Eliminate the Middleman? (HBR Case Study and Commentary)

Greg Jamison, the head of global sourcing at USTech, has a complicated situation on his hands. The U.S. consumer electronics giant has long outsourced much of the design and production of its branded offerings to TaiSource, an original design manufacturer, or ODM, in Taiwan. TaiSource, in turn, has moved most of its manufacturing to Beijing, giving USTech many of the cost benefits--and none of the hassles--of sourcing in China. But commodity producers are squeezing USTech's margins, and higher end rivals are gaining market share, forcing the company to rethink its sales strategy in China and its relationship with TaiSource. Greg values the close bond his firm has forged with the ODM, but he knows the sole-source model has become an anomaly in the industry. And other USTech executives want to explore direct sourcing in China and learn about other Taiwanese ODMs, known for their high quality. When Greg hires a longtime TaiSource employee to get a feel for the fast-growing China market and scout out other suppliers in China and Taiwan, relations between the two companies start to fray. Moreover, there are signs that TaiSource plans to market its own branded goods in China. Will TaiSource and USTech end up as competitors? How can USTech protect its relationship with TaiSource while it explores sourcing and sales opportunities in Asia? Commenting on this fictional case study in R0603A and R0603Z are Bruce K. Riggs, the senior vice-president for operations and customer care at Gateway in Irvine, California; Barry C. Lynn, a senior fellow at the New America Foundation in Washington, D.C.; Wang Dongsheng, the chairman and CEO of BOE Technology Group in Beijing; and Paul Gaffney, the executive vice-president for supply chain at Staples in Framingham, Massachusetts.

• Outsourcing
• Globalization
• Sales and marketing
• Sourcing
• Cross-cultural business relations
• Strategic alliances
• Suppliers