Silicon Valley Firms' Operational Tactics and Venture Performance in Greater China

Business Forum, Summer-Fall, 1999 by Mark V. Cannice, John D. Daniels

Firm 8, a designer of passive electronic components for various electronic OEMs, also emphasized the need to design its product into its customers' products as well. The failure of its current distributor to do this led to its firing. In sum, many of the supplier firms indicate a need to "design-in" their product into current or potential client firms' products. This design-in requirement seems best satisfied with a direct presence (WOS) at the point of customer product design.

The point of design-in is determined to be a function of the customer company structure. Another semiconductor equipment manufacturer states that "a multi-level sale strategy depends on the customer structure; for a centralized company, design-in and sales take place at the headquarters, then each of the company's fabrication facilities around the world implements that design. In a decentralized company, the design-in and sale are at the site of the facility, to allow modification for each facility." The case analysis indicates that the supplying firm's design-in requirement and the customer company structure influences the operating mode strategy of the firm. Table Five illustrates the impact of this relationship.

Here, the level of design-in matched against the customer company's structure drives the operating mode decision and the disposition of a company's resources and sales effort. High level design-in requirement drives high-integration sales strategies (WOS for sales and service) and the customer structure (centralized to decentralized) determines the point of supplier focus (headquarters or production site). Low design-in requirement can be satisfied with third party distribution efforts at either the customer headquarters (centralized structure) or customer production site (decentralized structure). Typically, supplier firms face this requirement more than OEMs.

The importance of the customer is also seen to drive the level of sales integration. The importance of the customer seems to be associated with the relative point on the value chain of the supplier and the customer. The value chain notion was first brought to light by Michael Porter. It simply discusses the various points of value creation of a product from various suppliers to the final consumer. As shown to emerge from the case arguments, four value chain positions exist in the sample: the OEM (original equipment manufacturer) which sells to the public, the 1-step supplier (one step from the final customer) which sells to the OEM, the 2-step supplier which sells to the 1-step supplier, and the 1-step OEM which sells to a user of the product which sells services to the public.

The general public is seen as the final consumer for any product. Thus, the OEM who makes computers for sale directly to the public is linked to the public. The OEM which makes final products for professionals to create products for the final consumer is seen as one step away from the public (1-step OEM). The 1-step supplier could be the integrated circuit manufacturer who supplies chips to the computer maker, or the computer peripheral manufacturer who sells its product to the computer maker. The 2-step supplier could be the firm that manufacturers equipment needed for the creation of the integrated circuits that are then sold to the computer manufacturer. Here, greater sales-integration seems to be a function of the distance the focal company is away from the final consuming public. Table Six indicates the value chain position of the sample firms.