The
Wall Street Journal just published a nice description of how Apple is trying to
become less dependent on Samsung for its component, but having difficulty
getting the components it needs elsewhere. Samsung is the best supplier for
many components, and for some component it even extends its reach through
ownership and alliances with alternative suppliers. In some areas Apple can
leave Samsung (certain chips); in others it tries to turn around and finds that
it meets Samsung again (large high-quality screens).
The
reason for separating is clear enough: Apple and Samsung are competing
intensely in the smartphone market, and the competition is so intense that it
now takes place through prices (but as little as possible because both want to
earn a profit), innovative features (with Samsung currently leading on the
hardware side), and legal challenges (with Apple ahead in blocking products for
patent violations). The smartphone market is seen as strategically important
for both companies, and Apple may in fact be more dependent on it than Samsung.
Apple
really does not want to lose this fight, and there are concerns that Samsung
holds too much knowledge about Apple product development and market estimates
through its role as a key supplier of technologies for its iPhones. The worry
does not extend all the way to Samsung suddenly failing to deliver: Apple is a
too valuable customer for Samsung to consider such dirty tricks. But even if
Samsung delivers everything Apple asks for at competitive prices, Apple still
has a problem if the cash and knowledge from that business helps Samsung strengthen
its mobile phone business.
The
situation is a familiar one from research on alliances. Alliances last longer
if the partners need each other for an extended period of time. Their goals
have to match each other, and both wanting to be the world’s dominant supplier
of mobile phones is not a good
example of goals that match. Apple is determined not to produce components
itself; it is not that type of company. So it needs suppliers, and Apple
products are so tightly integrated that in practice any supplier of critical
components becomes an implicit alliance partner. When the alliance with one
goes sour, Apple needs to look elsewhere.
But
here it faces a problem that is becoming increasingly common in its industry.
Rapid technological changes and extreme demands for factory size are making
firms drop out of the market, so there are fewer suppliers available in many
critical markets. Hitoshi Mitsuhashi, Joel Baum, and I published a paper showing
that firms left alliances when better partners were available outside their
current alliance. Apple versus Samsung is really just the reverse: Apple would
like to leave, but the options outside Samsung are limited. So, we can expect
the awkward on and off relationship to continue.
Lessin,
Jessica E., Lorraine Luk, and Juro Osawa. Apple Finds It Difficult to Divorce
Samsung. Wall Street Journal, June 28,
2013.
