Living Economics

Just-in-time Labor Division
Low cost contract manufacturing, online coordination among far-flung service providers and Internet viral promotion have propelled many startups into overnight empires.

Diagram

What makes this high-speed business process possible?

In a word, it is just-in-time global labor division. Just-in-time global labor division makes it possible to outsource almost every company function except conception of the original product idea. Outsourcing rather than in-house production allows the startup to tap the lowest-cost specialists all over the world without the large overhead cost of hiring people and building in-house infrastructure from scratch. But traditionally, finding and coordinating the far-flung suppliers have been too costly for global outsourcing to be practicable. But the Internet, product-life-cycle management online application, and the emergence of low-cost contract manufacturers and logistics specialists have greatly reduced the cost and the time needed for such global labor division.

Outsourced manufacturing and logistics support have long been available to the big guys who can afford big upfront overhead costs, but the Internet has made them widely available also to startups with shallow pockets.

The Internet has also made it possible to generate buzz for new products with little or no organized marketing. Weblogs, online bulletins, social-networking sites can quickly spread news about new and cool products. For example, Cool Tools (the popular blog with hundreds of thousands daily hits) praised the quick-drying Keen sandals in May 2004 as "give-me-everything sandals."

But the rise of contract manufacturing and design and rapid spread of once innovative management practices such as near-zero-defect and efficient supply chain have also lowered the entry barriers for all comers. When speed and quality are commodities at every company's disposal, the market advantage of any innovative products has become extremely fleeting. Trade secrets have become an open book. And the treadmill of competition turns ever faster. Meanwhile, consumers are enjoying ever larger consumer surplus as prices fall in response to competition to copycat products.

References:
  • Business 2.0 June 2005. "The instant companies."
  • Business Week. 8/26/20036. "The copycat economy."
  • WSJ. 12/19/2002. "A sneaker maker says China partner became its rival."
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