Consider Quality Encroachment Decision Of Contract Manufacturers Under Different Outsourcing Strategies

Under the economic globalization,contract manufacturers encroach the market in various industries are very common.It is worth noting that a considerable number of contract manufacturers have accumulated practical experience and achieved technological breakthroughs in the long-term process of contract manufacturing.Unlike the weak contract manufacturers who encroach the market out of survival needs,such contract manufacturers choose high-quality market encroachment for strategic transformation and expansion.In addition,since original equipment manufacturers have more information about consumers in a large number of market transactions,there is a problem of information asymmetry between the two sides.Based on the above background,on the premise of whether Oems contract manufactures products from third-party alternative contract manufacturers,this paper analyzes the high-quality encroachment decision of contract manufacturers and the impact of encroachment decision and information structure on pricing decision and profit of supply chain members.The research results mainly include the following aspects:First,in the case of non-competitive contract manufacturers,it is found that(1)the encroachment of contract manufacturers is always beneficial to themselves,but not to original equipment manufacturers.(2)Information asymmetry always damages the interests of contract manufacturers,but only damages the profit of original equipment manufacturers when contract manufacturers invade and the difference between high and low preference markets is large.(3)If original equipment manufacturers have a significant competitive disadvantage compared to contract manufacturers,then the balanced pricing of original equipment manufacturers’ products can satisfy the needs of all consumers.(4)Improving the quality of original equipment manufacturer products is beneficial to the contract manufacturer if the contract manufacturer does not encroach or information is symmetrical,while in other cases whether it is beneficial is related to the sales cost of the contract manufacturer.The role of consumer preference information is further discussed and it is found that in most cases it is more beneficial for original equipment manufacturers not to obtain consumer information.Secondly,in view of the situation where there are non-competitive contract manufacturers and Oems contract to them,it is found that(1)Competitive contract manufacturers do not always invade the market.(2)Intrusions always hurt original equipment manufacturers’ profits,which greatly increased the incentive for original equipment manufacturers to seek alternative contract manufacturers.If an encroachment occurs,original equipment manufacturers should actively share consumer information with competing contract manufacturers.(3)Although the encroachment enriches the product line,the fierce market competition between contract manufacturers and original equipment manufacturers leads to the loss of profits of the supply chain system.(4)Since the competitive contract manufacturer and the original equipment manufacturer only have a competitive relationship,the contract manufacturer always hopes to maintain a larger quality difference.Finally,based on the analysis of the above two aspects,the outsourcing strategy of original equipment manufacturers facing two potential contract manufacturers is studied.The results show that the outsourcing strategy of original equipment manufacturers is more about "deterrence" to encroacher,to prevent contract manufacturers from invading the market.In addition,outsourcing strategy can help Oems reduce the loss caused by the invasion of competitive contract manufacturers to some extent.