Consumer Electronics Brands See New Competition from Contract Suppliers

It appears that being the global market's lowest cost contract manufacturer has its strategic limits. High tech asian contract manufacturers supplying the likes of Sony, Apple, HP and Palm have indicated they plan to develop their own proprietary lines in a drive for improved profit margins.

Read the new strategic position for Taiwan-based HTC, one of HP and Palm's major suppliers:

Founded in 1997, High Tech Computer Corp. (HTC) designs, manufactures and markets innovative, feature rich Smartphone and PDA Phone devices. Since its establishment, HTC has developed strong R&D capabilities, pioneered many new designs and product innovations, and launched state-of-the-art PDA Phones and Smartphones for mobile operators and distributors in Europe, the US, and Asia. These machines are available as HTC devices and as products individually customized for operator and device partners.

Contract manufacturers of laptops lament that their 3-5% margins are insufferable when compared to the more than 40% margins enjoyed by customer Apple for its iPod. But there's more to building a successful branded presence than clever packaging and a few superbowl ads. Local, in-market expertise - especially with distribution competence and customer-driven product innovation - are costly, difficult and time-consuming to develop. One Citigroup analyst estimated that one of HP and Palm's suppliers will see their operating expenses double or triple in two years as they drive for a branded position.

Nonetheless, it's a warning shot over the bow to incumbent branded product manufacturers as unrest among overseas suppliers increases. In addition to taking an increasingly more strident and strategic approach to supply chain relationships, these branded product incumbents will need to make greater and greater investments in their local market prowess to ensure that their local competitive advantage is sustained over time.

Think distribution!