Umair Haque / Bubblegeneration
umair haque  


Design principles for 21st century companies, markets, and economies. Foreword by Gary Hamel. Coming January 4th. Pre-order at Amazon.

Monday, August 09, 2004

Beyond Hypercompetition

Profit margins for DVD players down to $1. We can safely call this perfect competition - largely due to massive entry from Chinese rivals. Now, clearly, competing in this market has been a sucker's bet. The interesting question is: why? I think there are three reasons.

1) Barriers to entry fell suddenly, and massive amounts of capital are still chasing a smaller and smaller number of good bets. Hypercompetition is the inevitable result.

2) One of the biggest DVD players manufacturers in China is Jiangsu Shinco. As far as I can tell (this data is pretty hard to come by), it's a 'Jiangsu province advanced technology enterprise' - which means it's still majority publicly owned. This means it can accept a much lower return than private investors would demand.

3) Because they face extreme buyer and platform power, and because their innovative capacity is relatively low (it takes a long time to build), price wars are these firms' first, last, and only tactic.

But these firms are smarter than I've given them credit for. For example, Skyworth is happy to accept 1% margins because it's using these to invest heavily in R&D in a place where 1% goes a long, long way.

-- umair // 10:32 PM // 0 comments


Recent Tweets


    uhaque (dot) mba2003 (at) london (dot) edu


    atom feed

    technorati profile

    blog archives