Manufacturing Exclusivity Agreement
Finally, the combination of standardization and flexible manufacturing allows OEMs to replace low-performance or non-cooperative CMs as easily as they can replace products that lead the way. The reciprocal nature of these relationships – and conversely a party`s ability to withdraw at the first sign of aggression from their partner – makes them easy to accept. However, in principle, customer loyalty must be based on what distinguishes the product of an equipment item from that of its competitors. Loyalty cannot be based on low prices, as consumers who are looking for the best price are constantly ready to change – and CMs are almost always in a better position than OEMs to offer the best price. The same goes for the quality that ensures the operational excellence of CMs and the product range, which is a characteristic of the size of CMs. In fact, the products that CMs offer to other brands are similar in quality and cost, precisely because they were manufactured by the same company. In contrast, a CM that produces unique products for a particular OEM would be bound by a long-term agreement that would eliminate it as a threat of competition. OEMs can also try to restore distributor loyalty. Distributors can be exceptionally sensitive to the opening of CMs, as they strive to be put under pressure by OEMs looking to achieve short-term savings. Even in cases where OEMs are generous, distributors` fears about disintermediation and, ultimately, their replacement by electronic channels incentivize those who promise fair treatment and long-term relationships. OEMs may want to use this excess or random knowledge by opening up new product markets. Such entry could be facilitated by OEMs hiring OEMs, just as competitors use order manufacturing to penetrate OEM home markets. Here, OEMs would use precisely the resource with which they were tortured to their own advantage.
OEMs achieve this by doing the same thing to companies in another market that was done to them before – at low cost and low risk, thanks to the characteristics of order manufacturing. These new products would advantageously be based on new and proprietary technologies. For example, Royal Philips, an electronics company, already designs and sells a number of products – computers, photographic equipment, discmans, refrigerators. . . .