Will foundry become a competitor of manufacturer in ODM supply chain?

Abstract

PurposeThis paper aims to study whether the upstream foundry in the original design manufacturer (ODM) supply chain will violate the commission contract and engage in the production of pirated products. Based on the conclusion, this study hopes to explain the phenomenon of pirated products in reality and provide management enlightenment for related companies.Design/methodology/approachTo understand when will foundry violates the processing contract, this paper constructs a five-stage decision-making model, this study derives a model to get three situations and draw data images to describe the characteristics of decision-making by the foundry. Finally, this paper also considers some external supervision.FindingsThe results show that processing fee and other parameters (special cost, common cost, weakening factor and product difference) jointly determine the possibility of piracy by the foundry. Moreover, the external supervision mechanism has a significant effect on the piracy behavior of the foundry.Research limitations/implicationsThe research provides some support for real business activities, which actually involve many participants and mechanisms. Thus, it could be interesting to explore more multi-stage and complex business methods in reality.Practical implicationsThe analysis highlights less-concerned moral hazard behaviors in the ODM supply chain. By recreating the complex interactions of participants, the conclusion shed light on how should different roles deal with their risks and take actions in a real business environment.Originality/valueThe biggest contribution of this study is to discuss the issue of moral hazard in the ODM supply chain. Piracy initiated by foundries may be a new type of supply chain risk and should be paid attention to.