H The Importance of Being Integrated
ow many articles have you read on the submarine fibre optics industry that begin with a dreary look back at the last five years? Isn’t it about time that we started looking forward and getting our businesses in shape to deal with the challenges ahead? The submarine systems supply market has turned a new chapter. Suppliers have exited the market or downsized. New customers have different requirements. Marine contractors have decimated their fleets. New technologies and approaches are challenging the established paradigm. As existing suppliers pick themselves up off the floor and begin planning their business strategy, and new entrants create a clamour over new technologies, there is clearly a new world order developing. Pioneer has recently conducted a study into the dynamics of the marketplace for the manufacture ofsubmarine fibre optic systems. The study looked at suppliers’ competitive positions and attempted to isolate the main factors which led to their survival or demise. In the course of the study, a key issue was raised which is now the subject of this article: “Is an integrated manufacturing operation necessary to succeed in this market?”
by Julian Rawle, Senior Market Analyst, Pioneer Consulting and Howard Kidorf, Kidorf Innovative Methods
A Market in Flux Overcapacity has driven the systems supply market into a period of consolidation. In 2004 Pirelli effectively exited the submarine fibre optics market. Alcatel has also rationalised its
portfolio and trimmed its fleet of cable ships. Tyco Telecommunications’ difficulties were magnified by its decision to enter the carriers’ carrier market with the construction of its own “Tyco Global Network” (TGN). This move diverted financial, manufacturing, and human resources away from the core business. TGN has now been sold and most of the submarine systems production has been consolidated into two well-established New England facilities. In Japan, there has been talk for many years about the need to consolidate submarine fibre optic cable systems manufacturing capacity. By taking a non-integrated approach to manufacturing and outsourcing to companies such as NEC, Mitsubishi, and Fujitsu, KDDISCS actually created competition where there was none before. In the end, withdrawal from the market has proven to be a more palatable option for parent company KDDI. Demand for international submarine fibre optic bandwidth is still being driven by the Internet. Pioneer estimates that growth in demand for Internet capacity continues to exceed 40% per year on average worldwide and the global broadband user population is growing at a compound annual rate of 15%. However, Pioneer estimates that still only about 16% of the world’s submarine fibre optic cable capacity is currently lit. Under these circumstances, finding sources of 12