Wednesday, April 16, 2008

Taking the Capital out of Capitalism

A recent WSJ article "U.S. Upstart Takes On TV Giants in Price War" illustrates a few trends well. First is that the ability to compete is not dependent on the amount of money you have. Which leads to the second and third themes - separating manufacturing/marketing and as a result, leveraging manufacturing resources in China/Asia. In this case, Visio, a recent startup, has been flourishing in what has traditionally been a highly capital intensive business, while the established players have been struggling:

Rather than sell the sleek sets as luxury items, he figured he could make flat-panel TVs that were affordable to average consumers. Vizio's CEO, William Wang poses for a picture at the company's headquarters in Irvine, Calif., in August 2007.Back then, the computer-monitor business had largely transitioned from clunky cathode-ray tubes to flat panels. Mr. Wang knew many of the parts in flat computer screens were used in flat-panel TVs. Tapping his computer contacts in Taiwan, he calculated he could get enough parts to qualify for a bulk discount and use them to make inexpensive TVs.

[...] Mr. Wang sees no disadvantage to not owning factories. So far, Vizio has largely made products based on existing technology, although the CEO does have ambitions to dream up new products. "R&D is the key for innovation, not manufacturing," he says.
The basic idea is Vizio handles the design and manufacturing of flat panel sets. Working with and even taking on their primary vendor as an investor based in Taiwan, Vizio has been producing at prices far cheaper than established players. To date, they've been able to produce at targeted volumes despite sometimes difficult to find components.

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