Were Nietzsche alive today and covering the tech industry, he might say something along the lines of, “And what you outsource to the abyss, the abyss outsources also onto you.” Over at Asymco’s blog, James Allworth has written a very interesting piece arguing that Apple (AAPL) really has itself to blame for the rise of smartphone rival Samsung (005930). In fact, Allworth contends that Apple’s reliance on Samsung as a component supplier may have taught the South Korean manufacturer everything it needed to know about effective smartphone design and supply chain management.
Allworth’s argument can be summarized thusly: Apple spent a good part of the last decade thumping its competition because it had gone through “a long gestation period” where it perfected both its products and its business practices in ways that couldn’t have been easily copied by competitors unless they were privy to Apple’s trade secrets. To replicate Apple’s success in this area, it would likely take competitors years of going through similar gestation periods just to catch up.
But Allworth then throws something else into the mix: What if the biggest threat to Apple didn’t come from well-known electronics manufacturers such as Nokia (NOK) and RIM (RIMM), but from the companies it had long relied upon to supply it with components?
“When Apple went through this transformative process, where the design whittled down the broad range of offerings to just a few, and they generated the scale on the business side that accompanied that — they weren’t actually the only one to go through that process,” Allworth contends. “Apple’s partners — their suppliers — went through it with them. And they’ve got very big, and very good at what they do. Samsung, obviously, is among those partners.”
The irony, of course, is that Apple’s mastery of its supply chain and its approach to outsourcing have been two of the reasons why the company has turned into one of the most profitable the world has ever seen. And if Allworth’s theory is correct, then it’s no wonder that Apple is in such a rush to ditch Samsung as a component supplier, because otherwise any further refinement of its design and management practices would only stand to benefit the company that has become its fiercest rival.