25
(BG Kang) Ch08. Competitive Strategy
developing a product that satisfies multiple standards (Shintaku and Eto, 2008). For capable firms, the strategic placing of their technologies is another factor to be exploited under the turbulent business environment.
8.4.2 Placing on the Lower Layer If innovations have already been made in a standardized layer, most of the value-added of the system may move to the lower layer. During the innovations, the needs of consumers are considered in the design and functions of the system. Since all the necessary functions of consumers have been explicitly fixed, the components of the system implementing those functions are also fixed. Components are divided into core components and auxiliary components. More value is added to the core components since most of the new participants from newly industrialized economies may not have the capability to produce the core components; they have to purchase the core components to produce the final system. This is why most of the value moves to the core components. Even though most of the value-added moves to the lower layer, the architecture of the lower layer will most likely be modified to prevent the components of the lower layer from becoming standardized (Shintaku and Eto, 2008). As discussed above, the bicycle industry is a typically standardized one wherein innovations have been fully made. Founded in Osaka, Japan in 1921, Shimano is a bicycle component supplier specializing in gear box and freewheel. Shimano developed its own components without following the standards. It keeps its technology as a black box using patents. Note, however, that it standardized the interfaces so that its components could interoperate with the finished bicycles. Since their components can interoperate with almost all kinds of bicycles using interface standards, manufacturers of finished bicycles procure Shimano’s components to enhance the performance of their finished products.
Questions and Discussions 1) How does standardization affect the network externalities? 2) Explain how standardization affects market expansion and differentiation. 3) Discuss the strategic position of a standardization follower firm vis-Ă -vis the emerging technological innovations in the standardized area.