Disconnection of Global Production and Distribution (Platform Corporation)
A growing disconnection is being observed between the manufacturing base and what can be called the "core base", which mainly includes R&D, distribution and marketing / retail. The term platform corporation has been used to describe a variety of multinational corporations that have removed the manufacturing component from their core activities, or never had manufacturing in the first place. They have done so by focusing on activities that provide the most added value and outsourced or offshored the manufacturing of the products they design. Their core activities include research and development, finance, marketing, retail and distribution. Many of them own globally recognized brand names and are actively involved in the development of new products.
The net worth of a platform corporation is thus more a function of their brand names and capacity at innovation than from tangible assets (like factories), outside those heavily involved in mass retailing where commercial real estate assets can be very significant. Low margin work is usually outsourced, leading to a very flexible supplier base. This is reminiscent of the cottage production system that took place in the early phases of the industrial revolution where many labor intensive activities (especially in garments) where sub-contracted to households looking for additional income. Platform corporations particularly thrive in the context described below:
  • Free trade environment. Facilitating the mobility of factors of production (land, labor and capital) so that products can be produced wherever costs are the lowest and exported back to markets without notable duties constraints and other impediments to trade.
  • Information technologies. It allows a company to decentralize its processes while maintaining a level of control over its supply chain and informing its suppliers about changes in the demand. Events taking place within the supply chain are propagated more quickly so that the function of production is better synchronized with the function of retailing.
  • Multi-provider competition. Since platform corporations provide the specification of the products / parts they require (and that many are not very complex), there are a potentially high number of manufacturers that can bid to become suppliers. This works to the advantage of platform corporations by keeping costs low and it even create a situation of recurrent overcapacity.
  • Transportation. The ability to move goods within the supply chain controlled by the platform corporation with a variety of efficient transport modes and terminals.
The most prominent platform corporations include Apple (computer and mobile phone designer and retailer), Dell (computer retailer), Wal-Mart (mass retailer), IKEA (furniture retailer), Nike (sport shoes retailer) and Li & Fung (trade group, mainly in apparel). It can be argued that Wal-Mart is essentially an information network, using its knowledge and distribution facilities to link thousands of suppliers together in a profitable collaboration. It is worth mentioning that this type of production structure is mainly applicable to activities that have a strong consumer retailing component which is subject to constant fluctuations in the demand. The Hong Kong-based Li & Fung is a highly networked corporation that highly depends on the efficiency of its production and distribution networks. It controls about 40% of the apparel supply entering the United States with strategic deals with major retailers such as Wal-Mart and TJ Maxx. The corporation benefited fully from the opening of the Pearl River Delta to international trade and investment but is now diversifying the geographical base of its suppliers.