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:
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.
- 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
- 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.