Blackberry And Foxconn Vertical Chain Analysis

Introduction
This essay examines the vertical chain of the recent strategic alliance of BlackBerry and Foxconn. The examination utilizes the make-or-buy issue tree to uncover the strategic and economic rationale for the vertical chain. The essay then goes on to evaluate the vertical chain using the concepts of Transaction Cost Economics, revealing any potential economic hazards that could have a negative impact on the efficiency and effectiveness of the vertical chain.
Strategic Alliance of Blackberry and Foxconn
On 20th December 2013, it was announced that BlackBerry and Foxconn had agreed a 5 year strategic alliance whereby Foxconn will design, manufacture and sell consumer BlackBerry devices in Indonesia and other emerging markets (Taylor and Mishkin, 2013). To develop our understanding of this alliance, one must view it in the context of both BlackBerry’s and Foxconn’s recent performance in the markets.

With regard to BlackBerry, 2013 was a difficult year for the Canadian smartphone maker. The failed market penetration of the BlackBerry Z10 smartphone severely dented its cash reserves, contributing to the unsuccessful attempt to sell itself. The former also left BlackBerry with a $960 million write-down on unsold inventory (Miller, 2013), indicating excess capacity within its vertical chain.

With regard to Foxconn, the Taiwanese electronics manufacturing, announced that in the 1st quarter of 2013 revenue was down 19.2% compared with the same period last year, citing the decline in iPhone and iPad orders from Apple as being the major culprit (Yang, 2013). With Apple being their biggest customer, Foxconn recognized the need to change strategy and de-risk its dependency on Apple.

Understanding this landscape, one can b...

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...epts of the transaction cost economics theory in order to understand the rationale for its structure along the vertical chain. It concludes this examination by suggesting that BlackBerry’s primary motivation for its strategic alliance with Foxconn, is to exploit Foxconn’s scale and learning economies. Foxconn’s motivation is to alter its structure along the vertical chain in order to align to its new business strategy. This provides further evidence to support Alfred Chandler’s theory that structure follows strategy (Chandler, A. 1998 cited in Besanko, D. et al. 2010).

The evaluation of the strategic alliance from a TCE perspective has identified bounded rationality and opportunism as sources of potential economic hazards that could create inefficiencies in the vertical chain. Further investigation would be required to identify the extent of these efficiencies.