Blu Dot’s business model mirrors the “Smile Curve,” a concept of value-adding potentials of different components during production. The graphical representation labels the x-axis as time across the manufacturing of a product and the y-axis as the value added to the product. The concept was first proposed in the early 1990s by Stan Shih, the founder of Acer. Shih observed that when plotting production on this graph, for most products there is a lot of value added in the early design and concept phase, then the value goes down in the middle (manufacturing), and then goes back up when the product reaches marketing and retail. According to theory, companies that focus on the beginning and/or end portions of the value chain enjoy larger profit margins. They also tend to be companies that don’t merely watch their home market, but innovate toward a global marketplace.
Blu Dot’s business model organically fits this concept, but is there merit to it? Certainly Blu Dot is doing well in a long-suffering market segment during a challenging economic time based on 1. design and 2. marketing. In fact, they don’t do any manufacturing at all. As Maurice Blanks, co-founder of Blu-Dot says, “The least amount of value is added in the middle, so why stay in the middle?”
If this is accurate, what does this mean for North American manufacturing? And what does it mean in a global market place? Is the Smile Curve a natural economic by-product of commodity manufacturing? Could it potentially describe opportunity, particularly because to a certain degree, both design and marketing rely heavily on geography in terms of cultural context and lead times? Could strengthening the middle portion also support the extremes?
In the April 1, 2011, edition of the Taipei Times, Huang Tien-lin, a former national policy adviser in Taiwan, makes an interesting observation of this phenomenon as it relates to Taiwan outsourcing its lowvalue-added manufacturing to China. “In the past, many Taiwanese businesspeople have moved to China to take advantage of China’s lower salaries. This has indeed given temporary relief from falling added value, but it has also delayed investment in innovation, R&D and industrial upgrading.”
In a global industry where most North American companies do at least a portion of their manufacturing overseas, it will be interesting to see how the Smile Curve applies as geographic production shifts and technology levels the proverbial manufacturing playing field. Additional variables such as sourcing raw materials, physical distance and cultural context may also take on new importance as the value-added model evolves worldwide.
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