This is the July 4th weekend in America and celebrations are underway – and it's a great time to think about the Smiley Curve of Innovation. The Smiley Curve came to my attention reading Fareed Zakaria's great book "The Post-American World," and here are some thoughts on "The Smiley Curve of Innovation " this American holiday weekend:
- The Smiley Curve model popularized by Stan Shih of the Acer computer company in 1992 says that starting with a powerful brand, the New Product Development (NPD) process can be seen to create and capture value at both upper ends of the mouth on the smiley face. The owner of the brand needs to come up with great concepts,design, drawings and detailed specifications at one end of the smile and manage great marketing through a great launch including advertising,sales promotion,distribution. The lowest point of the smile is manufacturing activity where the margins are the least but employment for routine assembly line tasks is high.
- Popularity of the smiley model is very high among Chinese manufacturers who understand that as outsourced manufacturers they make a very small margin on manufacturing. Think of the Apple iPhone where the design and marketing is managed from Apple California and Chinese manufacturers make low single digit profits while Apple makes at least 70% margin and is able to capture the real value of innovation.Similarly at the low tech end,as a brass item maker from India mentioned, that US retailers pay cents and Indian workers put on the price labels of $4.99 and up. No secrets here!
- American opportunity is therefore more on the two high value ends of the smile, i.e. in idea generation,concept development, design and specifications that require a great deal of higher order science and math skills. And at the branding and marketing end that Americans are best at.
- Smiles within smiles for services is the flat world effect. Here, for example, if you ask Indian firms to do engineering drawings , they'll do it at a fraction of cost.
- Big retailers and brands have outsourcing advantage. According to research in the highly regarded American Economic Review by Basker and Pham, big retailers import more stuff from developing countries due to better supply negotiations and brand power that impresses the overseas supplier. But guess what ? The growth of Dollar stores in the US during the recession indicates that the lower end of the retail market is wising up. And the difference in quality and crowds between Wal Mart and the Dollar Store is not as high as it used to be!
The age of the American Entrepreneur is now because while the rest of the world gets intimidated by Big Brands the American Entrepreneur does not. And certainly the American consumer is far more receptive to new brands and new categories from new entrepreneurs than anywhere else. Digital marketing does level the global market for the American entrepreneurs as well. Happy 4th of July weekebd! Contact StratoServe.