Platform’s information sharing strategy in a supplier encroachment context with economies of scale

We investigate the optimal information disclosure policy in an environment where an online platform, possessing private market demand information, interacts with an original brand manufacturer (OBM) and a contract manufacturer (CM) with asymmetric brand power. The OBM enjoys a brand advantage, while the CM may encroach on the market if the profitability justifies the encroachment cost. The platform, leveraging data advantages, influences the manufacturers' decisions through strategically designed disclosure policies. The optimal disclosure policy depends on the CM's encroachment cost and the OBM's brand advantage. First, full disclosure is optimal when the encroachment cost is sufficiently high or low. Second, partial disclosure is optimal for distorting the posterior expectation about market demand downward when encroachment costs are moderately high, or upward when they are moderately low. Third, partial disclosure can induce encroachment if the brand advantage is small or deter it if the brand advantage is large. The platform profits from the optimal policy, which may come at the expense of the OBM and CM. We demonstrate that the optimal policy can enhance profits for the entire supply chain under intense competition and a large brand advantage. This study provides a critical framework and practical insights for understanding strategic decisions and channel management.

ABSTRACTOutsourcing strategy plays an essential role in manufacturing production. Compared to traditional manufacturing industries, brand spillover behavior from contract manufacturers is more prominent in the fashion industry's outsourcing practices. Therefore, we have developed a model for original brand manufacturers (OBM) to choose an outsourcing strategy under the influence of various factors: OBM can outsource production to a competing manufacturer (CM), a non‐competing manufacturer (NCM), or produce internally. If CM is the only contractor for OBM, it will enhance its brand power through brand spillover. If NCM is the only contractor for OBM, there are quality control issues. In summary, we consider three outsourcing strategies for the OBM: outsourcing production to CM, outsourcing to NCM, or establishing internal production, which correspond to strategies C, N, and F, respectively. We find that the brand spillover has a greater impact on OBM than expected. It affects OBM's production planning by influencing market demand, resulting in the profit of strategy C always being lower than strategy N. This forces OBM to face quality control issues. On this basis, we discuss blockchain technology that enables OBM to address quality control issues while dealing with brand spillovers. Interestingly, blockchain technology does not always bring benefits and can only solve problems under specific conditions. In addition, we also prove that the dual‐source strategy, that is, OBM outsources production to CM and NCM simultaneously, is better than the C and N strategies, but whether it is better than the F strategies depends on the investment cost.

ABSTRACTOutsourcing the production of selected components to competitors is becoming more common among original brand manufacturers (OBMs); however, OBMs’ increased attention to outsourcing and the growing demand in many markets can result in capacity allocation conflicts for the contract manufacturers. In this study, we consider a scenario in which the OBM decides whether to outsource to a third‐party supplier or to a competitive contract manufacturer (CCM) who has the option of producing a competing product and also has limited capacity. This setting consists of two levels of competition: competition in the component market between the CCM and the spot market, and competition in the final‐product market between the OBM and the CCM. The CCM first chooses the wholesale price and decides whether or not to sell a competing product to the customers. Next, the OBM decides the proportion of its component demand to outsource to the CCM, and then firms set the retail prices. We are interested in investigating the impacts of the CCM's capacity and the impacts of these two levels of competition. We show that the OBM might multisource its component demand only when competition in the final‐product market is intense. We also find that when the CCM's capacity increases, demand may decrease, while the retail price may increase. Moreover, the CCM can be worse off from having more capacity, even when the CCM's capacity is available for free. Our results also show that demand may increase when competition in the final‐product market becomes more intense. Finally, we find that the value of having a third‐party supplier to produce the component decreases amid the intensity of competition in the final‐product market.

Many contract manufacturers’ successful transition from original equipment manufacturers (OEM), original design manufacturers (ODM) to original brand manufacturers (OBM) is typical for studying latecomers’ business model transitions in emerging Asia. This study uses data from two industrial innovation surveys (2004–2006 and 2007–2010) in 14 cities located in the Greater China region to describe the innovation practices followed in different business models and the transitions. The results show that OEM latecomers undergo organizational changes in the transitions. ODM entrants have to enhance product innovation and market promotion, and OBM entrants must tailor their organizational and marketing practices. This paper concludes that the business model transition is the matter of firms making an effort to retool their innovation mix for realizing a new value proposition in a specific business model. Theoretical and managerial implications are suggested.

Cost reduction investment is relevant for manufacturers to achieve competitive advantage. This article investigates the choice of cost reduction mode in a supply chain with one original brand manufacturer (OBM) whose product incurs common and dedicated costs and one contract manufacturer (CM) offering substitutable products. The CM sharing OBM's investment spillover may be worse off with strong spillover. A costly common component may not lead the OBM to reduce common cost, especially when its investment substantially spills over to the CM. This spillover causes intense competition so that the OBM reduces dedicated cost; this choice also applies to a costly dedicated component. The OBM is incentivized to reduce common cost if the common component is costly and the spillover is weak. This article further analyzes the case that the CM invests in cost reduction and finds its mode choice opposite to the OBM's because of the direct benefits of cost reduction. Even with a costly dedicated component and strong spillover, the CM does not necessarily reduce dedicated cost but it reduces common cost. The OBM's and CM's investments may create a win–win mode.

This paper explores the some of the challenges facing computer manufacturing firms in developing the innovation capabilities to allow them to move from Contract Manufacturing (CM) to Original Brand Manufacturing (OBM). As firm transitions from CM to OBM, some of the innovation capabilities may no longer be available or useful while new capabilities may be required to generate the right ideas and respond to market demands. Managing the reconfiguration of innovation capabilities appears to be an important factor in the successful transition from CM to OBM. An initial framework, drawn from concepts described in the literature on the resource-based view (RBV) of the firm, is used to structure a case study of Acer, a Taiwanese computer firm. Acer is used as an example to illustrate the type of challenges faced in moving between CM and OBM, and potential means of overcoming them.

This paper reveals an under researched phenomenon: the ways that export-oriented, original equipment manufacturing (OEM) clothing companies upgrade to original brand manufacturing (OBM), and the implementation challenges involved, especially at the high end of the market. In order to provide an in-depth understanding of this particular phenomenon, this research adopts a qualitative form of methodology and features a case study of recent business practice in Hong Kong. The background of the Hong Kong clothing manufacturers is examined from the perspective of the global commodity chain (GCC). A review of OBM opportunities in Hong Kong is conducted and the possible explanations for initiating OBM are also identified. The insights from the Fenix case study reveals the advantages of adopting an indirect path towards achieving OBM, factors governing decisions and actions during the transformation, inherent obstacles of branding in the high-end market and the synergies of running the OEM and OBM business models in one company. These insights serve as an example of success in both transforming the enterprise from OEM to OBM and diversification of markets to sustain OBM business activities.

Production costs and global competition have increased sharply in recent years, forcing manufacturers to upgrade to the original brand manufacturer (OBM) to survive and thrive and capture more profit margins. However, studies that explore key factors that affect the success of such an important transition are lacking. Therefore, this study aims to investigate the key factors that will influence the success of contract manufacturers to upgrade to the OBM on the basis of a decision-making trial and evaluation laboratory with an analytic network process. Our results identify six key factors that exhibit a cause-and-effect relationship among the key criteria. Moreover, organizational innovation will determine the difference between the success and the failure of an OBM transition apart from material and component stability. Our findings can help researchers, policy makers, and practitioners increase their understanding of how to upgrade manufacturers successfully in global value chains.

In a supply chain system consisting of original equipment manufacturers (OEMs), original design manufacturers (ODMs) and contract manufacturers (CMs), a multi-party Bowan model based on competition and cooperation is constructed considering upstream supply risks and equilibrium decisions are obtained. The impact of economies of scale and brand advantages on supply chain management strategies is further explored. The results show that even if CMs have supply risks, they will squeeze ODMs' profits, while OEMs can increase their profits through upstream competition. After CM supply is interrupted, when OEMs have a small brand advantage, ODMs choose to participate in terminal market competition to further increase their profits. When the brand advantage is large, ODMs focus on upstream supply to ease terminal competition. However, economies of scale have heterogeneous effects on ODM and OEM profits, and manufacturers should be wary of the possible negative effects of economies of scale. It is worth noting that the decisions of ODMs and OEMs are always in a "lose-lose" state. As a "follower", OEMs can only rely on brand advantages and other measures to ensure their own profits, while ODM decisions and social welfare can achieve a "win-win" situation. This study not only deeply deconstructs the impact of supply risk on diversified procurement, but also explores the impact of supply disruptions on manufacturers' decision-making, provides strategic guidance for manufacturers on how to make decisions in the face of risky operating environments, and provides theoretical analysis for policy management departments to deal with supply risks and improve social welfare.

Remanufacturing authorization strategy for an original equipment manufacturer-contract manufacturer supply chain: Cooperation or competition?

Motivated by the practices of production sourcing in the apparel manufacturing industry, this article investigates an apparel manufacturing supply chain wherein an original brand manufacturer (OBM) may either outsource production to a competitive manufacturer (CM) or a non-CM (NCM) or set up factories to produce in-house, namely, Strategy C, Strategy NC, and Strategy N, respectively. If the OBM outsources production to the CM, technology spillover happens, and the CM is able to manufacture products with the same consumers' preference level as the OBM does. We find that the OBM prefers Strategy N regardless of the manufacturing level and consumers' product preference level when the investment cost is low. However, the OBM prefers Strategy C or NC when the investment cost is high. Specifically, when the manufacturing level is high, or the manufacturing level is medium, and the consumers' product preference level is high, the OBM prefers Strategy NC; otherwise, the OBM prefers Strategy C. Furthermore, we demonstrate that employing the dual-sourcing strategy wherein the OBM outsources production to both CM and NCM simultaneously does not necessarily help OBM effectively mitigate the negative impact of technology spillover and delivery uncertainty, which depends on specific conditions.

For production-oriented companies such as original brand manufacturers (OBMs), management of the NPD cycle is essential to how their business functions. However, because these companies focus on R&D activities, engineering and manufacturing goods, they often see design as a small fragment of their product development cycle rather than as an integral part of the process. This paper investigates current design processes, identifying how each process is run by different businesses. Literature reviews and in-depth interviews are undertaken with key NPD project personnel from OBM firms and international brands, to evaluate firms’ current problems operating the existing processes. The findings show an overview of how the design process is carried out by various functional groups in OBM consumer electronics companies and international brands respectively. It is anticipated that contributions to this research will guide OBM firms’ activities in each process of design, and help to improve managing overall design practices.

PurposeThe purpose of this paper is to investigate whether value‐creating activities and intellectual capital (IC) accumulation are affected by different business models.Design/methodology/approachField visitations and interview‐based questionnaires are used for data collection. This study uses the structural equation model to examine Taiwanese original equipment manufacturers (OEMs) and original brand manufacturers (OBMs) in China.FindingsEmpirical results show that Taiwanese OEMs and OBMs adopt different combinations of value‐creating activities, which results in differences in IC accumulation. Taiwanese OEMs have engaged in manufacturing and innovation activities, and have created process and innovation capitals. By contrast, Taiwanese OBMs have developed their marketing channels, human resources, innovation centres, and social networks, and have accumulated their human, customer, process and innovation capitals.Practical implicationsTaiwanese OEMs have cultural advantages and have built productive infrastructure in China. Therefore, these enterprises should transform their business models into OBMs to enhance their market performance. Foreign investors could leverage the experiences and IC of Taiwanese enterprises to make their investments run more smoothly.Originality/valueThis paper contributes to the existing literature by investigating relationships among business models, value‐creating activities, and IC. This study also provides useful guidance for enterprises considering investing in China and for academics researching in this area.

This paper considers a supply chain in which an original equipment manufacturer (OEM) outsources her production to a contract manufacturer (CM). For the product’s component, the OEM can either control the component procurement (i.e., control strategy), or delegate this work to the CM (i.e., delegation strategy). Meanwhile, they have different discount abilities for the procurement cost due to scale economies. Moreover, the CM’s discount ability is private information for himself. In the scenario where a non-competitive CM doesn’t have own brand products, the control strategy is superior to the delegation strategy for the OEM. In contrast, when the CM is competitive (with own brand production ability), the delegation strategy is optimal. This result is interesting and implies that the OEM prefers to adopt the delegation strategy because of the discount sharing effect, although the CM has private information in this case. Finally, the results of numerical simulation show that the CM’s competition can create a win–win situation under some certain conditions.

Introduction More and more developing countries have been directly or indirectly integrated into global production networks. Despite being at the low end of global value chains (GVCs) and exposed to the risk of being replaced by other countries with lower production costs, it is believed that these developing countries are capable of industrial upgradation (Gereffi, 1999, 49–55). For developing countries, the model of upgrading from being an original equipment manufacturer (OEM) to becoming an original brand manufacturer (OBM) is considered to be a practical one (Gereffi, 1999, 55–57; Leonard-Barton, 1995; Hobday, 1995). As far as the four types of economic upgrading (Gereffi, 1999, 2005, 171; Barrientos, Gereffi and Rossi, 2011, 323–24) are concerned, developing countries generally encounter far less difficulty in process and product upgrading than in functional and chain upgrading (Humphrey and Schmitz, 2002, 1023). However, in other literature on this issue, it is argued that integration into the GVC contributes little to industrial upgrading for developing countries, not only because over-dependence on trade with a couple of multinational companies (MNCs) would hinder the process of upgrading and transformation for a firm in less developed economies, but also because MNCs tend to prevent their suppliers in developing countries from catching up with them (Humphrey and Schmitz, 2002, 1024). Besides the reluctance to undertake the risk of upgrading (Barrientos et al ., 2011, 333–34), there are still other difficulties for OEM firms in developing countries seeking to fill the gap between the requirements for being an OEM and an OBM, such as the lack of sales channels, and very limited knowledge spillover from MNCs which occupied the high end of the value chains (Schmitz and Knorringa, 2000). Conversely, companies with successful experiences of upgrading in developing countries are domestic-market oriented or export their products to other less developed economies (Bazan and Navas-Aleman, 2001), by manufacturing cheaper products with inclusive innovation to occupy the subsistence marketplaces and build up their brand value (Weidner, Rosa and Viswanathan, 2009).