Is it a HP? Is it a Xerox? Is it a Brother? No it's a Flextronics!

Journalist Elske Schouten wrote an excellent background story last Wednesday (2 April 2008) on the frontpage of NRC Handelsblad's economy section, with regard to outsourcing activities of certain well known trade mark owners like Epson, Canon, Samsung, HP, Brother, Apple Ipod, Sony, Philips, Océ and Tomtom.

The story, with the intriguing title 'Niemand kent de maker van Ipod' (translated in English: 'Nobody knows the maker of iPod'), claims that, although retail chains who sell printers take goods care that consumers can choose between different trade marks, for example Epson, Canon, Samsung, HP or Brother, a substantial part of these printers have the same sources, which are however not factories owned by the trade mark companies. One of the sources seems to be Flextronics, a company that owns several factories in Malaysia, in one of which HP printers are manufactured, and in another one Xerox and Océ printers. Flextronics also owns factories in Brazil, China and Mexico, where the production of for example Epson and other trade mark printers seems to be taken care of.

Foxconn from Taiwan, a 200,000 employees company, manufactures iPod products and Sony Playstations, and one third of the PCs that are sold worldwide.

A representative of Flextronics in the Netherlands states that HP only needs to do two things to get the printers produced: indicate each month how many printers are needed and pay Flextronics' invoices. The 'quid pro quo' of Flextronics comprises the manufacturing, the packaging, the distribution and the repair of the printers.

According to the story the Netherlands are in the frontline of outsourcing, followed by countries like Germany, France and Japan. The words of the Dutch representative of Flextronics are self-evident: 'There is not much left for outsourcing.'

The manufacturers' services seems to extend even to areas which the trade mark owners were reluctant to outsource in the past, such as design, in which area the manufacturers take the initiative by offering newly designed products for adaptation to the trade mark owners. But the trade mark owners are still reluctant to outsource (any services with regard to) advanced products.

Everything turns on the costs in the relationship between the trade mark owner and the manufacturer. Consumers expect products to become cheaper each year. Companies like Flextronics are important in this process. The trade mark owner and manufacture are in constant talks with regard to costs. A representative of Tomtom requires that manufacturers don't keep their head down, but take the initiative to inform Tomtom of changes in the navigation system that could lead to lower manufacture costs.

The income of the manufacturers should not be overestimated. A representative of Dutch Océ stated that Océ cooperates with two factories, not only to reduce the risks, but also to compare the manufacture processes and the costs involved. Flextronics receives only a few percent of the consumer price of a product. The profits are low.

The price pressure on the manufacturer could theoretically have negative effects on the treatment of employees working for the manufacturer. The story reports that Apple was involved in a scandal after it appeared that iPod manufacturer Foxconn apparently infringed Chinese labour laws due to excessive work overtime. On the other hand, according to persons involved in the business, child labour or slavery are rare, because it would be the manufacturers would lose the trade mark owners as customers directly.

In the meantime - step by step - the manufacturers step out of the shadow of the trade mark owners. Foxconn manufactures computer parts for which an own trade mark is used. Should trade mark owners be afraid? No, says the Dutch Flextronics representative, 'we are not going to compete with our customers. (...) The trade mark owners are always in control. They have the trade mark. Consumers have never heard of us or our competitors.'

This peep behind the screens shows that intensive and complicated trade mark licensing and off shore trade mark registrations must be involved that reflect the considerations the story reveals.