The economic innovation dilemma: why buying from the lowest-cost provider is a downward spiral for OEMs.

Author:Platt, Richard
Position:GLOBAL SOURCING
 
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IN THE WAKE of the economic recession, global innovation efforts have stalled; the profitable ventures are those that offer the lowest cost or price, like Wal-Mart and The Dollar Store. It poses a different economic set of conditions for manufacturers to face.

We are seeing the beginning stages of a turnaround. But insofar as electronics innovation is concerned, the best we've seen in 2010 is Apple's rehashed tablet concept, an idea that dates at least to the late '90s.

Kudos to Apple for convincing the masses that the company has cornered the market on designing an integrated, functional, appealing platform. To some, whatever falls from Apple is uber-good; while that might be the majority's perception, "that don't necessarily make it so." A little research reveals such nuggets as the "Top 10 Apple Flops," which doesn't include the decision to not design in a fan on the Apple III PC, or the recent "antenna-gate" issue on the iPhone. As it turns out, Steve Jobs is no different from any other CEO; he makes mistakes. (Square Trade research recently showed a 26% failure rate of iPhones in the first two years of use.)

And not just in design. Another issue that recently surfaced calls into question the decision-making skills of not only Mr. Jobs, but a number of major high-tech industry players, all driven by the lowest-cost business model. To appreciate the context, let's review the economic conditions we all face.

It's not just The Dollar Store and its retail cousins that get the volume; this happens in the B2B world as well. Take Foxconn Technology Group. The world's largest EMS company runs what some media have likened to an indentured labor camp. Its workers, perhaps caving to the pressure, are committing suicide at rates never seen at electronics manufacturer campuses.

Who among us believes Apple, Microsoft, H-P, Dell, Amazon and others that source from Foxconn did not know the local wage rates? Having been one of those who in my past helped manage such relationships, I can assure readers that they did. Not to know would be nothing short of corporate malfeasance. To chalk it up, as many do, to the saying, "This is China," doesn't begin to wipe their hands of complicity.

Indeed, this is the same issue that snared Nike when the hugely profitable apparel maker was caught employing kids to sew soccer balls and sneakers. This is a clear failure of senior management for not ensuring internal corporate sustainability rules were being addressed.

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