Eliminate The Middleman?

Case Study: Eliminate the Middleman?

US Tech

Ñ"Ь Market positioning ÐŽV more features than commodity and lower price than higher-end rivals

Ñ"Ь Goal ÐŽV number 3 spot in the global market

Ñ"Ь Competitors ÐŽV CaliTech and TexaTech

„c Produce innovative products and pull down price (20% cost cutting by sourcing directly from China)

Ñ"Ь Sourcing directly from China

„c Indirect cost (government bureaucracies and long distance logistics breakdown) and low quality

„c Prices were undeniably attractive

„c Access to Chinese market

Ñ"Ь TaiSource

„c World-class research and design and lower manufacturing costs

„c Can become USTechÐŽ¦s competitor if it decided to enter China using its own brand

Ñ"Ь Multi-sourcing ÐŽV increase operating cost

Ñ"Ь TaiSource strategic initiatives

„c Broadening our production base to other Chinese cities

Ñ"Ю Improve economic of scale (purchasing and manufacturing)

Ñ"Ю Cost saving

„c Establish an R&D office in the U.S.

Ñ"Ю Work closely with USTech on product innovation

„c Ship products directly to your U.S. warehouse

Ñ"Ю Cutting logistic cost

Problems of sole-sourcing

Ñ"Ь The major benefit of sole-sourcing is simple management and the cost of managing multi-sourcing is seen to be higher. Whereas, relying on a sole original design manufacturer (ODM) for both development and production of technology products is risky because USTech may have seen the supply of his business through the supplier prospective, in this case, TaiSource. It also has less control of the quality and cost of production. Given that the vendor may not always disclose everything to USTech, the firm may not have enough knowledge of its vendor capabilities and whether it is competitive.

Ñ"Ь Facing the demand of information technology products in mainland China, TaiSource has the ability to use its own branded products to capture this opportunity. Nonetheless, the worse scenario will be TaiSource attack the USTech current market by entering US market with its own branded goods because it had deep knowledge of USTechÐŽ¦s products and the ability to manufacture in both Taiwan and China, and it planned to open a US R&D office which enhances its accessibility to the US market.

Recommendations

Ñ"Ь It is a cozy relationship for USTech depending on its single source ÐŽV TaiSource and therefore it is suggested that the company should adopt alternative sourcing strategy. Whereas before deciding to source directly from China or not, Greg should start researching the possibility of having sources from other suppliers. He needs to search for prospective suppliers in both Taiwan and China. He has to obtain information and quotation from these potential suppliers. His research should include those sourcing partners of his competitors ÐŽV CaliTech and TexaTech in which he may be able to learn from their experiences in managing their relationship with their China suppliers and how they manage the Chinese to produce high quality products.

Ñ"Ь Since USTech major competitors gain competitive advantage (cost reduction) by sourcing from China and it eventually will enter China market, the management may finally find themselves have no choice to bet on China sourcing. It not only gives USTech cost advantage but also an opportunity to permeate into the fastest-growing marketing in the world. Whereas it should be done with care. It is not easy to find a qualified supplier in China. Even though, you may find one, you will need to spend time to become familiar with the Chinese business culture and the way Chinese supplier doing business. Besides, it will take some time to build trust with the new supplier.

Ñ"Ь Perhaps USTech will have to hire a new purchasing manager who knows manufacturers in China and Chinese culture. As Morris is not an appropriate person because