Questions & Answers Section Given in HKICPA Seminar on 23 Jun 2012

Question 7:
But many suppliers may not meet the standards of the big buyers? EG Apple may demand for high quality components, but in the market there may not be enough suppliers that meet such quality demand.

Yes this is a potential problem, but the reality is that there is a range of suppliers that are competing for a range of different levels of technology, and the big buyers will selectively choose to invest with those suppliers that the buyer feels has future potential in terms of technological capability that is aligned with the buyers future product roadmap. In other words, buyers will invest directly with the supplier when the supplier has special technology that the buyer cannot get elsewhere. On example, is a supplier that had special touch pad technology that the buyer was willing invest with in order to develop the production process and bring the yield up to an efficient level.

Another supplier who does not have the special technology will be squeezed by the buyer not only during the ordering process, but even before the approval process – You invest the millions of dollars in the equipment and development of a sample, and then we the buyer to choose whether we approve it or not. So for suppliers the stakes are high when they are aiming to hit the high technology component jackpot.

For suppliers, you just have to be at the right place at the right time and hit the sweet point whereby buyers will invest with you to make something happen.