The Internet is no longer just about creating a website and getting "online". For those who think it is, the future is likely to be extremely uncertain in a landscape that has not changed so dramatically and fundamentally for generations.
That's because electronic commerce is literally "deconstructing" and transforming many industries and markets in Asia and throughout the world. The new information economics brought on by technology and deregulation is melting the glue that has held value chains together. When you can reach suppliers cheaply anywhere in the world, the old supply chain falls apart. When you can take information directly to end customers, the ideas of sales channels and middlemen are overturned.
In industry after industry, the result is the break up of vertical value chains into a series of layers, the rise of new co-ordination mechanisms, and the emergence of new stand-alone businesses.
As deconstruction unfolds, four new types of businesses and business models typically emerge. Understanding these models brings the path to transformation into clearer focus and allows you to identify potential winners and losers.
In fact, many of Asia's high growth companies of recent years fit one of these four 'deconstructor' business models. Taiwan Semiconductor, a quintessential deconstructor embodies the layer master model. TSMC has focused on mastering only one layer of the semiconductor value chain - that of fabricating chips. It has focused on dominating this layer, blowing apart the traditional idea that you must both design and manufacture ICs. It is this strategy which has allowed other companies to focus on the design layer of the value chain, outsourcing fabrication to TSMC. Now, we see similar 'layer master' plays by software companies in India, such as Infosys and Satyam, which focus on the hard-core code programming outsourced from other software applications designers.
The orchestrator, our second model, excels in managing and coordinating a value chain of activities provided by various third parties, while retaining ownership of certain core resources or skills. Hong Kong's Li and Fung is a classic orchestrator, specializing in managing complex supply chains on behalf of overseas buyers who want Asia's low cost supply without the problem of dealing directly with many manufacturers.
For the navigator, the pure exchange of information becomes a business. Asian Sources, a leading global provider of information on products and suppliers, is a classic navigator. Starting with a paper catalogue, and now online, Asian Sources brings together information about Asian suppliers, and provides it to potential buyers in highly navigable form.
The disintermediator, Dell Computer for example, is typically a supplier which 'disintermediates', or bypasses, the middlemen in an industry by going direct to the end customer. Dell is a classic disintermediator, and has successfully localised its Asian operations and connected directly with customers over the telephone and Internet.
Understanding e-commerce
These examples highlight three important principles in understanding what e-commerce is really doing to business. First, 'deconstruction' describes, simply and accurately, much of the change that is happening in Asia's major industries. E-commerce speeds up the pace and broadens the impact of this change.
Second, our four deconstruction models can be applied to new businesses when evaluating their likelihood of success in the new economy. Do new businesses fit any of these models, or do they run counter, making them vulnerable to later attack?
Third, every deconstruction model has its own success factors, and business plans must fit the imperatives of the models they want to build.
Everywhere, value chains are deconstructing, being blown apart, or melting down. The high-growth, high-value businesses that emerge tend to fall into one of our four "deconstructor" models, and a keen understanding of these models provides potentially valuable insights into the likely success or failure of many Asian new economy businesses.
David C. Michael is a leader of BCG's electronic commerce and high technology practices in Asia. Deconstruction is the theme of Blown to Bits, a new book by BCG vice presidents Philip Evans and Thomas Wurster published by the Harvard Business School Press, and an Amazon.com best seller.
