Earlier this year, Taiwan's Ministry of Economic Affairs announced it intended to develop a smartphone supply chain within its country. Bad idea.
Specifically, the ministry said it was seeking foreign investments for production of Active-Matrix Organic Light-Emitting Diode (AMOLED) displays on the island.
The dubious rationale given for the new policy was cost cutting. In fact, there is a back story to the government's new policy.
It all started in early 2010 when HTC, Taiwan's largest mobile handset manufacturer, launched its HTC Desire. At that point, HTC was using an AMOLED display sourced from Samsung. But Samsung is also HTC's rival in the smartphone market, and when HTC began selling too many Desires for Samsung's liking, the Korean manufacturer cut off AMOLEDs to HTC, leaving the latter in the lurch.
It's a case of co-opetition that didn't work. Co-opetition is a strategy that says that business relationships can be based both on cooperation and competition. Rivals can sometimes benefit when they work together.
Samsung obviously calculated that it was better off with more competition with HTC and less cooperation. In fact, its competitive actions against HTC have been fierce.
Samsung is currently under investigation by Taiwan's Fair Trade Commission for allegations that Samsung paid students to attack HTC's smartphones on Facebook. In January, Samsung disclosed that it had been fined $10,000 by the commission for an advertisement that featured misleading information about the Samsung Galaxy Y Duos GT-S6012.
The Taiwan ministry's hope, according to a published report, is that Taiwanese smartphone makers would smartphones using parts and components made in Taiwan.
There's nothing wrong with trying to attract investments and create jobs in your country, but the goal of creating a localized, integrated supply chain isn't the way to go.
First of all, it's not necessarily going to cut costs. The very premise of economic globalization is that the transportation and logistics costs that are incorporated in any given product are so minuscule that they are irrelevant.
It even goes against the idea of specialization within capitalism going all the way back to Adam Smith. And, of course, Adam Smith and may others would disapprove of the Taiwan's government heavy-handed interference with market forces.
Also, Samsung isn't the only AMOLED supplier around. There are several in Japan and surely one or more of them will be willing to become a trusted source of supply for HTC.
It's too bad the Samsung-HTC relationship didn't work out, but in the end, each company must act in its own perceived self-interest. It's the relationship that counts. That's what makes for strategic sourcing and that is how the supply chain can provide a strategic and competitive edge.
Hopefully, that's a lesson learned for HTC. Let's see if that rubs off on the Taiwan Ministry of Economic Affairs.