No enterprise involved in the electronics supply chain operates in a vacuum, not even companies that have a monopoly on their economic sector. It’s easy, though, for a business to keep a relationship going on past its benefits for the wrong reasons. It’s a trap a former British foreign secretary and prime minister identified generations ago. In the 19th Century, Lord Palmerston noted his country “had no eternal allies and no perpetual enemies, only interests that were eternal and perpetual.” That phrase has since been boiled down by other statesmen who understood its significance to this: “No Permanent Allies, No Permanent Enemies, only Permanent Interests.”
It’s an ideology smart business leaders know very well. Some people are perplexed Apple Inc. and Samsung Electronics Co. Ltd., two of the electronics industry’s biggest players and arch-rivals, continue to collaborate in various parts of their businesses. ZDNet reported recently, for instance, that Apple may tap Samsung to supply the processor for its iWatch. Previously, the companies fell out in a series of patent disputes that are still playing out in courtrooms across the world. However, these legal tussles won’t stop Samsung from producing semiconductor wafers for its American rival or keep Apple from sourcing components available at the Korean company; rivalry ends where profit goals begin. (See: Samsung to be main chip supplier for next iPhone: Report).
For OEMs, contract manufacturers, components suppliers and distributors, failure to understand the significance of always watching out for permanent interests can result in situations where critical alliances are not quickly formed and older, fraying ones rebuilt or scrapped. Years ago during a massive wave of outsourcing that gripped the OEM market, contract manufacturers quickly absorbed their customers’ production facilities and took on heavy overhead burdens in the hope that these actions would cement a longer-term relationship with the partner.
Many of these companies were hurt later when OEMs began pulling back from certain markets and when their production volumes tanked as a result of changes in the competitive landscape. EMS providers were saddled with non-performing facilities they had inherited from big partners facing liquidation, as in the case of Nortel Networks.
More recently, Foxconn rose rapidly to the top of the EMS industry, piggybacking on the massive success of consumer electronics giant Apple. The Taiwan contract manufacturer’s annual sales dwarf those of its next five rivals combined. It would seem Apple and Foxconn have an “eternal partnership.” That’s not the case. Following reported problems at several Foxconn facilities, Apple has begun adding new contract manufacturers. While Foxconn is still its top contractor, many analysts expect the OEM to gradually but substantially reduce the portion of its business with the EMS provider. In response, Foxconn, too, has begun expanding into new market segments and partnering with other large OEMs.
The major lesson from both Apple and Foxconn is very simple: Don’t be blindsided. As you build your business around your “permanent interests” and assess the continued relevance of current partners to the achievement of those goals, remember they are also conducting the same exercise. You may not have permanent allies but you can build long-lasting alliances by ensuring your company maintains its focus on satisfying current customers and doing everything necessary to help them achieve their own goals. In so doing, they may just begin to see you as a friend for all seasons.