Smile Curve And The Choice Of Business Operation

"Smile curve" (SmilingCurve) is a concept put forward by Stan Shih, chairman of Taiwan Acer group in early 1990s. It describes the added value of every link in the personal computer manufacturing process with an open parabola.

His basic figures are:

"Smiling Curve" reveals a phenomenon to us: in the value chain, the R & D and post sale services at the two ends of the value chain are the most value-added, and as a labor-intensive intermediate manufacturing and assembly part, the technology is low and the profit margins are small, and the market competition is fierce, and it is easy to be replaced by the lower cost peers, thus becoming the most unprofitable part of the whole value chain.

The so-called "smile curve" is actually an "added value curve". Enterprises can create more value by infiltrating the two ends of the "smile curve".

In fact, the phenomenon of "Smiling Curve" exists not only in computer manufacturing enterprises, but also in other industries.

Since there are added value smile curves in many industries, enterprises, as a profit oriented business organization, want to grow in areas with high added value when the industry chooses. However, the smile curve only reflects the phenomenon of industrial chain increment, and does not mean that every enterprise has the conditions to enter the value-added high-end of its industrial chain.

We do not want to analyze the conditions for entering the industrial chain.

Product research and development

In many industries, as long as R & D investment is successful, the profits created by them are always the biggest.

我們都在說中國是世界工廠，正是因為我國缺少進入產業鏈高端領域的企業，特別是進入第一領域的企業，如我們電子行業，無論是世界產量最大的電視機、手機、電腦也好，還是其他一些微電子光電子產業也好，我們花了不少力氣去生產，但始終只能為國際上的一些高端產品生產商打工，賺取少量的勞務費，象電視機產業，我國的產量占世界的近一半，但出口一臺彩電，只能賺取很少的一個到兩個美元，而其中所用的關鍵芯片，可能就賺了我們幾個美元，其實我們所有的電子企業都在努力地為菲利浦、松下、索尼、英特爾、ADM等幾家大的芯片生產商賺錢，即使有些企業、國家投入巨資進行產品開發，但至今未取得多少較果，軟件業就更不用說了。

This is the case in the electronics industry, as is the case in automobiles, pharmaceuticals and other industries.

Is it true that our enterprises do not know how to invest in product development?

No, it is because we still do not have some conditions to enter the field.

What are these conditions?

The author thinks that the following aspects:

1, product research and development must have strong funds to ensure.

Product development, especially the development of high-end products, is often not a matter of a long time, and requires long-term investment. According to the statistics of the American Medical Association, a new drug has to go through twelve years from the beginning to the final mass production, and the investment is in the billions of dollars. The pharmaceutical industry is also similar to other industries, so it can be seen that there is no solid capital, so it is difficult for enterprises to concentrate on the high-end research and development of products. In some areas, we still do not have the strength in this area.

2, product research and development need to build a strong R & D team.

In addition to having a solid capital guarantee, there is also an essential condition for product development, which is an expert team and high-quality talents familiar with the R & D field. The key to product development is to rapidly develop products with high technology, high efficiency and high performance, which can be accepted by users. The key is to rely on high quality talents such as expert teams.

As we all know, the key to competition among enterprises is the competition of qualified personnel. High quality talents are scarce resources in the market. In order to ensure that such scarce resources can be used by enterprises, of course, the cost will not be low. The accumulation of a group of R & D professionals is a long-term investment process, which is not acceptable to ordinary enterprises.

3, R & D needs to accumulate strong technical foundation.

A kind of product research and development success, often need to use a lot of special technology, and these special technologies are likely to have been applied to the patent protection, the patent holder is not allowed to allow you to use, you have to make a new path, spend more money and time, even give you the right to use it, it also costs a lot of patent royalties, our country's DVD is so, export a profit less than half of the cost of patent use, want to avoid a new model of patent, a lot of investment, so far there has also no market.

The product development stage is mainly high-end, capital is high-end, talent is also high-end, technology is also high-end, in these high-end you do not master one to two items, do not hat to enter.

Two. Component production

Component production is easier than product development. Investment, investment time and talent requirements are much lower than product development.

1, there are supporting service objects.

Any product must have a customer base, and the production of components is even more so. It is the middle section from the conception to the product in the industrial chain. It should be connected with the upstream (R & D) of the industrial chain, and should be connected with the downstream (final product) of the industrial chain. If one side fails to connect well, the whole investment will fail. If there is no matching object, the enterprise will not be able to survive.

2, a considerable number of technical personnel are needed.

Component production is the middle end of the industrial chain. It should link up with product research and development and link up with the assemblers. It is impossible to produce a plan without developing production in the process of linking up, and it is necessary to make second development in function and structure. The components developed and developed should not only use the upstream research and development achievements, but also meet the requirements of downstream manufacturers. Once the upstream research and development plan is improved, you must keep up with them and use them. Once you have the requirements, you will have to change, move faster and better. There is no certain investment, and there is no certain talent and processing.

3, in addition to the high quality products produced by component production, low cost is not necessary.

High quality requires enterprises to have certain technical talents and processing capability. Low cost will have strong management ability on the basis of the previous cost. Enterprises should be in the industrial distribution center and have enough scale. If these conditions are not available, it is difficult for enterprises to reach the economic scale and the difficulty of survival can be imagined.

The production of components is mainly characterized by the fact that the upstream R & D units are unlikely to find a company to support them. It is sure that they are looking for a group of enterprises to support them.

Three. Product assembly industry

The product assembly industry is the last process of products from conception to finished products, with low technology content and small profit space. Therefore, scale and speed determine the survival space of enterprises.

1, there is a certain size of the economy.

Although scale is very important to every enterprise, it is particularly important for the assembly industry. Only when a certain economic scale is reached, it is possible to cultivate the brand, so that it is possible to use the new tools and technologies more effectively so as to be able to achieve the low cost to component suppliers and product distributors.

For example, the TV industry is the same as the chips used all over the world. The difference between these products is mainly in the style and processing fineness. In terms of style, the mould is mainly moulds. One style is usually eliminated by the market about half a year or so, and a set of molds is less than a few hundred thousand, or more than a million. If there is no scale, the small businesses can not stand the cost of mold fees.

2, located in the industrial distribution center.

The assembly industry has low technology content, limited added value and large volume of logistics. Therefore, when choosing the industrial area, we must choose the industrial cluster, preferably the component supply and the product sales place, at least one of them should be close to one place, so that we can reduce the capital investment and operating expenses of the enterprises.

3, we should emphasize the speed of capital pfer.

The assembly industry is at the low end of the smile curve with low added value, but the input capital is always the biggest, and the speed of product change is often the fastest. At a slower pace, it is easy to cause backlog of funds, and the price of products falls, and only by increasing the speed of capital turnover can we effectively avoid losses in this area.

Enter this business is a scale and speed, these two things are missing, and it is difficult to survive.

Four, product sales

Product sales, like component production, are in the middle of the smile curve, so there are similarities between product sales and component production.

1, there must be a large number of consumer groups.

Sales groups are always the first thing to consider for the sales industry. You build a large supermarket in a town with only about 10000 people. The quality of your products is excellent, service attitude is good, business integrity is not good enough, there is no enough consumer group, and it is sure that it will not survive. The size of the enterprise should be compatible with the local consumer groups.

2, we should establish our own characteristics.

As a sales enterprise, it is very important to set up its own characteristics. It should be said that the entry threshold of sales enterprises is not high. Without characteristics, it is difficult for enterprises to be good and strong. These characteristics may include many aspects, such as enterprise brand, scale, price, integrity service and so on.

3, speed up capital turnover.

A sales enterprise is a capital based enterprise. It can be said to be raised by capital. The turnover speed of an enterprise's stock is the lifeline of an enterprise. Only when the inventory turnover is fast, can it save money and not cause the loss of the price to the enterprise because of the upgrading of the product.

Five, after-sales service industry.

Many people may have doubts that the after sales service industry is the most common industry, and the entry threshold is relatively low. Shi Zhengrong is not mistaken. How can the after-sales service industry be the high end of the smile curve? In fact, if we take a simple example, we all believe that this smile line is correct. According to incomplete statistics, a vehicle is generally equal in the effective use period, the repair cost is equal to its purchase price, but the value of the component is only about 1/3. Even the most common leather shoes, if they are cleaned at a price of 2 yuan per market, can cost more than one year.

Although the after-sales service industry is at the high end of the smiling curve, we seldom see big after-sales service enterprises except for a small number of high value products, mainly because of the following reasons.

1, because the entry threshold is low, the market is very dispersive. Apart from some high, fine and sharp products, it is difficult to concentrate customers, and many products' after-sales service work is done by users themselves.

2, after-sale services are difficult to plan and have great fragmentary nature. They are not suitable for large enterprises to enter, repair cars, repair televisions or shoeshine shoes. The planning requirements are very small. They are very urgent and difficult to plan. They usually have to be carried out at any time and may have to go on the spot.

3, after sale service, although the added value is large, the number of services required is also high. The value of each time is not high, so the after-sales service of most products is very strong. If someone's TV set is specially repaired, it is impossible for anyone to cross their home's TV to the repair point to repair it. Your shoes are rubbed brighter and your attitude is good. Customers can't walk three kilometers to find you to wipe them.