Outsourcing Design

Link: BusinessWeek Online Extra: "Design Is a Commodity".

Michael E. Marks, CEO of Flextronics, has a radical view of the future of America's electronics industry. Just as manufacturing and logistical operations began shifting en masse in the early '90s to companies like Flextronics (FLEX ), which sent most of the work to its factories in countries like China and Mexico, Marks predicts an equally dramatic shift will occur in engineering and design. As a result, many of today's giant electronics and telecom hardware companies will massively downsize their in-house R&D operations.

A big electronics company may have 10,000 designers, but maybe only 50 are doing real architecture for new products. Some of them will go down to 300 engineers. It's going to get ugly. The electronics manufacturing services [EMS] and the Taiwanese ODMs [original design manufacturers, meaning they design as well as assemble what they produce on a contract basis] will completely restructure design in the electronics world just as we did in manufacturing. We'll have huge design centers in China, India, and Ukraine.

You can save 15% to 20% by moving manufacturing to a low-cost country. But with design, the drop can be much more dramatic.

Design no longer is a competitive advantage. Design is a commodity. Yet design in big companies is just as inefficient as manufacturing and supply-chain management used to be. So brand companies might as well buy the designs for their products off the shelf.

Paul Kedrosky at the Infectious Greed blog comments:

The driver for all this change? Relentless commoditization of electronics, most of which is increasingly becoming embedded in discrete components. As Marks points out, everything from routers to cellular basestations is either already in a chip or well on its way to being there. Once you've commoditized such core functionality, it only makes sense to embed design in manufacturing and move the lot offshore.