Thursday, October 22, 2009

Samsung and China

The Wall Street Journal had a very interesting story today about Samsung's decision to build a production facility in China. The article relates how Samsung had been hesitant to manufacture in China because it was concerned about "involuntary knowledge transfer." I think it's a valid concern, and it explains why Samsung's most cutting-edge technology will remain in Korea.

Of course, it's not just cutting-edge technology from its research and development labs that Samsung should be worried about losing to Chinese rivals. There's no question that LCD televisions involve a substantial learning curve in the production process. That learning curve is a critical source of competitive advantage. One risk of manufacturing in China is that "spillovers" of those production learning curve effects will take place, giving upstarts a chance to easily "catch up" to much more experienced competitors - i.e. they might come down the learning curve more quickly than normally possible.

2 comments:

Brian said...

These corporations will never learn. In their quest to wring every last dollar of profit today, they consistently mortgage the future integrity of their knowledge capital. Samsung shareholders better hope the company has put controls in place, because the Chineese government certainly will not respect any trademarks, patents, etc.

VangelV said...

The consumers win big while producers have to learn to innovate and improve effectiveness if they want to survive. Isn't the free market wonderful?