The Financial Times recently heralded the maturing of BPO as a strategic driver for business transformation. The article reminded us that outsourcing enabled American firms to focus on their core competencies, insisting that these competencies including product innovation and important research & development would remain in-house. However, this interesting article in Business Week highlights how that pledge is now passé.
The reach and impact of Asian contract manufacturers and design houses have expanded to touch nearly every industry. The likes of Dell, Motorola and Philips are buying complete designs of some digital devices from Asian developers, tweaking them to their own specifications, and slapping on their own brand names. Similarly, Boeing Co. is working with India's HCL Technologies to co-develop software for everything from the navigation systems and landing gear to the cockpit controls for its upcoming 7E7 Dreamliner jet. Pharmaceutical giants such as GlaxoSmithKline and Eli Lilly have joined forces with Asian biotech research companies in a bid to cut the average $500 million cost of bringing a new drug to market. And Procter & Gamble Co. says it wants half of its new product ideas to be generated from outside by 2010, compared with 20% now.
The numbers are pretty overwhelming too. Of the 700 million mobile phones expected to be sold worldwide this year, up to 20% will be the work of Taiwanese ODMs. About 30% of digital cameras are produced by ODMs, 65% of MP3 players, and roughly 70% of personal digital assistants (PDAs). In a previous post, I had discussed how the Taiwanese companies believe that they are outsourcing marketing and branding to the rest of the world. That's not farther from the truth. Whether its HTC, which creates and manufactures smart phones for such wireless service providers as Vodafone and Cingular as well as equipment makers or Quanta, whose engineers are working on next-generation displays, digital home networking appliances, and multimedia players, the providers are not getting ideas from their clients, they are innovating on their own.