In business management theory, the smile curve is a graphical depiction of how value added varies at different stages of bringing products to market in IT-related manufacturing industries. The concept was first proposed around 1992 by Stan Shih, founder of Acer Inc., an IT company headquartered in Taiwan. According to Shih's observations, in the personal computer industry, the two ends of the value chain - conception and marketing - higher value orders are added to the product rather than the center of the value chain - manufacturing. If this phenomenon is presented in the graph with the Y axis for value added and the X axis for the value chain (production stage), the resulting curve looks like a "smile".
Under this model, the Acer company adopted a business strategy to change its orientation from manufacturing to global marketing for products and services related to PC-brand names. Acer suitably invests in R & D D to develop innovative technology. The concept is then widely cited to illustrate the distribution of potential value-added in other industry types to justify business strategies aimed at activities that add value higher.
Video Smiling curve
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Although the smile curve theory is very simple but shows the future direction of Taiwan's industrial endeavors, the only way is to move and position toward high value-added blocks through the guidance of value-added concepts, therefore, industry can continue sustainable development and management. Although construction is one of the locomotive industry, but under mature industrial trends, market saturation and traditional manufacturing that only concerns areas with low added value, has experienced a decade of economic downturn. Smile curve theory can give new thinking direction.
Illustration diagram
The most advantageous value areas focus on both ends of the value chain - R & amp; D and marketing. The only thing that can be done is either an agent or an OEM without R & D, which earns a little money; Without marketing ability, the product will only be treated as waste during the disposal period.
Realize the fact
BYD's Wang once complained that Chinese companies only learn how to organize workers, but have not learned how to organize engineers, it can only earn a living in the most unfriendly areas of manufacturing. If you can use sophisticated methods to organize a large number of Chinese Engineers, then China is an entrepreneurial treasure. Typically, knowledge-intensive organizations can find ways to organize engineers. Management expert Peter Drucker said: "The most important management in the 21st century is organizing the smart workers." Which is the most successful aspect that Huawei has done among Chinese companies. Among these employees, technology research and development staff accounted for 46%, marketing and service staff accounted for 33%, management and other personnel accounted for 9%, and the remaining 12% were workers. For 20 years, Huawei has maintained this ratio, the allocation of human resources shows "high development and marketing on both sides" of the "smile curve."
Maps Smiling curve
Theoretical pressure
Stan Shih's smiling curve is promoted to reproduce Acer. However, there must be some breed factors. Some factors behind birth may exist as follows:
Competitive pressures of globalization
Under the trend of globalization of high-tech product market, we can use "chase, catch, run, jump, touch" five words to describe the pressure of industrial competition. Competitive companies continue to pursue, ready to pursue leaders, and leading companies continue to move forward to stay ahead of distance, and find methods to jump over obstacles. Therefore, the market becomes saturated, just direct, making price competition, even bloody competition exists. This is the fate of global competition, only the strongest survive.
Product lifespan
High-tech products, with the exception of mastering technology or key components, among the finished product markets, due to rapid technological developments, the fashion is also changing rapidly, the product life period is changing rapidly, called niche products, sometimes into several% gross profit for some year, thereby generating tremendous pressure on the company.
Survival Pressure company
Under pressure from the previous one, if the technology can not always be upgraded, the strategy can not lead the market, then under unfavorable situations, it can turn into a more serious, loss, even gradually affect the survival of the company.
Value added pressure
The added value of a company can be said to be a profit potential. Adult technology, low entry requirements, and technological universalization are easy to become so-called "profit-loss" companies, also known as low value-added industries. Normal manufacturing, assembly companies called low value-added industries, to survive, only to continue to expand production capacity to maintain profits. But as long as the market shrinks, product prices decline, product sales will no longer grow. The company will be at risk.
Theoretical factors
Industry development trends
To cope with low added value pressures, companies are only thinking of moving toward a bloc that is a trend of high value-added industries. In industry, mastering key technologies and key components is a high added value; general manufacturing or OEM is low value added; product integration services, because it combines many added value, so it becomes another high value-added block.
Industrial development environment needs
Among the high value-added blocks, key technologies and key components, can be sold to various world market needs; but integrated services, need to have an appropriate area, and the entire industry in the region has also achieved considerable development.
Conclusion
Company
The company's products and services must have a continuous value-added (profit), so that it can survive.
Products
The direction and service of high value-added products is just a way to have a high profit potential, therefore to ensure business continuity.
Application Inspiration
Product success
The smile curve theory has basically proven that product success is closely related to concepts, research, brand spread and marketing. These factors require companies to hire and retain highly skilled, intelligent, and professional employees. Typically, these professionals will be highly paid, so that countries with a high slope of the smile curve will get more profits, resulting in a growth gap between countries.
Compare with developing and developing countries
Like the United States and other developed countries, they have maintained a slope of the smile curve; however, developing countries like India and China are limited to low-level usage and manufacturing. Therefore, if developing countries want to achieve a high slope of the smile curve, they need more professional analysts, researchers, and brand developers to achieve higher levels of economic growth. In other words, if developing countries want to compete with developed countries on an equal basis, they must require a highly skilled and knowledgeable team to achieve this, the government needs to invest heavily in support of basic education and higher education. In the long run, manufacturing countries in the world will find it difficult to maintain the rate of economic growth. Developing countries need to let smile smile more smile, therefore there will be fair competition with developed countries.
Related to industry
Developing country
Some developing countries have begun the development of trade and investment liberalization, and the company's internal production network has become global. Depending on the strength of individual countries, the manufacturing form of developing countries is generally labor intensive, meaning that they only provide low wages to workers, but high-tech jobs, such as research and development, must be borne by the developed countries.
Horizontal division of labor
The current situation is that between developed and developing countries, there are many products flowing and semi-finished goods. This phenomenon that works together among the same industry is known as horizontal division of labor. However, a more accurate name is called the division of labor vertically. However, because there are various ways of process between developed and developing countries, developed countries always focus on high-value processes while developing countries are always focused on low value-added processes.
Traditional manufacturing
The writings Zakaria mentions, the importance of China and their traditional manufacturing dominance, China's manufacturing industry is in the middle stage, so that means production, plus some spare parts supply and engineering design. However, developed countries such as the United States have two complete forms, resulting in a smile curve, the curve shows the value added advantage at each stage, and the concept of brands and products at high point, manufacturing industry is located under, values ​​in the retail phase and service increases again. With the end of the Cold War and previous socialist countries into the global economy, there was more cheap labor, while developing countries had witnessed a decline in their profits, resulting in fierce competition. Therefore, it increases the slope of the smile curve.
Theoretical Phenomena
Smile curve assumes a phenomenon, in the middle of the process of added value advantage or assembly-type assembly manufacturing value chain, this process has a downward trend, which increases at both ends of this value chain process, is raw material at one end of the chain and in other sales service. This assumption has led to increased intense global competition in the assembly of standard and modular components.
Use of report
The report tests the manufacturing value chain of assembly type and the establishment of a smile curve. Therefore use the profit ratio as a performance indicator. All product sources produce a broader concept in industrial processes. The input-output tables and the company's annual financial statements are used to calculate total assets and operating surplus.
Analysis of six sectors
Manufacture type assembly industry can also be analyzed from:
- household electronic appliances,
- household electrical appliances,
- electronic computing equipment and accessory devices,
- communications equipment,
- passenger car,
- trucks, buses, and other vehicles.
In this study, the smile curve describes household electronic appliances, computer equipment and ancillary equipment, as well as three sectors of trucks, buses and other vehicles. However, the smile curve can not account for the other three sectors, and the assembly-type manufacturing industry as a whole.
Success examples
The company's 'clockwork' is one of the smile curve practitioners, established in 1991. The reversal took place in 2004, this year, 'Clockwise' paid close attention to the cotton clothing industry, forming a strategic alliance with the Colored Cotton Group, famous cotton brand "Choi day" upstream resources, while using the media to publicize the brand. 'Clockwise' total business sales breakthrough billion yuan, became the industry leader.
See also
- Smiley facial curves, in professional audio, graphic equalizer settings that reduce the midrange tone
References
- "Acer Stan Shih: Empowering Technology - Makes Your Life Easier", Dedrick
- Jason, Kenneth L. Kraemer, and Tony Tsai. ACER: IT Company Learning to Use Information Technology to Compete, Research Center on Information Technology and Organization, University of California, Irvine October 1999.
Source of the article : Wikipedia
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