Virtuous cycle

Bartlomiej Owczarek weblog

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Chinese companies: ain’t broken, don’t repair it?

BenQ is a Chinese company which produces mobile phones, which are later sold under Western brands. It performed in this role quite well, but its ambitions grew and pursuing them led to BenQ’s acquiring Siemens’ mobile division. The result was rather disappointing, as reported by the Register:

BenQ’s mobile phone business – the former Siemens division BenQ took over less than a year ago for ?250m – is facing imminent collapse.

A spokesman for BenQ Mobile GmbH says the company will file for bankruptcy in the next few days as BenQ’s board has decided to discontinue funding the German unit.

Did BenQ make a false step in the right direction, or the direction itself was wrong?

To John Hagel, the final outcome gives more support to the theory that the companies are facing the great unbundling to join one of the three groups:

I have anticipated that all companies over time will unbundle into three much more focused business types ? infrastructure management businesses, product innovation and commercialization businesses and customer relationship businesses.

When I think of it, I would expect a successful Chinese outsourcer to dream about going upstream and having its own R&D and brand and all this stuff, and as a result higher value added, read: fat margins. This seems intuitive and expected by everyone but maybe wrong:

Despite enormous success in pioneering innovative business models and business practices, many entrepreneurial Chinese companies still have a sense of inferiority and want to look like larger Western companies with their own manufacturing, R&D and sales and marketing operations. The irony is that, just as many Western companies are unbundling (in part offshoring and outsourcing to more focused Chinese companies), many Chinese executives are tempted to build more tightly bundled operations that mimic the model many Western companies are abandoning.

I’m interested in the future of Chinese companies. Even though I’m skeptical about unbundling predictions, Hagel’s hypothesis provides a useful tool for exploring the topic.