The hardware industry's value chain can be divided into five distinct stages based on factors such as scale, influence, and technological advancement. Understanding these stages helps businesses position themselves effectively in the market.
1. **First-rate Companies – Setting Industry Standards**
To become a leader in any industry, companies must establish their own standards. These standards often become the industry norm and, when recognized by regulatory bodies, evolve into formal laws. In the hardware sector, many key standards are still set by foreign entities. For example, Microsoft’s operating system dominates 95% of China’s OS market, creating a de facto monopoly. Similarly, Eastman Kodak once controlled over 50% of the Chinese film market, and a Swedish company held 95% of the sterile soft packaging market in China. Domestic brands like Bright and Sanyuan rely on foreign aseptic filling systems. However, there is hope: in 2007, China finally ended its $2 billion annual DVD royalty payments by developing its own domestic standard. This shift allowed manufacturers to increase profits significantly, with some seeing returns rise from just 0.27 yuan per unit to more sustainable margins.
Luo Baihui, Secretary-General of the International Mould, Hardware, and Plastics Industry Suppliers Association, emphasizes that in an era of rapid technological progress and global competition, it is crucial for domestic companies to strengthen intellectual property rights. Establishing industry standards is essential for national development, and the mission of individuals and companies should align with national interests. Through resource optimization and policy support, the goal is to protect domestic enterprises and promote innovation across both local and international markets.
2. **Second-rate Enterprises – Building Brand Identity**
In the early stages of market competition, quality alone was enough to win. But as technology advances and products become more standardized, the focus has shifted to branding. Companies now compete not just on product features but on brand reputation. The top 10 companies in each industry typically dominate the market, leveraging strong brand identities. Behind every successful brand lies a deep corporate culture. A strong cultural foundation enhances brand recognition and customer loyalty, making culture a vital component of long-term success.
3. **Third-rate Enterprises – Delivering Customized Solutions**
These companies go beyond selling products—they offer tailored solutions. The real value lies in the services and support provided, rather than just the physical goods. As Luo Baihui notes, buying a product is less valuable than buying a service, which is less valuable than buying a comprehensive solution. In the hardware industry, marketing must evolve to meet this demand, focusing on customized approaches that solve specific customer problems. This strategy not only increases satisfaction but also builds lasting relationships.
4. **Fourth-rate Enterprises – Product Differentiation**
Product differentiation is a key strategy in competitive markets. By making products appear distinct, companies create consumer preferences and build brand loyalty. According to industrial organization theory, product differences shape market structures. The more unique a product is, the more control a company has over its market share. Differentiation creates barriers for new entrants and gives existing companies a competitive edge. It also allows companies to charge premium prices and maintain long-term customer relationships.
5. **Fifth-rate Enterprises – Surviving in a Homogeneous Market**
This stage represents the lowest level of competitiveness, where companies engage in price wars and lack differentiation. In such a market, high-quality products often fail because everyone competes on cost. Without clear value or innovation, these companies struggle to survive. The "Chinese-style" market competition often leads to a race to the bottom, where no one makes money, and only the most resilient survive. To escape this cycle, companies must strive for excellence, aiming to be the best in their field and setting higher standards for themselves and the industry.
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