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

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

In this sample of high tech firms investing in Greater China there is a direct relation between the point of the value chain of the focal company and its level of sales integration. Of the six 2-step supplier companies, two emphasize a high-integrated sales strategy as the primary determinant driving their market entry strategy. Both of these companies rate venture performance as moderate to high. (One firm in the sample, without performance data, also judged its high-integration sales strategy as the primary determinant.) Of the other four 2-step suppliers, all indicate a low-integration sales (market-seeking) strategy as the predominant determinant of their operating mode choice and all of these firms judge performance as low.

Of the nine 1-step suppliers, four indicate a high-integration sales strategy as the primary factor impacting their operating mode choice. These four firms indicate moderate or high performance. Three of the four 1-step suppliers that indicate a low-integration market-seeking factor as a primary determinant have low performance. The remaining 1-step supplier indicates resource-seeking as a primary factor determining their operating choice. For 1-step suppliers focusing on sales, there is an indication that a high-integration sales strategy is more effective than a low-integration market-seeking strategy. This relationship is not as strong as for the 2-step suppliers.

Of the five 1-step OEMs, 3 indicate a high-integration sales orientation, all with moderate to high performance. Here, the tendency for high-integration sales is still strong but its necessity to build high performance is not as clear as for the one and 2-step suppliers. Of the 4 OEMs, 2 indicate a low-integration market-seeking focus as the primary factor. All have moderate to high performance. One OEM has a high-integration sales strategy, also with high performance. This data clearly points to both a higher tendency for firms down the value chain to more often exhibit a high-integration sales strategy than OEMs and to profit from that orientation.

Here, the incidence of a high-integration sales strategy in a general market-seeking orientation is clearly highest among 2-step suppliers and most effective for 1 and 2-step suppliers. OEMs seem to be successful with pure market-seeking emphasis. This relationship is shown in Figure Two.

In addition to the design-in requirement and value chain position of the focal firm, sales integration is also seen as a level of service differentiation that can serve as a competitive advantage. Firm 16, a manufacturer of IC fabrication equipment, indicates that a direct presence shows customers more commitment and respect. Another supplier to IC manufacturers states that "in order to get business, we must promise the fab facility that we will be direct on site, even though the design and sale are made in the United States. Fabrication production customers want you to be direct at production site." Another semiconductor equipment manufacturer emphasizes "... integrated circuit fabrication facilities cost at least $3 billion and depreciation is the highest expense over labor and materials; therefore, they must run around the clock. They cannot afford down time. They must have fast competent direct service from the vendor".