The Smiling Curve: Stan Shih

February 10, 2010

By Definition: ‘Smiling Curve’ is an illustration of value-adding potentials of different components of the value chain in an IT-related manufacturing industry (Source – Wikipedia).

Stan Shih, who is a business tycoon from Taiwan, put forward the concept of the Smiling Curve. As per the concept, in the product life cycle, the stages –
Product conceptualization, research and development, branding the product, design, distribution, marketing and after sales service add the real value to the product. On the other hand, manufacturing the product, this seems to be a more time and labour consuming job scores low on the value addition of any product.

Smiling Curve

That sounds surprising. Think about it, how different Coca Cola is from Pepsi and Mirinda from Fanta, how different the ingredients of these drinks can be, still people have their brand loyalties. The trick lies in conceptualizing new ideas, branding, marketing, and distribution of the product effectively.

You could be on a trekking trip climbing a hill to reach some point where the only other means of transport is on horseback, you would not be surprised to find a bottle of ‘Coca Cola’ waiting to greet you at a single tea stall at the hilltop. This is ‘Distribution’.

You are hungry and enter a shop to by something to munch on, you have the choice between ‘Lays’ and ‘Balaji’ wafers, and you pick up ‘Lays’. This is ‘Branding’.

Ever heard of ‘Inventec Appliances’, it is the company that manufactures iPods! Of course, Apple owns iPod, but Apple does not manufacture it. In fact, along with Inventec which really only assembles the iPod, there are many other companies which manufacture several other electronic components of the iPod. So why do we know only Apple, reason is, Apple conceptualized, researched and branded the iPod and holds its distribution worldwide.

What the Smiling curve essentially shows is the success of a product is dependent on the concept, research, branding, marketing, and distribution. These areas thus require specialized and highly skilled personnel. People working in these areas are thus highly paid and so are the countries more profitable who engage in the activities on the higher side of the Smiling curve. Countries like America have been on the higher side of the Smiling curve while Asian countries like India and China were stuck with the low level manufacturing jobs. So if the Asian countries want a higher economic growth they need to be on the higher side of the Smiling curve, which in turn means more analysts, researchers, brand image developers are required in these countries. This goes to say, that Asian countries to be able to compete equally with Europe and America require a well-trained, skilled and intellectual workforce. This in turn requires government investment in basic and higher education in Asian countries. Being just the manufacturing countries of the world will not suffice to sustain economic growth levels in the long term. Asian countries need to be on the higher side of the ‘Smiling curve’ to become the developed countries of the world.

Here, I would like to give a further introduction of Mr. Stan Shih. He was a manufacturer of computers for brands like IBM and Compaq, who outsource the manufacturing to countries like Taiwan. Soon, he realized the reason why the big companies were getting more popular and richer while companies like his remained unknown. He invested in research, analysis, branding, and distribution and today we know his company as ‘Acer’. Yes, he is the founder of Acer and today Acer is one of the top selling computer brands worldwide.

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2 Responses to “The Smiling Curve: Stan Shih”

  1. sumi Says:

    great yaar, 4m wen hav u taken so keen interest in economics. good work . m really enlightened


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