When Contract Manufacturers Spread Their Wings
As television sets have thinned, so have the profit margins, and several venerable TV brands are looking for ways to move on. Intense commoditisation and slowing sales have prompted Toshiba’s decision to leave the North American television market. Its contract manufacturer partner Compal will now license the Toshiba brand name and sell sets in the American market. For Compal, a leading assembler of consumer electronics, it’s another step closer to the end user.
This isn’t the first example of an original design manufacturer (ODM) taking on the role of an original equipment manufacturer. The role expansion is reminiscent of Lenovo’s transformation from a contract manufacturer and distributor into a top PC brand. When Lenovo purchased IBM’s personal computer business in 2005, the Chinese company became a leading competitor to Dell and HP. Lenovo has since established itself as a top-three smartphone brand and a leading tablet maker. It’s come a long way from its origins.
Nokia unveiled an Android Tablet, the N1, a few months ago. There had been some small leaks, but it was a surprising announcement given the company’s recent departure from the device business. However, the fine print shows that the N1 is more of a Foxconn device — Foxconn not only designed and manufacturers the N1, but also takes charge of sales, distribution and customer care.
Taiwan-based Compal and its copatriot competitors like Foxconn and Quanta Computer make most of the world’s laptops and desktops, smartphones and TVs. The outsourcing trend that began decades ago and accelerated in the past 10 years has enabled the creation of mega manufacturing firms with experience in design and distribution. Many have their own research and development departments and expansive patents portfolio.
In the early cellular years, leading handset brands like Ericsson and Nokia began as ODMs, designing and manufacturing phones for leading operators. The devices wore the service provider’s label while the maker’s name played second fiddle, sometimes hidden beneath the battery. However, roles changed and the handset brands established a direct reputation with consumers.
As consumer electronics companies shift out of less profitable segments, they leave gaps and — for a fee — the use of their logos. Contract manufacturers looking to expand their reach can move up the chain and closer to end users. They design, make, market and service products — an evolution of roles that could accelerate.
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