從顧客觀點探討製造業服務化:從OEM/ODM到OBM - 政大學術集成

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(1)國立政治大學商學院企業管理學系碩士論文 Department of Business Administration College of Commerce National Cheng Chi University Master Thesis. 政治大. 學. 從 OEM/ODM 到 OBM. ‧. ‧ 國. 立從顧客觀點探討製造業服務化:. n. al. er. io. sit. y. Nat. The servitization process from OEM/ODM to OBM: The customer perspective. Ch. engchi. i Un. v. 指導教授: 羅明琇博士 Advisor: Sonia M. Lo, Ph.D. 研究生: 孫婉柔撰 YuanJou Sun 中華民國一百零三年七月 July, 2014 1.

(2) Abstract 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. However, due to the shrinking profits of OEM / ODMs, manufacturers are seeking new ways to transform themselves. Therefore further research into the increasingly blurred boundaries between manufacturing and services and the concept of. 政治大. “servitization” is essential. Some companies in Taiwan have successfully transformed. 立. from a low-profit path by following a value-added path and transforming themselves. ‧ 國. 學. from OEM/ODM to OBM.. This paper focuses on a study of three OBM companies. ‧. who were once OEM/ODM manufacturers, but expanded into the role of. y. Nat. n. al. er. io. OEM/ODM and OBM.. sit. “customer-oriented services” and explored their capability to transition between. Ch. engchi. i Un. v. This paper uses a case study methodology and research on these three OBM companies.. It will investigate two findings.. Firstly, when transforming from. OEM/ODM into OBM the process of servitization, is made up of four stages that represent the different roles of the end customers in the process of servitization. Roles like imitation, exploration, inspiration, and aspiration.. Secondly, when transforming. from OEM/ODM into OBM in the process of servitization, there are four main capabilities needed to develop; customization capability, new value proposition, 2.

(3) organization redesign, and new trading norms. This thesis seeks to make two specific contributions to the discussion of servitization. Firstly, this research will concentrate on consumer goods, rather then capital goods like with previous literature concerning servitization and focusing less on the changes from products to “Back-end services”. Secondly, it will seek to give manufacturers with a desire to develop into an OBM company clear paths to follow. So. 政治大. manufacturers can adjust their own strategies to the specific situation and environment. 立. they face.. ‧. ‧ 國. 學. n. er. io. sit. y. Nat. al. Ch. engchi. 3. i Un. v.

(4) Outline 1. Introduction .................................................................................................................. 9. 1.1 Research motivation ............................................................................................... 9 1.2 Research objectives ............................................................................................... 11 1.3 Research procedure ............................................................................................... 12. 政治大. 2. Research Review ........................................................................................................ 14. 立. 2.1 Definition of “servitization” ................................................................................. 14. ‧ 國. 學. 2.2 The motivations of “servitization” ........................................................................ 16. ‧. 2.3 The role of end customers in servitization ............................................................ 17. sit. y. Nat. io. n. al. er. 2.4 The process of “servitization”............................................................................... 18. i Un. v. 2.4 The value stream from OEM/ODM to OBM ........................................................ 23. Ch. engchi. 2.4.1 The Value differences between OEM/ODM and OBM ................................. 24 3.Field study – methodology .......................................................................................... 26. 3.1 Case study methodology ....................................................................................... 26 3.2 In-depth interview ................................................................................................. 26 3.3 Research subject ................................................................................................... 27 3.3.1 Lian Yin.......................................................................................................... 29. 4.

(5) 3.3.2 DAPHNE ........................................................................................................ 29. 3.3.3 ASUS.............................................................................................................. 30. 3.4 Case study design .................................................................................................. 31 3.4.1 Interview respondents .................................................................................... 32. 3.4.2 Interview principle ......................................................................................... 33. 政治大. 4. Case Analysis ............................................................................................................. 34. 立. 4.1. The servitization process of Lian Yin international ............................................. 34. ‧ 國. 學. 4.2 The servitization process of DAPHNE ................................................................. 36. ‧. 4.3The servitization process of ASUS ........................................................................ 38. y. Nat. er. io. sit. 4.4 Cross-case analysis ............................................................................................... 41 4.4.1 The role of customer in each stage ................................................................. 42. n. al. Ch. engchi. i Un. v. 4.4.2 The resource and capability needed to reach OBM ....................................... 46. 5.. Conclusion and future research ............................................................................... 51. 5.1. Theory and practice contribution........................................................................ 53. 5.1.2 Practical contribution ......................................................................................... 54 5.2. Limitation and Future development ................................................................... 54. 5.2.1 Limitation........................................................................................................... 54. 5.

(6) 5.2.2 Future development ........................................................................................... 54 References ...................................................................................................................... 56. 立. 政治大. ‧. ‧ 國. 學. n. er. io. sit. y. Nat. al. Ch. engchi. 6. i Un. v.

(7) Table Table 1. The definition of servitization………………………………………………...14 Table 2. Interview outline………………………………………………………………31 Table 3. Interview respondents………………………………………………………....33. 立. 政治大. ‧. ‧ 國. 學. n. er. io. sit. y. Nat. al. Ch. engchi. 7. i Un. v.

(8) Figure Figure 1. Research procedure ..................................................................................... 13 Figure 2. The servitization process in capital equipment manufacturers ................... 19 Figure 3. The process of developing into integrated solution .................................... 21 Figure 4. An integrated framework of servitization ................................................... 22 Figure 5. A product service continuum (Chase, 1981) ............................................... 24. 政治大. Figure 6. Servitization process from OEM/ODM to OBM........................................ 41. 立. ‧. ‧ 國. 學. n. er. io. sit. y. Nat. al. Ch. engchi. 8. i Un. v.

(9) 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. 治政大 the importance of Taiwan’s companies accounted for 90% of global output. This shows 立 OEM/ODM sector. Further research on OEM / ODM manufacturers is an urgent. ‧ 國. 學. requirement.. ‧. When analyzing recent profitability, we can see it is declining. The higher costs of. sit. y. Nat. human resources and land in Taiwan, as well as the growth of the economies of. n. al. er. io. emerging nations have all contributed to this decline in profitability. The information. i Un. v. technology industry is one sector whose profitability has dramtically declined. For. Ch. engchi. 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 9.

(10) 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).. 政治大 the road to servitization.. The idea of phased paths appeared. Phased paths are seen to provide a safer. 立. journey for companies along. For example, Oliva and. ‧ 國. 學. 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. y. Nat. sit. stages in the capital goods industry to explain the capabilities needed to be cultivated. n. al. er. io. when manufactures are moving from pure product manufacturing into the provision of. i Un. v. integrated solutions. The four capabilities identified are operations, business. Ch. engchi. 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 10.

(11) 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. 政治大. developing capabilities and organizational transformation. They have to develop new. 立. capabilities and analyse customers’ positions so that they can be better at marketing,. ‧ 國. 學. selling, delivering, and profit from OBM services. Meanwhile, they also have to. y. Nat. io. er. Based on the above purpose, the research questions are:. sit. production.. ‧. recognize new requirements placed on existing functions such as R&D, design and. (1) What is the difference between customers’ role during the process of servitization?. n. al. Ch. i Un. v. (2) What are the capabilities necessary for OEM/ODM companies to develop during the process of servitization?. engchi. 11.

(12) 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. 政治大. servitization process from OEM/ODM to OBM: The customer perspective”.(Figure 1). 立. ‧. ‧ 國. 學. n. er. io. sit. y. Nat. al. Ch. engchi. 12. i Un. v.

(13) Research purpose. Literature reviews. Servitization Motivation. Servitization Process. Customer’s role in servitization. 政治大. 立Company data collection. ‧. ‧ 國. 學 Interview framework. n. er. io. sit. y. Nat. al. Ch. Interview. engchi. i Un. Case analysis. Result and Conclusion. Figure 1. Research procedure. 13. v. From OEM/ODM to OBM.

(14) 2. Research Review 2.1 Definition of “servitization” For a better understanding of “servitization”, this research firstly explores the differences between products and services. According to Baines et al (2009), the definition of product is generally well connected with manufacturers. For manufactures, a product is typically referred to as a material artefact (e.g. car, boat or plane). Compared with product, the term “service” is more ambiguous and is often used loosely. The word “service” usually refers to an intangible offering (e.g. maintenance, repair or. 治政 insurance). “Servitization” is defined by many authors大 in the literatures (see Table 1). 立 Throughout these, the delivery of product-based services is central. Generally, they are. ‧ 國. 學. all broadly in agreement with the definition provided by Vandermerwe and Rada (1988),. ‧. who firstly mentioned servitization and defines it as “the increased additional and. sit. y. Nat. value-adding offering of fuller market packages or ‘bundles’ of customer focused. io. er. combinations of goods, services, support, self-service and knowledge in order to add. al. iv n C hdefinition Table 1. The i U e n g cofhservitization n. value to core product offerings (1988, p.316)”.. Authors. Definition. Vandermerwe and Rada (1988). Market. packages. or. ‘bundles’. of. customer-focused combinations of goods, services,. support,. self-service. and. knowledge. Tellus Institute (1999). The emergence of product-based services which. blur. the. distinction. between. manufacturing and traditional service 14.

(15) sector activities. Verstrepen and van Den Berg (1999). Adding extra service components to core products.. Robinson et al. (2002). An integrated bundle of both goods and services.. Desmet et al. (2003). A trend in which manufacturing firms adopt more and more service components in their offerings.. Lewis et al. (2004). 立. 治strategy that seeks to change the way 政 Any 大 in which a product functionality is. ‧ 國. 學. delivered to its markets.. Ward and Graves (2005). Increasing the range of services offered. Nat. y. ‧. by a manufacturer.. A change process wherein manufacturing. n. al. companies embrace service orientation. er. io. sit. Ren and Gregory (2007). Ch. i Un. v. and/or develop more and better services,. engchi. with the aim to satisfy customer’s needs, achieve. competitive. advantages. and. enhance firm performance. From : Baines et al, 2008 The word “services” which is used in these journals about “servitization” usually refers to an additional offering and is customer-oriented. For the purpose of this thesis, “servitization” is considered as defined by Ren and Gregory (2007). It is a change process wherein manufacturing companies embrace service orientation and/or develop more and better services., with the aim of satisfing customers’ needs, to create 15.

(16) competitive advantages and enhance the firm’s performance. This defintion combines the main characterstics of servitisation that are the main concern of this research, “change process”, “service”, “customers’ needs” and “competitive advantages”. 2.2 The motivations of “servitization” Servitization can add essential value for the growth and competitiveness for manufactures because it can contribute to the increasing demand and complement the sales or better use of tangible products (Mathe and Shapiro, 1993). The three factors that drive companies to pursue a servitization strategy are suggested in the literature as. 政治大. financial, strategic (competitive advantage) and marketing (Mathe and Shapiro, 1993;. 立. Mathieu, 2001b; Gebauer and Friedli, 2005; Gebauer et al., 2006; Gebauer and Fleisch,. ‧ 國. 學. 2007).. ‧. (1) Financial：According to Gebauer and Friedli (2005) and Wise and Baumgartner,. sit. y. Nat. (1999), services can retain averagely higher margins than products and generate. io. er. substantial revenue from an installed base of products with a longer life cycle. It. al. helps the company for regular income and balances the risk of declining sales in. n. iv n C and unfavorable h eeconomic i U (Brax, 2005; Malleret, 2006). n g c hcycles. mature markets. Especially in the price-sensitive industry, these products combining with service are less sensitive to competition (Malleret, 2006), and also tend to provide higher levels of profitability when compared with offering the physical product alone (Frambach et al., 1997). (2) Competitive advantage：Companies combine with service elements to differentiate pure manufacturing products and also gain important competitive opportunities. When competitive advantages are mentioned, a growing number of authors state that the differentiating strategies based on product 16. innovation,. technological.

(17) improvement or low price and so on are becoming more difficult to maintain (Frambach et al., 1997; Mathieu, 2001b; Gebauer and Fleisch, 2007). However, competitive advantages achieved through services are often more sustainable. Since services are less visible and more labor dependent, services are more difficult to imitate (Oliva and Kallenberg, 2003; Gebauer and Friedli, 2005; Gebauer et al., 2006). Services help companies establish intimate relationships with clients (Gebauer and Friedli, 2005; Oliva and Kallenberg, 2003). The value added by services can enhance the value customers place on homogeneous physical products. 政治大 (3) Marketing：Marketing is 立generally recognized as the use of service to sell more and make customers perceive them as customized (Frambach et al. (1997).. ‧ 國. 學. products based on customers’ needs (Mathe and Shapiro, 1993; Gebauer et al., 2006; Gebauer and Fleisch, 2007). It is argued that services have a great influence on. ‧. purchasing decision and tend to motivate repetitive sales (Malleret, 2006; Mathe and. io. sit. y. Nat. Shapiro,1993).. n. al. er. This section reveals that servitization can improve low-profit situations and. Ch. i Un. v. revenues in manufacturing. However, for manufacturers transitioning from purely. engchi. manufacturing to integrating products and services can be quite complex. The next sections therefore focuses the transformation process that can guide a manufacturing firm to successfully implement a service strategy. 2.3 The role of customers in servitization “Servitization” is largely driven by customers. A major aspect of servitization strategy is its strong customer-centric outlook. Customers are not just provided with products they can be satisfied with, but also concerned with “consumer experience.” This means the products should provide what they want, even if this requires the 17.

(18) incorporation of products from other companies (Miller et al., 2002; Davies, 2004; Vandermerwe and Rada, 1988). Successful companies recognize the necessity to ensure close customer relationships, establish routines and communications for satisfying customers (Levitt, 1983). Oliva and Kallenberg (2003) consider customer orientation service consisting of two separate elements. Firstly, a shift from offering product-oriented services to “user’s processes” oriented services. For example, a shift from a focus on ensuring the proper function or use of the product to pursue efficiency and effectiveness of end-user’s processes relating to the product. Secondly, a shift of the. 政治大 example, a shift from selling 立products to establishing and maintaining a relationship nature of customer interaction from transaction-based to relationship-based. For. ‧ 國. 學. with the customer.. ‧. 2.4 The process of “servitization”. Manufacturing companies that decide to utilise service-oriented strategies have to. y. Nat. er. io. sit. adapt their organizational structures and processes (Mathieu, 2001b; Gebauer and Friedli, 2005; Oliva and Kallenberg, 2003; Gebauer and Fleisch, 2007). This section. n. al. Ch. i Un. v. reviews literature that discusses the processes manufacturers should follow to. engchi. successfully move to service stages and what capabilities should they develop during the processes. Oliva and Kallenberg (2003), explore the factors required when creating “service” in the context of capital equipment manufacturers. Moreover, they also suggest a structural approach to navigate the transition. Figure 2 is the process defined and below are some descriptions.. 18.

(19)  Consolidating product-related services Triggers 1. Customer’s’ complaints 2. Competition Goals 3. Improve efficiency, quality and delivery time Actions 4. Move services under one roof 5. Monitor effectiveness and efficiency of service delivery 6. Add services to support quality initiative.  Entering the Install Based service market Triggers 1. Profitability potential 2. Competition 3. Customer satisfaction 4. Management change Goals (1) Tab the revenue in the IB service market Actions (2) Definition and analysis of IB market (3) Create separate organization to market and deliver service (4) Create infrastructure to respond to local service demand. 立. 政治大. ‧. ‧ 國. 學 y. Nat. 3b. Expanding to process-centered services Trigger  Customer’s request  Utilization of PD skills Goals  Increase utilization of PD and system integration capabilities Actions  Develop consulting capability  Create “new” distribution network  Expand to include other manufacturer. sit. n. al. er. io. 3a. Expanding to relationship-based services Trigger  Customer’s request  Utilization of service infrastructure Goals  Increase utilization of service infrastructure Actions  Assume operating risk: pricing in terms of availability  Achieve cost advantage through: economies of scale, learning curve, network effects. Ch. engchi. i Un. v. 4. Taking over the end user’s operation Triggers?? Goals?? Actions?? Figure 2. The servitization process in capital equipment manufacturers 19.

(20) 1. Consolidating product-related services：The first step taken by the firms is to consolidate the firm’s existing service offering under a single organizational unit. The goal is to improve the service performance. This happens when organizations find out that services are an important component of the consumer satisfaction indicators and want to improve the delivery of those services. 2. Entering the installed base service market：During this process, the firms identify a profit opportunity within the service operation in the previous stage or after seeing a competitor work with high margins in the service market and setting up the. 政治大. structures and processes to exploit it.. 立. 3. Expanding to relationship-based service/process-centered services ：The expansion. ‧ 國. 學. of the service offering takes place when the core functionality of the service. ‧. organization has already been set, and it may happen through two distinct transformations. The first transition is to change the focus of customer interactions. sit. y. Nat. io. er. from transaction- to relationship-based. The second transition is to change the focus of the value proposition to the end-user from product efficacy (i.e. whether the. al. n. iv n C product works) to the product’shefficiency and effectiveness within the end-user’s engchi U process.. 4. Taking over the end-user’s operation：In this stage, the manufacturer becomes“pure service organization”, which includes taking over an end-user’s maintenance or operating organization. Also, according to Davies (2004), a framework is developed to analyze business strategies for developing integrated solutions. Four main stages have been identified through researching five companies in capital goods industry. There are four capabilities need to cultivate; operations, business consultancy, finance and integration (see figure 20.

(21) 3). Services. Manufacturing. Downstream. Upstream. Added Value. Earlier. Manufactu. System. Operational. Service. Final. Stages. rers. Integration. Services. Provision. Consumer. Vertical moves. (Backwards) Capabilities. 治政Operations 大 Business consultancy 學. Finance Integration. ‧ 國. 立. (Forwards). ‧. Figure 3. The process of developing into integrated solutions. sit. y. Nat. Gebauer et al. (2011) integrates the findings of the relevant research into a. io. n. al. er. conceptual framework which contains four parts; drivers, offerings, capabilities and. i Un. v. organization (see figure 4). Drivers have inspired capital equipment manufacturers to. Ch. engchi. create service offerings that meet customer needs in different levels. Accordingly, services can be added into a product lifecycle. For example front-end services, product sales and operations and back-end services. Developing each value-added service not only involves direct changes to the capabilities of company, but also has some challenges for existing organization functions, such as research and development (R&D), product design and production, finance, and human resource management. Moreover, to enable capability development and cross-functional cooperation, manufacturing companies have to transform their organizational arrangements.. 21.

(22)   . Driver. Business Drivers To satisfy customer’s need over time To achieve competitive advantages To enhance financial performance Product-sales and operations. Front-end Service Product Sales support. Consulting Services. R&D/ Product design. Supplier management. Production and system integration. Back-end Service. Offerings Installation/ commission/ training. Product delivery. 立. Managed service. 政治大. ‧ 國. 學 Implications for product Design, Production and supply Management. and marketing. ‧. Implication for service delivery. Implication for sales. Capabilities. Product support service. n. er. io. sit. y. Nat. al. Ch. i Un. v. Implication for organizational arrangement. Organizations. engchi. Figure 4. An integrated framework of servitization Based on the above knowledge, it is clear that in order to adopt value-add services into the original operation. value stream paths are used. They all begin from the upper. stream that focuses on manufacturing or raw materials. Then to the lower stream, which focuses on marketing. However, this literature relates more to capital goods than consumer goods (Davies,2004; Oliva and Kallenberg,2003 ). They are less focused on changes from Products to “Back-end services”. Shih (1996) points out that although the failure rate of OBM is high, it is helpful for manufacturers to have long-term 22.

(23) development. In Taiwan, there are successful cases, but seldom research to integrate them and show the transformation path they took. To fill this gap, this research focuses on how manufacturers changed from OEM/ODM to OBM utilising value stream paths and figuring out what capabilities they need to develop during these changes. 2.4 The value stream from OEM/ODM to OBM This paper mainly focuses on the continuum of value stream from pure-product to pure-service providers. According to Womack and Jones (1996), value stream identifies the physical activities from manufacturing products to services, flowing from raw. 政治大. materials to the final customer. From the beginning of manufacturing firms moves along. 立. the value stream as they develop more product-related service. At the end of the value. ‧ 國. 學. stream, service organization products only accounts for a small part of their value. ‧. proposition. Oliva and Kallenberg (2003) have designed a product service continuum (see Figure 5 ) to define the changes. This is a continuum from traditional manufacturer. y. Nat. er. io. sit. where companies merely offer services as add-on to their products, through to service providers where companies have services as the main part of their value creation process. n. al. Ch. i Un. v. This paper mainly focus on the transition along the value stream from OEM/ODM to OBM.. engchi. 23.

(24) Service as “add-on”. Relative Importance of tangible goods. Relative Importance of tangible services. What do you offer today?. Tangible goods as “add-on”. Target Position OBM. Current Position OEM/ODM. Why don’t you want to go even further?. Why do you want to expand your service offering?. 治政 Figure 5. A product service continuum大 (Chase, 1981) 立 ‧ 國. 學. 2.4.1 The Value differences between OEM/ODM and OBM. The global industrial value chain can be simply divided in to three parts, R&D,. ‧. manufacturing and marketing(Shih,1992). Companies owning brands often put emphasis. Nat. sit. y. on R&D and marketing, they outsource the manufacturing process to manufacturers. This. n. al. er. io. is so called subcontracting (Ouinn, 1994). According to Hobday (1995), there are two. i Un. v. major kinds of subcontracting in Asia. They are OEM (Original equipment. Ch. engchi. manufacturing) and ODM (Original design manufacturing).. The earliest OEMs appeared in 1950s. International electronic companies were looking for subcontracting manufacturers overseas to assemble products in order to gain lower costs. After the products have been assembled, those companies would put on their brand and sell globally (Hobday,1995). According to Liu (1989), OEM means a company who is subcontracted to manufacturer products, or who provide certain technologies that do not pose a threat to the contractor. So manufacturers can produce products that meet the quality and specific requirements. According to Chen (1997), OEMs produce products totally in accord with what their 24.

(25) customers’ requireme. OEMs are responsible only for assembly of products. Other requirement like delivery deadlines, the use of raw materials, specification and so on are all regulated by their customers. ODM (Original Design Manufactures) means manufacturers not purely assembly products but also have the abilities to design or help their customers design their products. ODMs need to have the ability to design and produce products (Chen,1997). ODM may have higher value than OEM, because they offer their customer more service “design”, however, they are still in the “ manufacturing” stage of Shih’s (1992) smiling curve.. 政治大 marketing and services are all 立conducted by manufacturers who create their own brand. OBM (Own brand manufacturer) means from product design, manufacturing,. ‧ 國. 學. The brand leads the implementation of those activities. OBM offers whole activities in the value chain (Chen,1997).. ‧. According to Shih(1992), going from a OEM/ODM to OBM, the manufacturer has. y. Nat. sit. developed into higher value position. The processes of branding plays an important role. n. al. er. io. in endowing products with symbolic meaning. Products can be clearly defined, evaluated. i Un. v. and measured. They offer functional interest. Brand offers products a value other than. Ch. engchi. function (Kim,1990). Dodds et al. (1991) evaluates the relationship between customer’s cognitive and price, brand and the name of the shop. Supporting the idea that the value of the brand would affect customer’s perception of the products quality and value.. 25.

(26) 3. Field study – methodology 3.1 Case study methodology Research methodology is chosen from three dimensions; types of research questions, degree of control subjects, and events and the degrees of focusing on historical events or phenomena (Yin, 1994). Case study methodology is suitable for the types of questions “why” and “how”. Research subject is the phenomena happening now and the researcher cannot control the phenomena (Zhou, 2009). This is a common methodology in humanities and social sciences. It can usually explain, explore and evaluate research. 治政 questions and attempt to answer the questions relating to大 the phenomena or concepts (Yin, 立 2003). The main purpose of this research is collecting practical information and. ‧ 國. 學. developing from existing theories. In related research reviews this methodology has also. ‧. been used in the same fields of research (Oliva and Kallenberg , 2003;Davies, 2004).. sit. y. Nat. Therefore, using case study methodology in this research is appropriate.. io. al. er. Sources of this case are the following: (1) Research review: including mass media. v. n. reports and journal articles like Journal of manufacturing technology. (2) File records: including company official. Ch website. eandn gcompany chi. i Un. published book. (3) Interview:. according to the specific questions arising out of the research framework planned in this research.. 3.2 In-depth interview This research uses in-depth interviews. A common methodology used in qualitative research. Mainly focusing on the oral conversation between interviewer and respondents. The purpose is to exchange opinions. Interviewers can analyze interviewees’ motivations, thoughts, attitudes and insights into a certain topic through interviewing. This kind of 26.

(27) methodology is a positive social interaction. The interviewing data is the result of the interaction (Yuan, 2002). This research uses face to face interview. There are three kinds of interviewing methods; structured interviews, unstructured interviews and semi structured interviews. This research uses semi structured interviews. A structured interview is a highly control way to interview. Certain interviewing methods like questionnaires include questions, sequenced and then recorded. Semi structured interviews have three main characteristics. Firstly, there is a certain topic and few questions, but interviewer does not need to stick. 政治大 some online questions. However, 立 when interviewing, interviewers can change or think. to those specific questions. Secondly, before the interview the interviewer can schedule. ‧ 國. 學. about new questions in accordance with interviewees’ responses. The way to ask questions and the sequence of the whole process can also change freely. Thirdly, the. ‧. interviewer does not need to use certain intonation or text to interview, but according to. y. Nat. sit. the answer of respondent. As for unstructured interviews, there is no certain topic,. n. al. er. io. conversation between interviewer and respondents is totally free (Yuan,2002). The. i Un. v. different servitization paths from OEM/ODM to OBM between each company and. Ch. engchi. different industry that company belongs to. This research mainly focuses on a certain topic. Semi-structured interviews are thus chosen. 3.3 Research subject This research mainly focuses on consumer goods industry because past research mainly focused on capital goods industry. Of Taiwan’s goods exports in 2012, approximately 99 percent were from the industrial sector, while agriculture goods comprised around 1 percent of exports. In terms of imports, over 77 percent of Taiwan imports are of agricultural goods and raw material, reflecting Taiwan’s limited arable 27.

(28) land and lack of indigenous natural resources. Capital goods are the next largest imports (14 percent), followed by consumer goods (approximately 10 percent)( Joshua, 2014). The consumer goods industry is a localized industry in Taiwan, as shown in the above data. Its relationship with end customers in Taiwan is closer than capital goods industry. How manufacturers view the demand of end customers is more important in consumer goods industry. Some capital industry marketers are more concerned with the specifications of products than with how these specifications respond to customer needs (Hutt and Speh,1992). Furthermore, the acceptance of the necessity of formal market. 政治大 marketing relative to that in 立the consumer goods industry (McTarish and Maitland,. research about the demand of end customers has proceeded slowly in capital industry. ‧ 國. 學. 1980). One possible explanation is because in capital goods industry, some of the companies have grown successfully on the basis of engineering skills and technological. ‧. development (McTarish and Maitland, 1980). Many managers in such firms are. y. Nat. sit. promoted out of engineering and R&D departments. It is not unusual, therefore, that. n. al. er. io. technical values tend to dominate their decision making. Due to the difference between. i Un. v. capital goods industry and consumer goods industry, this research mainly to explore. Ch. more about consumer goods industry.. engchi. In order to understand the value-added paths from OEM/ODM to OBM, this research centres on three representative and distinguishing firms in the suitcase, shoe and IT industry, namely Lian Yin, DAPHNE and ASUS. These three companies are representative of the OEM/ODM industry over the past 60 years. The servitization process from OEM/ODM to OBM may not be the best way for OEM/ODM companies to transform. Though it is a possible way to increase success.. 28.

(29) 3.3.1 Lian Yin From manufacturing suitcases in Shanghai and wholesaling them in Taiwan, the primary business of Lian Yin is now selling, renting and fixing travel related suitcases and bags. Lian Yin created two brands, LY (Lian Yin) and AllezVoyager. Products manufactured and sold by Lian Yin have an unlimited duration and unconditional after sale fixing service. The reason why Lian Yin is a good representative case is because it depends on a suitcase renting and fixing service. It was these services that made the brand famous. 政治大. Lian Yin is one of the top companies in suitcase industry. Lian Yin is a SME(small and. 立. medium enterprise) depending on very limited resources, but has still been very. ‧ 國. 學. successful at developing its own brand. The company has many mass media. ‧. organisations requesting interviews in recent years and its stores often have 1000 customers per day to visiting them.. er. io. sit. y. Nat. al. n. iv n C U DAPHNE’s founder company h is e “EZ manufacturing low-end n gcapital”. c h i Originally. 3.3.2 DAPHNE. shoes in Taichung, DAPHNE now has the second largest market share in China. DAPHNE now has three different price-level of products, Shoebox, DAPHNE (D18), DAPHNE (D28). Plus agent brands, AEE, Amedo and AREZZO. Shoebox focuses on a lower price level and now has 1500 retail stores. DAPHNE (D18) and DAPHNE (D28) focuses on the mid price level, but each has a different target market. D18 is targeted at young women from ages 18 to 25. D28 targets a more mature market of women aged from 25 to 45. As for agent brands, DAPHNE uses them to supplement its brand and product line. In total, in china, DAPHNE has more than 6000 stores. In 2012, it also 29.

(30) returned to Taiwan and opened 100 stores. This is its first step towards internationalization. DAPHNE’s product line now includes clothes and accessories. As DAPHNE wishes to become a fashion provider. This research uses DAPHNE as a case because it is a successfully company that transferred from manufacturing to a brand based model in the shoe industry. In the 1980s, many companies were manufacturing shoes, “EZ capital” is the most successfully of those companies in terms of transitioning into do brand business. Successfully emerging from the low profit OEM state. 3.3.3 ASUS. 立. 政治大. ASUS, founded in 1989, is one of the world's leading provider of 3C solutions.. ‧ 國. 學. ASUS is committed to providing the best value to individuals and business users of. ‧. products, applications and systems. Having the world's leading engineers and technology R&D teams’ support, ASUS product line covers a wide range of hardware. y. Nat. er. io. sit. fromPCs, PDAs, motherboards, graphics cards, servers, optical storage, wired / wireless networking products to mobile phones and other 3C products. ASUS operates in more. n. al. Ch. i Un. v. than 20 countries and has more than 62,000 employees. Originally only manufacturing. engchi. motherboards ASUS now operates a OBM business model. ASUS is worth 10.6 billion dollars and is the leading company in the information industry in Taiwan. The reason why this research uses ASUS as a case is because it is a very successfully company who transfered from manufacturing to OBM in the IT industry. Outstanding R&D abilities as well as understanding of customers and IT trends, means ASUS has become popular with end customers. ASUS placed first in the 2013 Taiwan Global Brands survey.. 30.

(31) 3.4 Case study design Chapter 2 has already reviewed the motivations, processes and capabilities related to servitization. This research is based on those reviews as well as second hand information collected to develop a framework. Using in-depth interviews to understand the transformation process in the servitization from OEM/ODM to OBM. 1. Data collection: Outlining the in-depth interview. Collecting second hand data from websites, research reviews and books to understand the motivations, processes and capabilities of servitization for the early preparation of this research.. 政治大. 2. Outline interview questions: The interview questions can be separated into 6 parts.. 立. Based on Li (2012) they are; “customization capability”, “new value proposition”,. ‧ 國. 學. “organization redesigned”, “new trading norms”, “new internal control”,. ‧. “performance evaluation”. Li (2012) uses exploratory analysis to create a measurement scale for developing the servitization ability. Research methods used. y. Nat. er. io. sit. in scale development include; literature reviews, interviews, content analysis, and triangulation. Li (2012) uses rigorous methods to develop the 6 abilities. These. n. al. Ch. i Un. v. concepts are shown in literature reviews separately (Vandermerwe and Rada, 1988;. engchi. Baines et al, 2009; Davies, 2004; Gebauer, 2006). This research uses the 6 abilities developed by Li (2012) as the framework of interview questions (see Table 2 ). Table 2. Interview questions Customization capability How does the company collect and analyze customer’s demand? How often does the company collect and analyze customer’s demand? Does the company continuously conduct investigation about customer satisfaction? How to do it? What different roles do customers play in the company’s developing paths? New value proposition 31.

(32) Does the company perform marketing management during the process of servitization? How is it done? Does the company redefine its competitors during the process of servitization? Does the company develop new external partnerships during the process of servitization? How does the company build up brand during the process of servitization? Organization redesigned How does organization change and develop during the process of servitization? Is there any change of personnel during the process of servitization? Does the company develop E-commerce to make the information flows faster in order to respond to customer’s demand? New trading norms Does the company develop related management norms in the process of. 政治大. servitization? Does the company standardize service process during the process of servitization?. 立. y. Nat. Performance evaluation What is the meaning or value of the brand to the company?. ‧. ‧ 國. 學. New internal control Does the company develop any control mechanism to control brand development during the process of servitization?. sit. er. io. Does the company change the performance indicators during the process of servitization?. al. n. iv n C This research uses semi structured Before interviewing each company, h einterviews. ngchi U the interviewer would examine to the second hand data like company history and mass media news to adjust questions. 3.4.1 Interview respondents This research uses purposive sampling. Purposive sampling means choosing specific and representative people and events to interview in order to get the most comprehensive information. The principles of inviting interview respondents include: (1) Having work experience for more than 5 years in order to well understand the transfer history of company. (2) To allow the interviewer to judge if the interviewee’s responses 32.

(33) are truthful or not, interviewer must already have verified the work of the company and respondents. Table 3 is the basic information of the respondents. Table 3. Interview respondents Company. Respondent. Description. Lian Yin. Respondent A. The founder of Lian Yin. Met in the office of Lian Yin in Sanxia in 5/8, 2014.. DAPHNE. Respondent B. One of the founders of DAPHNE. Met in ChengChi university in 5/20, 2014.. ASUS. Respondent C. General manager of ASUS global mobile devices system marketing department. Started working for ASUS in 2001. Met in Dante in Shipai in 5/28, 2014.. 立. 政治大. ‧ 國. 學. 3.4.2 Interview principle. This research sticks to several principles when interviewing. (1) All interviews are. ‧. conducted anonymously, so respondents can speak to their minds. (2) Leading questions. sit. y. Nat. are avoided and a neutral terms are used. This will avoid affecting the interviewees’. io. er. answers to questions. (3) The interview will not deviate from the topic and interviewers. al. iv n C questions raised will depend on thehinterviewer’s i U as well as the interviewees' e n g c hsituation n. must ensure respondents return to the topic if they do deviate. (4) The order of the. answers. (5) The interview contents will focus on true experiences the interviewees have gone through in order to decrease the possibilities of invention, as well as enabling the interviewee to remember more about how they use resources. (7) The Interviewer will respond to interviewees’ answers and raise new relevant questions. (8) When interviewing, interviewers should respect to what the interviewees say and give interviewees the freedom to respond in an open way. Interviewer should not question an interviewees’ answer. (9) The interview process will be recorded and writen verbatim for subsequent data analysis (Yuan,2002). 33.

(34) 4. Case Analysis 4.1. The servitization process of Lian Yin international Starting from manufacturing suitcases and travel-related bags for luxury brands like CROWN, Lian Yin would research two to three styles that customers would order more volume. They tried to understand what kinds of textures, colors, locks and wheels were favored by customers. They also observed the seasonal change of suitcase’s sales and methods to manipulate channels. Usually the summer and winter vacation seasons are busiest. However, in this industry almost every season is a promotion season. As stated by respondent A:. 立. 政治大. “In off-season, brand needs to do some promotion to stimulate demand; In. ‧ 國. 學. peak-season, brands need promotions to compete with other brands. OEM and ODM. ‧. become low profit work.”. sit. y. Nat. In view of this, Lian Yin decided to found its own brand. Beginning with low-end. io. er. suitcases and selling them on TV and internet to distinguish itself with customer’s. al. brands in order to keep an income resource. “In the beginning, customers’ brand whose. n. iv n C h easnLian suitcase belong to the same price level h iareUsold on beauty shops or discount g cYin. stores. In order to make difference, we sell on TV and online shops”, respondent A stated. To understand customers and promote its own brand, Lian Yin offers services that no other company is offering, for instance suitcase renting and fixing. ”One day by chance I saw pet rental ads. I felt perhaps the suitcase renting is a good business. This is also a good opportunity to sell our own brand of suitcase. After a week of the rental business starting, a TVBS reporter came for interview. Also, many. 34.

(35) students have found and discussed in Ptt1. Since then, many reporters come asking for interview sand customers also come to ask for the service.” This service requires a good relationship between the suitcase component factory and each brand because they use slightly different components to maintain uniqueness. This is the advantage of once being an OEM business, we have network resource about what resource others have or information about what others are doing”, respondent A stated. After enhancing brand awareness with a better understanding of customers’ needs, Lian Yin stop selling through other channels. Only selling at its own shop and online shop in order to lower slotting fee.. 立. 政治大. As the business grew bigger, the organization also changed. For example,. Lian. ‧ 國. 學. Yin developed a marketing & E-commerce department to deal with customers’ demands. This team recruits personnel who are good at brand and E-commerce operation. They. ‧. manage online AdWords2 to make sure the brand remains first in searching result.. y. Nat. io. sit. Senior managers are picked from the factory. “Personnel who understand the whole. n. al. er. process of suitcase manufacturing would know more detailing about the advantage and. Ch. i Un. v. disadvantage of our products. He can introduce to customer more vividly” , respondent A stated.. engchi. In order to offer a better consumer experience, Lian Yin founded a second brand “Allez voyager” to offer more fashion styles and use the latest materials. The Allez voyager series is more expensive than Lian Yin. Lian Yin utilises business diversification.. 1. Ptt (Bulletin Board System) is a famous community forum in Taiwan. Many students use it to exchange information. 2 AdWords is an online advertising service that places advertising copy at the top or bottom of, or beside, the list of results searching engine’s displays for a particular search query. The choice and placement of the ads is based in part on a proprietary determination of the relevance of the search query to the advertising copy. 35.

(36) 4.2 The servitization process of DAPHNE Stage 1: Low-end shoes OEM DAPHNE’s predecessor “EZ capital” started from manufacturing low-end shoes in 1970s. In 1980s, with the change of the industrial structure in Taiwan; for example, rising wage costs and the loss of human resources they decided to move factories to China. EZ capital was the second professional OEM factory that moved to China from Taiwan. It did so at a time when China was reforming and opening up. They were first to get the right to sell shoes in China. Stage 2: Pioneering developing. 立. 政治大. There is a peak and off season in OEM. “For fulfilling the lack of capacity and. ‧ 國. 學. material inventory, we made boots and sold them to the north. Unexpectedly, we sold. ‧. very well.” That was when DAPHNE was founded. “We learned shoe design from America and European customers during OEM. Also, we attended shoe exhibitions to. y. Nat. er. io. sit. learn design ability” respondent B stated.. As business starts to broaden, DAPHANE develops a sales department to be. n. al. Ch. i Un. v. responsible for brand shoe selling. At first, DAPHNE used to wholesale to customers.. engchi. They thought it was the fastest way to approach as many customers as possible. Stage 3: Brand developing For developing the specialties of DAPHNE, they recruit a group of designers who come from different countries. Among them, one Italia designer dominates styles for each season. Designers from China are mainly responsible for adjusting design to fit Chinese customers’ preferences. “We have shows twice a year to show our latest designs to buyers and they can also communicate their observation in retailing with us“, respondent B stated. 36.

(37) In order to create a unified brand image, DAPHNE decides to open its own stores and cut out the wholesaling business. The store developing team was then founded. It is responsible for choosing locations and store planning. “ In wholesaling, one store may sell several brands, DAPHNE then cant’s stand out. They may also set price irregularly. This is harmful to our brand image.”, respondent B stated. During this stage, DAPHNE also employed a POS system to collect customers’ buying information. “Employing the POS system is not the point. The point is finding a team with the ability to read that information and combine it with our design ability.”. 政治大 the age accounts for more customers. 立 With the help of technological analysis, you can “For example, DAPHNE hopes to target 15~40 years old. There must be a percentage of. ‧ 國. 學. know maybe 26 to 28 accounts for more percentages then DAPHNE can design shoes more for their preference” , respondent B stated.. ‧. Stage 4: Multi-brand developing. y. Nat. sit. As DAPHNE’s brand development matured it found that China's economic. n. al. er. io. environment had a population of 70% in low income levels. Therefore, there is a very. i Un. v. high demand for cheap and wide range of products and styles. Meanwhile, the brand. Ch. engchi. image of DAPHNE had been geared towards middle income customers. In order to meet the needs of new consumers DAPHNE used the abilities aquired in the past in the areas of design and production capacity. DAPHNE began a multi-brand development. The creation of "Shoebox" began in 2004. Shoes and accessories prices fall between 60 to 300 Yuan that can be accepted by the general public. As for DAPHNE itself, in order to offer more detailed service to its target customers Daphne created their own brands called D18 youth shop and D28 classic shop. The D18 series focuses on young and cool products, products emphasizing youth, liveliness and other similar characteristics. It is in line with the needs of 18 to 25 year 37.

(38) olds and invited young idol group S.H.E.3 to endorse its products. The D28 series focuses on ladies and soft shoes. It is in line with the needs of 25 to 45 year olds. It emphasizes more mature mature characteristics for independent women consumers who mainly buy fashionable merchandise. DAPHNE invited Ren'e Liu4 to endorse D28 products. Stage 5: brand expansion After successful development in China, DAPHNE hopes to replicate the successful business model overseas. The first battle comes in Taiwan since Taiwan and China have. 政治大 can continue to deepen the capability 立 of its brand management. In addition, DAPHNE similar lifestyles compared with other countries. By international expansion, DAPHNE. ‧ 國. 學. also continues to agent the high-level international shoe brand "SOFFT", "BORN", "AREZZO". Expecting to grasp the heart of more and more consumers.. ‧ sit. y. Nat. 4.3The servitization process of ASUS. n. al. er. io. ASUS began computer motherboard design and manufacturing in 1989. In that. i Un. v. market environment, there was no large companies interested in the design and. Ch. engchi. manufacturing of computer motherboards. They thought that it was a small business sector and people were not optimistic about its future development. Asus saw the potential market for computer motherboards, especially for high-quality computers. By improving their technology through research and development Asus was able to adher to their ideals of producing high quality products. This mades them successful in receiving many orders for motherboard manufacturing. The most famous examples coming from Intel and IBM. At that time, ASUS was almost the only company who. 3. S.H.E. is Taiwan's well-known women's trio singing group, the three members of the group were taken from the first letter of the name in English, comprising Selina, Hebe and Ella. 4 Ren'e Liu is famous musicians, actors and writers in Taiwan. 38.

(39) could follow the trends of their customers’ technology and offer them what they needed. ASUS also began manufacturing other computer related components. “The business model is, ASUS sells components to system providers, such as Fujitsu in Japan or public computers in Taiwan. They have their own notebook, we cooperate with them and offer the components they need, but use their brand. At that time, we would try to convince our customers to show ASUS inside to increase exposure rate”, respondent C stated. In 1998, Asus officially introduced their own PC to the market. The PC at this. 政治大 their PCs, ASUS still kept 立 developing. In 2003, ASUS notebooks began to increase. initial stage was thick and heavy. Although no one was optimistic about the sales of. ‧ 國. 學. dramatically in market share. ASUS’ laptops entered the top five in Global production. After 6 years of continuous exploration and accumulation ASUS had established a. ‧. complete setup for PC design, manufacturing, sales and service systems. PC production. y. Nat. sit. has grown to become an important product comparable with motherboard production.. n. al. er. io. “When a company is in OEM/ODM period, the entire company's systems is very. i Un. v. different with OBM. When ASUS was in OEM/ODM, it was more dependant on. Ch. engchi. customer management. This is very different from managing end consumers“, respondent C stated. Take 4P5 for example, in OEM/ODM , place is where ASUS’s target customers are, ASUS needs to go to them; people are this company’s personnel and procurement processes, ASUS must know how to organize them in depth, they also have to understand everyone's responsibility in that company and also permissions and obligations. As for Price and promotion, they are more indirect. ASUS needs to understand customers’ price and promotion strategy and then try to support them rather 5. 4P is a common-used marketing analysis theory; they are price, place, product, and promotion. 39.

(40) than dominate price and promotion. “However, when managing the products of ASUS things are different. When there is a product end innovation proposed by R&D team, marketing team would begin to do market research to see if the product met consumers’ demand. Will this be a consumer-side innovations too? Or is it simply a product-end innovation? In order to find answers, market surveys will be conducted at this time. We would do some target customer identification and market segmentation to know information about my target customers and what my target customers’ geography is. Is there any difference in the. 政治大 which is the real key. contact media? To understand if the feature of my product is to customer’s demand? Is it. 立. an everyday life demand?. elements? Are they very. ‧ 國. 學. appreciative about this products? We once conducted some focus groups and quantitative research in USA, France and Germany. From the logic and comparative. ‧. figures to understand where to sell the products. Even more it can give me some. y. Nat. n. al. er. io. us develop marketing strategy”, respondent C stated.. sit. products feedback which makes the product step forward. This information also helps. i Un. v. IT products have relatively short product life cycles. Moreover, as for cellphone or. Ch. engchi. tablets nowadays, they are not purely technology products to customers. Customers are increasingly focused on appearance or user experience. Therefore, when ASUS manages the brand, in addition to product quality, ASUS also cares about each part where can contact with consumers. This is also the reason for the change of ASUS product slogans. "Take mobile phone for example, consumers not only focus on the performance of the hardware, they also cares about software and outside looks. It is something that goes with them in everyday life. The design should be beautiful and thin. As well as this the user interface should be innovative. Making consumers feel this phone is important in their life. ASUS also strived a very long time in this regard, 40.

(41) through continuous understanding of consumers to finally reach the milestone of current product: Zenfone. " respondent C, stated. 4.4 Cross-case analysis The case study findings provides an opportunity to consider the value-add stages when manufacturers move from OEM to OBM and the types of capabilities required to complete each phase of the change successfully. Moreover, it is found that in each stage, the role of customers are considerably different. As summarized in Figure 6, to. 政治大 imitation, exploration, inspiration 立 and aspiration. Each stage will need some types of. successfully gain the value of being an OBM, firms will have to experience four stages,. Resource and capability. Listen to others. sit. aImitation Exploration v Inspiration i l C n U hengchi. n. End-customer Perspective. er. io Manufacturing. OBM. y. Nat. OEM. ‧. ‧ 國. 學. capabilities.. Learn from others. Customer Understandin. Trend Leading. Customization capability New value proposition Organization redesign New trading norms. Figure 6. Servitization process from OEM/ODM to OBM 41. Aspiration. Consumer behavior influencing.

(42) 4.4.1 The role of customer in each stage From manufacturing to brand operating, the three cases all experience a more customer-centric process. In manufacturing, the OEM/ODM companies are more product-oriented. They focus more on the quality of products. However, when they start to manage brand business, they gradually change their thinking into “end customer” process oriented services. They research end customers’ behavior and integrate them. 政治大. into products. They develop long-term relationships with end customers. They use the. 立. power of brand to maintain that relationship and influence the behavior of end. ‧ 國. 學. customers. This is consistent with Oliva and Kallenberg (2003) who consider customer. ‧. orientation service consisting of two separate elements.. er. io. sit. y. Nat. Manufacturing. In manufacturing, the role of end-customer is not important to manufacturers. They. n. al. Ch. i Un. v. only care about satisfying brand customers. Manufacturers’ duty is conforming to the. engchi. requirements of the contact signed by both manufacturers and brand customers. Within a certain period, they would need to ship the products that meet customer demand. “In manufacturing, the profit is decided by brand customers. Some customers have high bargaining power and also they order for more volume. We can only listen to them”, respondent A stated. At first, when the technology is not yet mature, manufacturing value to brand customers is still high. The products can’t be mass production. However, when the products mature, mass production leads to economies of scale and standardized production process makes value start to decline. In this stage, the value to 42.

(43) end customer is decided by brand customers rather than manufacturers. This can be supported by respondent C from ASUS: “At first, even if the computer components manufactured by ASUS have very high quality, ASUS is still a supportive role rather than providing a products that are directly contributing to end customers’ life”. Imitation In this stage, manufacturers are just starting to transform into a OBM business. They have never reached end customers before. Therefore, the initial capacities of operating OBM often come from past experience, skills and resource when interacting. 治政大However, as the cooperation are better in manufacturing than in marketing and R&D. 立. with brand customers. Initially, because of the business model of OEM, manufacturers. goes on, manufacturers can learn from their brand customers. For example, as for brand. ‧ 國. 學. companies, in order to guarantee the quality of products, they often offer related and. ‧. necessary guidance about technology skills and better manufacturing process. Also, in. sit. y. Nat. the process of manufacturing, manufacturers can indirectly discover what the trend of. n. al. er. io. market is now and improve design ability. With the learning of skills, the manufacturers. i Un. v. then can try to design and sell some products with its own brand. “For DAPHNE, in. Ch. engchi. OEM/ODM stage, we learned from brand customers most was how to make shoes. As time goes by, we also accumulated the skills of design, product selling, supply chain management and so on. These skills made us successfully manufacturer the first products of DAPHNE and they sold very well”, respondent B stated. In this stage, the OBM companies offer higher value to end customer since they start to offer products to end customers. That means the OBM companies need to transform customer’s demand into elements of products. Companies start to track customers’ after-sale satisfaction. Take customers’ opinions into account when launching new products. “When ASUS was first launching its own brand, the computer 43.

(44) was heavy and lacked of design abilities. However, comparing with manufacturing components, ASUS starts to think about how to manage end customer’s demand and integrate them into the computer.” Respondent C stated. Exploration In this stage, the OBM companies will start to understand the need of end customers by themselves. Usually through different marketing survey methodologies. While trying to differentiate its own brand from competitors. “By suitcase renting and fixing, we have more face to face interaction with end customers. They give us many. 政治大. opinions and feedback about our suitcases”, respondent A stated. “When DAPHNE was. 立. in the brand developing stage, we installed many electronic systems. One of them is the. ‧ 國. 學. POS system. Using the POS system and also a professional team to analyze the figures.. ‧. We understand end customers more and integrate their demand into our shoes”, respondent B stated.. y. Nat. er. io. sit. In this stage, the OBM companies offer higher value to end customers than in the imitation stage because the OBM companies start to find out what the end customers. n. al. Ch. i Un. v. need to be satisfied. They try to satisfy end customers with the products they need, but. engchi. find it hard to market them. “In order to find out what customers aren’t satisfied with, ASUS’s marketing team conducted marketing surveys like focus-group interviewing and questionnaires all over the world. We try to find out the gap between current products and customers’ demands”, respondent C stated. They can also gain feedback through the first sales figures in the imitation stage and integrate them into consideration. Inspiration After the above stages, the OBM companies already have a certain degree of 44.

(45) understanding of consumers. Based on this an OBM company can explore the newest information that end consumers produce that other companies seldom reach. OBM companies can use the power of the brand that is built in the previous stages and do product-end innovation to create fashion and trend in end customers’ side. “When we understand end customers want a light, cheap, but durable suitcase through leasing and fixing, we manufacture correspondingly new style of suitcases and film video or publish online and in other media. Also, through leasing, we let end customers try our latest products in order to give them different perceptions of what a suitcase can be”,. 政治大 countries. They will collect 立 fashion information from leading countries like England or. respondent A stated. DAPHNE recruits a group of designers who come from different. ‧ 國. 學. Italy and integrate the fashion elements into the shoes. DAPHNE uses many marketing techniques like holding music concerts combined with fashion shows, launching fashion. ‧. magazines or celebrity endorsements to create a fast-fashion image in end customers’. sit. y. Nat. minds.. n. al. er. io. In this stage, the OBM companies offer higher value to end customers than the. i Un. v. exploration stage. For end consumers, the OBM companies are not just offering them. Ch. engchi. products, but also offering them a fashion and trend information that can make them feel different and fascinate them. What end customers want in a product is not just its function, but how it can change their lives. This is demonstrates the significance and power of branding. End customers are willing to try and pay more to buy the products. “Based on understanding the new mobility era: convenience, fast, and cloud integration are all. demands of customers. Via product-end innovation, ASUS launches “transition. series” included cellphone, pad and computer. ASUS tries to give customers new options that are different to leading firm Apple uses of IT products”, Respondent C stated. 45.

(46) Aspiration In the last stage, the OBM company can not only drive trend, but can further alter customers’ behavior. They offer end customers different lifestyle choices. For example, before Apple company6 launched the new product: iPad, iPhone, end customers were still using the traditional MP37 and cellphone. Apple changed the behavior of end consumers. In this stage companies offer end customers higher value than inspiration stage. Few companies can reach this stage. In these three cases, none have yet entered this. 政治大. stage. This stage is important to end customers because the OBM companies can. 立. improve end customers’ life. For example, after iPhone had been launched, more. ‧ 國. 學. companies have launched smartphones. More end customer can use smartphone and live. y. Nat. n. al. er. io. 4.4.2 The resource and capability needed to reach OBM. sit. state.. ‧. a more convenient life. Until this stage, company should make every effort to reach the. Ch. i Un. v. The four capabilities listed here are the result of interview questions. The three. engchi. cases are more emphasizing on customization capability, new value proposition, organization redesign, and new trading norms. Compared with Davies (2004), the four capabilities mentioned mainly focus on the capital goods industry and from manufacturers to integrated solutions. The four capabilities (Operations, Business. 6. Apple is a company who designs and creates iPod and iTunes, Mac laptop and desktop computers, the OS X operating system, and the revolutionary iPhone and iPad. 7 MP3 is a music player that is popular before 2006 IPad had launched.. 46.

(47) consultancy, Finance, System integration) are developed for the interaction between one company and another. The four capabilities discussed here are mainly developed for the interaction between company and end customers. Their identical point is customer-centric. Their difference is Davies (2004) focuses on the changing of business (from manufacturing into integrated solution). This research focuses on broader aspects, for example, the changing of business, organization, internal and external environments. 政治大. plus lists four capabilities that are significantly important during the interview. Customization capability. 立. ‧ 國. 學. During the process of servitization from OEM/ODM to OBM, one of the important. ‧. capabilities is customization. From product-oriented cogitation transforming into. y. Nat. customer-oriented cogitation, the OMB companies try to offer end customers the. er. io. sit. product that can satisfy their demands. Understanding end customers’ demands is. al. important. Offering them individualized products becomes a big issue when developing. n. iv n C an OBM business. End customers h pursuing individuatisation are unwilling to pay the engchi U higher cost of additional design. “DAPHNE designs over a thousand kinds of shoes per year. Within that number, are 80% made up of basic styles, which means they can conform to most of end customer’s demand. There are 20% of non-mainstream styles that mean if end customers pursue different shoes, they can also be satisfied”, respondent B stated. New value proposition When manufacturers deciding to transform to OBM business, they change their strategic position from manufacturing into brand management. That means they change 47.