain and cultivate a strong IP position and patent portfolio. 3. Manufacturing systems Pegatron implement tight vertical integration and streamlined manufacturing operations to ensure customer satisfaction.. (4) Customer- I company: I comapny, the world biggest processor manufacture company, was founded in founded in Mountain View, California by Gordon E. Moore, Rpbert Noyce, and Arthur Rock in 1968. 1991, launched "I company Inside" campaign. This successful strategy makes I company one of the most recognizable computer company in the world. It also help I company to earn brand loyalty and awareness of I company processors in computers. In 2009, I company using a good-better-best strategy 23.

(31) (Celeron<Pentium<I Family) calling I Family (Core i3, i5, i7) to separate different customer segment. Due to their amazing strategy and unique technology, for the last 40 years, there is no doubt that I company is the biggest and strongest CPU (central process unit) manufacture. Furthermore, most of people might think they will keep this record for the next ten years. But in 2011, Advanced Micro Devices (AMD) launched their Bulldozer serial and APU. This is the first time, I company understand they might lose their first place of the CPU market. Another side, I company saw the potential in the all in one (AIO) market. 2010, Apple launch their first AIO computer; try to develop another new product to replace the traditional desk top. In 2011, the growth rate of the AIO was 17%, and due to the mature of the AIO product, the expectation of the AIO in 2012 is 31%. But, Apple didn’t take all the advantage of this special product. From 2010 to 2011, Apple lost their market share from 37.1%to 28.6%. In the other side, Lenovo increase their market share from 12.6% to 22.8%, and might replace Apple’s first place in 2012. Not only Lenovo, but also almost all of the famous computer companies, such as HP and Dell had prepared to focus on the AIO market in 2012. For Intel, they saw the potential of the AIO market and a turning point to develop their system level product. But the critical problem is they don’t have any experience about the system level. So, if they want to extend their product category, they need to find a partner to help them design their system product. And which product they need to focus on? Should they focus on the competitive AIO market? Or the decayed market desk top? 24.

(32) 4.3 E COMPANY outsourcing feature Being an OEM like E company, they need to help their customer from initial product design to the manufacture and quality control after product launched. Before launch, they also need to the reliability, compatibility, regulatory, signal, power and EMC/EMI (electromagnetic interference) test. For a company like E company which produced the several product lines such as motherboard, system products and graphic cards, it’s really hard for E company’s manager whenever they need to procure some expensive equipment. For example, if E company needs to buy a 2000 times telescope for motherboard’s dye and pry test, system product might not need to do any kind of dye and pry test and the graphic cards business doesn’t need that much high standard telescope to do the dye and pry test. So, does E Company need to purchase the telescope for the dye and pry test or just outsourcing to outside lab to so this test? Due to it’s hard to discuss every outsourcing problem E company is, so I tried to focus on their new order- N Product to clarify one way to understand the pros and cons of outsourcing. Regarding to a system product like N Product, we can separate four parts which E Company I company team choose to outsource to third party to implement the activities: 1. PCB manufacture: even though E company has their own PCB factory, due to lack of mobile solution PCB experience, facing the latest desk top I company N Product which cut in the mobile technology in the motherboards product, E company has no choice but choosing outsourcing to another two PCB venders. 25.

(33) But except the cost of outsourcing, E company found out that due to community difficulties between their own company and the venders, they might have a big problem after N product start to mass product.. 2. Product certification: after manufacture the product, OEM needs to do the product certification to make sure the product can keep their good function in the different situation before shipping. Product certification contains several complicated test item like dry and humility or shock and vibration. For example, the purpose of the humility test is trying to figure out after the product be shipped in the cargo and passed by the high humility area like the India Ocean, can the product still have good function like before. Being a huge and significant motherboards company, I company has their own high standard product certification requirement for their vender. Unfortunately, E company’s product certification equipment couldn’t catch their new customer’s request. Due to almost every item of the product certification is really expensive; E Company couldn’t purchase all the equipment in the beginning, so in the first order, E Company seeks third parties’ help to do the product certification. But after first product launched successfully in 2012 May, E company start purchasing the equipments and try to do the product certification in house. 3. Software: in the past few years, A company is always the only BIOS partner of I company. A company help I company to develop their CPU’s BIOS code. So, when I company award E company, it also means E Company needs to outsource the BIOS to A company. 26.

(34) 4. Regulatory and EMC: Before shipping the goods to another company, E Company and I company need to make sure their product is match to all the countries regulatory certifications which they plan to ship to. Normally, does E Company need to outsource to another laboratory to do the regulatory depended on whether their customer requested they need to get the certification or just report. If I company wanted to get the official certification, and then E Company needs to outsource their test to outside laboratory; on contrary, if their customer didn’t request them to get the official report, E Company can just do the test in house.. 27.

(35) 4.4 E COMPANY core competence Hayes & Pisano(1996) think Core competence has the character as below: 1. It only belong to the specific company and developed from internal, so other companies couldn’t buy it from other place. 2. Other companies are hard to imitate or transfer the value produced be the company. 3. Core competence seldom produced from special technology and manufacture equipment. It’s because that technology and manufacture equipment are easy to be imitated and purchased by other companies, so it’s hard to generate competition advantage form technology and equipment. If you browsed E Company’s website, you can find E company’s core competition on the website was: Time to market, product reliability, competitive cost and supply chain. But core competence is not just what company thinks who they are or what they are good at, it also need to provide the value of cognition for their customer (Gamel, Prahalan and Hamel, 1990). Like every ODM company, E Company tried their best on developing their own cost down strategy. Last decades, E Company only focus on the low price market and almost gave up all high-end product. Until now, no matter the big customers like I company and Dell or the small customer like game players talked about E Company, cheap and low quality is the first image popping in their heads. How did it happen? It is because that for the last two decades, almost every ODM tried to attract their customer by cost down strategy. So, the gross profit of motherboards started decreasing from 10% in 1990 to 3% in 2010. If E Company still wanted to keep their competitive advantage of cost down, 28.

(36) they might need to choose to decrease some miner components on the motherboards like electric capacities. And it also caused customer start losing their confident of E Company’s product. But for some product like the first product with I company which was the mainstream in 2011 and be replaced by I company H7 serial motherboards might need to chose the cost down strategy for avoiding the risk and keep the high quantity in the market. It’s also the reason why I company chose E Company to be their H61 vender. Time passed, core competence will become normal skill (Gamel, Prahalad and Hamel, 1990). E Company should understand what is more important in the future and what kind of advantage of their company can be their next core competence.. 29.

(37) 4.5 E COMPANY outsourcing analysis Brandes (1994) thinks making a decision of outsourcing or in-house need to include three concepts: resource, dependence and cost. One company can decide whether they should chose outsourcing or not through the process like figure 2. First, understand whether it is company’s core competence. If not, escalate whether it will make company depend on another third party too much or not. If the answer is still no, then the company should measure whether it will cost a lot when they want to do it in house. If yes, then company should choose outsourcing the business.. Y Strategy resource concept. Core competence. (Resource-based theory) N Y Interdependence concept. Risk of dependence. (Resource dependency theory) N N Cost analysis concept. Y Low Cost. Outsourcing. In-house. Figure 6: three concepts of in-house or outsourcing (Brandes, 1994). Back to E Company’s N project as we discussed before, we can separate outsourcing issue to four parts: PCB manufacture ability, product certification, software and regulatory. 30.

(38) 1. PCB manufacture ability: For a motherboards manufacture, there is no doubt that PCB is the most important part for their product. In the case of N PRODUCT project, E Company is high relevance with their two venders (H and D company). Or in other words, E Company is highly relying on their PCB vender. Especially H Company, it is because that H Company’s factory already passed some of I company’s qualification. So, before D company pass the PCB site qualification of I company, E Company only has single source for their PCB venders. It means it has really high risk for the relationship between E Company and her vender. For example, if H Company couldn’t provide their product, due to E company doesn’t have second source (before Dynamics pass the qualification), E Company also can’t ship their product to customer on time too. 2. Product certification: after got the award from Intel, the biggest challenge for E Company’s I company team is whether they should outsourcing the product certification to the third party. Is product certification E Company’s core competence? It is obviously not. Due to Chinese policy of the economics zone for Taiwanese manufacture in Shenzhen, there are a lot of laboratory near the economics zone. And the equipment which reach Intel’s standard is really expensive. If E Company needs to purchase all the equipment of product certification, it might cost millions dollars. 3. Software: after E Company completed the hardware design, E Company’s BIOS team needs to cooperate with AMI who helps I company to design their BIOS code for each CPU and PCH (platform controller hub). This is also a highly dependence business for E Company. First, BIOS is really important part in the process of developing the motherboards. Second, A company is the 31.

(39) only source of the BIOS outsourcing, this one makes E Company under more risk of dependence. 4. Regulatory: Regulatory is quite a complicated issue during the developing process. First, E Company needs to know which countries I company wants to ship to. Second, different components (adapter or chassis) or functions (HDMI, wireless and ThunderBolt) need to apply the different certification. The best way to do this complicated test is outsource to different professional laboratory.. 32.

(40) CHEAPTER 5 DISCUSSION 5.1 Research result and suggestion According to the core competence, resource indecency theory, we can analysis E Company’s outsourcing activities by both long term and short term. Based on the Javidan’s theory, we can separate these four outsourcing activities as core competencies, competencies, capabilities and resources base on the difficulties and the values for E Company.. As we discussed in the chapter four, we can find out that for a motherboards ODM like E Company, technology such as the hardware and software design skill is the most important ability. So, even though in the short term, due to the resource limitation for both technology and human resource, E Company might need to use the strategy of time-sharing outsourcing. But, base on the alternative modes of outsourcing matrix (Quinn and Gillmer, 1991), we can find out that PCB and Software development are both high potential competitive edge and high strategic vulnerability. So, in the long term, considering the business perspective, E Company need to develop their PCB manufacture ability and software design sill to avoid the inflexible outsourcing strategy. E Company should also think about the future roadmap when they have to make the decision of the outsourcing. E Company needs to think about what kind of value and product do they want to deliver to their customer and end-customer in the future. Base on this concept, E Company should not outsource the activities which might be their main product or service in the future.. 33.

(41) 5.2 Limitation 1. This case study base on one Taiwanese ODM- E Company can’t represent for all the motherboards or computer companies; also, different industry has different culture of the outsourcing, E Company can’t stand for all the ODM company which in different industry. 2. E Company managers spent most of their time to go aboard for business visiting, can’s interview the high level manager inside the E Company. This study only interviewed the E Company’s I company project manager, so without overall interview structure. 3. Seldom researches are aimed to a Taiwanese ODＭ;so, lack of Information and literature of E Company makes this study can’t have completely statistics data.. 34.

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(44) 國立臺灣師範大學管理研究所. 國管立理臺灣研師究範大所學. 研究生：方郁嘉撰 101. 6. 碩士論文. -. 37. 撰 101. 6. 碩士論文台灣本土代工廠商之委外研究以精英電腦為例. -. 台灣本土代工廠商之委外研究以精英電腦為例. 研究生：方郁嘉.

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