A report from the past two days has brought the OEMs behind the mobile phone industry to the forefront. Many people are curious while not knowing what the survival rules of these so-called OEMs are like.
Taking advantage of this topic, let’s talk about what the huge OEM system behind the mobile phone industry has been like for a long time.
The rise of mobile phone OEM and the golden age
First of all, we need to clarify a concept. The so-called OEM (OEM, Original Equipment Manufacturer) refers to the original equipment manufacturer, and OEM is our common name. And its responsibility is to process and produce products designed and developed by brand companies. The advantage of this OEM model of
is that brand companies do not need to produce their own products. They only need to master the most core key technologies and be responsible for R&D and design. The specific processing tasks assigned to other companies can greatly reduce their own costs and maximize their brand added value.
Therefore, this OEM model was first popular in developed countries such as Europe and the United States because the cost in their regions is too high, while OEM factories are generally located in labor-intensive and underdeveloped areas such as mainland China, Taiwan, Southeast Asia and South America.
The most well-known OEM factory is Foxconn , the "King of OEM" that grew up in Taiwan, my country. With its OEM business from Apple, it has become the world's largest electronic product OEM.
Since 1988, Foxconn President Guo Taiming founded the "Foxconn Ocean Precision Computer Plug-in Factory" in Shenzhen. In the following 20 years, Foxconn has been growing at a rapid pace almost at a rapid pace. It was also from the rise of the computer manufacturing industry that Foxconn's factory in mainland China expanded rapidly, and its business volume quickly reached one-quarter of the total number of desktop computers in the world. Since then, Foxconn has taken this opportunity to successfully become an emerging electronics foundry enterprise and has penetrated into all aspects of electronic communication equipment manufacturing. The growth rate of
is due to the increase in demand for electronic products, and the second is to enjoy preferential policies of local governments in mainland China and the dividend with low labor costs.
In 2011, China's mobile phone shipments reached 455 million units, of which 118 million units were shipped, an increase of 175% from 2010, exceeding the total of previous years. In 2012, China's smartphone shipments reached another 182 million units, accounting for more than a quarter of the global smartphone shipments of 686 million units.
By 2013, global smartphone sales exceeded 1 billion units for the first time, and the sales of smartphones in the Chinese market were about 320 million units, of which the shipments of Dongguan's smartphone industry alone exceeded 200 million units.
Faced with such a huge and rapidly growing consumer market, Foxconn is difficult to meet for the OEM industry. Moreover, this period is also a time when various small and medium-sized mobile phone brands are growing wildly. Large companies like Foxconn naturally have to give priority to meeting the needs of big brands. Other small and medium-sized OEM factories with low foundations are maintained by orders from these small and medium-sized brands.
It is not difficult to imagine that during this period, the domestic mobile phone OEM industry has emerged like mushrooms after a rain with the booming development of the smartphone industry, and this is also the most glorious time for the domestic mobile phone OEM industry.
The bankruptcy of the OEM factory is just an inevitable result of the transformation of production capacity
However, everything cannot escape the law of prosperity and reversal. The mobile phone OEM industry, which has just experienced a glorious moment, has quickly started a round of major cleaning at an unexpected speed.
Since 2014, although the smartphone market has continued to grow, the wind direction has changed dramatically.
At the beginning of this year, Xiaomi Technology founder Lei Jun said at the 2017 Yabuli China Entrepreneurs Forum that when talking about its contribution to the industry, Xiaomi's real achievements have promoted the progress of the entire industry, killed the first copycat phone, eliminated the weak, and allowed a group of truly competitive companies to stand out.
Lei Jun's words can explain the reasons for this round of cleaning of the mobile phone OEM industry.Before Xiaomi, the domestic low-end smartphone market was mixed, and the products were of varying quality, which gave the so-called counterfeit mobile phones a certain amount of space to survive. Later, the entry of brands such as Xiaomi and Honor also caused a price war in the low-end smartphone market. The profits of low-end smartphones were severely squeezed. Some mobile phone OEM factories in Dongguan only earned 1.75 yuan for each mobile phone production. Some OEM factories even had to accept orders for manufacturing mobile phones with zero profits in order to maintain the start of construction.
In this way, many OEM factories that are difficult to maintain funds have to launch a stage, and with the decrease in OEM factories, it is becoming increasingly difficult for small and medium-sized brands to survive. The two are mutually causal, and the final outcome is that the brands in the smartphone market are becoming more and more concentrated, and OEM orders are becoming more and more concentrated in several large-scale OEM companies . The factory without orders naturally cannot survive. Today's Sailong and Zhaoxin before are all such examples.
On the other hand, the decline of OEM factories is also inseparable from the general trend of my country's production capacity transformation.
As mentioned earlier, a large part of the rise of domestic OEM factories is attributed to the dividend of low labor costs, and this dividend effect was already unsustainable around 2014. The domestic labor costs have increased significantly, and the efficiency of the new generation of assembly line workers has declined, and compared with Southeast Asia and other places, the cost advantage is worse. China's manufacturing industry is facing an important stage of transformation and upgrading from the "world factory".
From "world factory" to "global intelligent manufacturing", this is the need for China's manufacturing industry to upgrade its production capacity. Small and medium-sized OEM factories that focus on low-end mobile phones naturally cannot adapt to such a transformation, and being eliminated becomes an inevitable result.
Reference value of Foxconn's transformation
However, the OEM industry will not disappear because of this. After all, this is in line with the current global trend. Apple will not choose to build its own factory and process it still needs Foxconn's existence. However, when brands continue to compress the profits of OEM companies, OEM companies also have to face the choice of transformation.
For these domestic OEM companies, when the domestic labor costs are high, the first thing they think of may be moving out, but moving out is just a way to treat the symptoms but not the root cause. Who can ensure that these places that occur in China will not be moved out again?
Regarding this point of transformation, as the leader in electronic products OEM, Foxconn has some of its measures worthy of reference by latecomers.
In order to transform from the OEM business model, Foxconn has made a lot of attempts, such as producing its own brand mobile phone accessories and TVs, and tried channel strategies towards the direction of "market sales", but in the end they all ended in vain. However, Foxconn did not give up its attempt to transform, but adopted a policy of "save the country in a curve" and completed the transformation through mergers and acquisitions of existing brands and combining its own vertical industrial chain advantages.
Last year, Foxconn just acquired Japanese electrical appliance company Sharp , and quickly turned Sharp's performance into profit through its own manufacturing and logistics advantages, using cost-effectiveness as a weapon. Immediately afterwards, Foxconn actively acquired Toshiba's memory business. Although the acquisition plan ended with Foxconn's elimination, Foxconn's efforts clearly showed its eagerness to transform from manufacturing services to technology services.
Of course, Foxconn's transformation journey is not over yet, but the successful or unsuccessful attempts it has made are worthy of reference in the industry. After all, for the OEM industry, crisis is not just a lip service.
