Flexible Choices - 20130130

Flexible ChoicesFlexible Choices

David BarnesBizWitz LLC

For Distribution to Flexible & Printed Electronics Conference attendees only. Content remains property of FlexTech Alliance.

2

A nation can enjoy only two of these three:– free movement of capital– national monetary policy– stable exchange rate

• Most strong economies pursue national agendas by letting their exchange rates float, so domestic markets become volatile


Impossible trinity for nationsImpossible trinity for nations

Closed MarketFixed Rate

Free Flow

Nat’lPolicy

Volatile MarketAdverse Market

Greece is an example of an adverse market for citizens.

3

A flex-‐tech industry can enjoy only two of these three:– open, competitive market– high operating expense– high capital expense

• Foreign competitors can leverage any advantage in cost factors within an open market…


Impossible trinity for industriesImpossible trinity for industries

Policy RulesHighOpex

OpenMarket

HighCapex

Finance RulesScale Rules

AMLCD is an industry in which oligopoly rules foster winners; others lose to new entrants.

4

Deals A B C

{A, B}, C 70 30 0

{A, C}, B 70 0 10

{B, C}, A 0 30 10

• Aumann-‐Maschler game theory outcomes*

• A dominant Leader wins more

• Followers may align with the Leader

• Or Suppliers may align with the leader


Three-‐party games illustrate thisThree-‐party games illustrate this

A

C

B

100

40

80Leader

Followers

Suppliers

* Does not attempt to determine Nash equilibria nor Pareto efficient deals

5

Deals A B C

{A, B}, C 25 0 75

{A, C}, B 0 0 0

{B, C}, A 0 0 50

• Producers prefer the low-‐cost suppliers

• Without collusion, high-‐cost suppliers get zero

• Followers may align with the Leader

• Or Suppliers may align with the leader


No collusion among suppliersNo collusion among suppliers

A

C

B

0

50

100Low-‐costSuppliers

High-‐costSuppliers

Producers

6

Deals A B C

{A, B}, C 30 70 0

{A, C}, B 30 0 0

{B, C}, A 0 70 0

• Producers gain nothing• Material and Tool suppliers might ally in this scenario

• But they may get as much going it alone

• Going it alone seems more likely in most cases…


Cooperation among suppliersCooperation among suppliers

A

C

B

100

70

30Tools

Materials

Producers

Market structures matter, alsoMarket structures matter, also

• Lanchester theorems suggest stable industry structures based on share or fighting strength of competitors

• Leading suppliers may not reside in leading producer nations (e.g. AMLCD glass oligopoly)

For Distribution to Flexible & Printed Electronics Conference attendees only. Content remains property of FlexTech Alliance. 7

25% 30% 45% 75%0%

20%

40%

60%

80%

100%

Panopoly Oligopoly Duopoly Monopoly

Others

#3

#2

#1

8

Scale-‐based industries in open markets invite many producers– Market segmentation– Oligopoly evolution

• Product demand must be elastic on price

• Learning curves must be steep


Scale needs elastic demandScale needs elastic demand

HighOpex

OpenMarket

LowCapex

Scale Rules

Supplier and Producer power evolves toward some balance, which implies oligopolies.

9

Finance-‐based industries in open markets inhibit many producers– Market concentration– Monopoly evolution

• Product price must be inelastic on demand

• Intellectual property must be controlled


Finance needs firm pricesFinance needs firm prices

LowOpex

OpenMarket

HighCapex

Finance Rules

Supplier and Producer alliances enable market carve-‐outs and de facto price regimes.

10

Policy-‐based industries invite many entrants in the beginning– Market localization– Panopoly evolution

• Product demand must be inelastic on cost

• Permits and incentives must benefit governors


Policy needs subsidiesPolicy needs subsidies

Policy RulesHighOpex

OpenMarket

HighCapex

Suppliers and Producers serve a national agenda in subsidized markets for inputs and outputs

Necessary conditions for successNecessary conditions for success

Rule Vision Condition

Scale R2R dream

Invites many entrants searching formarkets with highly elastic demands relative to prices but that implies steep learning curves. Will they survive the high-‐cost start-‐up phase? Will they find patient investors?

Finance OLED dreamFosters carve-‐outs and captured suppliers for IP-‐intensive markets with firm price structures. Will customers or bankers accept domination?

Policy BRIC dreamManages cost-‐price gaps in closed markets with protective and supportive programs for local champions. Will producers survive the shake-‐out that results from over stimulation? WTO actions?


Implications for flex-‐techImplications for flex-‐tech

• High-‐cost specialty materials may conflict with high-‐volume, low-‐price products• Attempts to combine high-‐cost materials and high-‐volume products may need closed markets if capex is also expensive or scarce• Strategists or policy makers face choices between winning as suppliers or as producers if they keep markets open for foreign entrants


BizWitz supports good choicesBizWitz supports good choices


Growing

§Market entry

§ Business structure§ Phase gates, R&D

Technologies

§Market sensing

§Market & IP value§ Consortia synergy

Alliances

§M&A candidates

§ Partnerships, JVs§ Integration plans

Plans

§ Strategic audits

§ Investor insights§ Business valuation

Materials

§ Pricing policies

§Market strategies§ Licenses, royalties

Performing

§ Price position

§ Cost reduction§ Portfolio balance

Investing

§ Factory plans

§ Tool selections§ Plant conversions

Sourcing

§Make/buy

§ Value chains§ Supplier selection

[email protected]