As long as technological innovation further increases the benefits of specialization, contract manufacturing by OEMs will often be a popular choice. Unfortunately, managers` incentives promote a comprehensive and non-critical approach to outsourcing decisions, which products need to be outsourced, which CMs they need to hire, and in what form – a market agreement, a strategic alliance or something in between. If OEMs share sensitive intellectual property with CMs, it is important that the relationship be confident and closed – but not so close that CMs lose contact with the market and contributions from other OEMs. Since these techniques are not foolproof, OEMs should treat their customers and distributors so that they are immune to calls from upstart CMs, and they should spread their risk by diversifying their product portfolio. If CMs discover that they cannot get all the customer knowledge they need to sell and stigmatize a new product, they can buy entire divisions of equipment manufacturers. BenQ, headquartered in Taiwan, did just that and bought Siemens` mobile phone business in 2005. In doing so, BenQ acquired not only Siemens` IP division, but also decades of management experience at Siemens, its large talent pool, well-known brand and global operating platform. Once they have achieved mastery of manufacturing, CMs will be able to innovate, which they have been doing for some time: the increasing volume of Chinese patent applications filed under the European patent – 26 in 1990 and 961 in 2000 – is at least indirect. CMs can also purchase research and development knowledge from OEMs.
In 2004, the Shanghai Automotive Industry Corporation (SAIC), which produced some production for Volkswagen and GM, bought mg Rover the designs needed to build the rovers 25, Rover 45 and Rover 75. SAIC plans to sell its own line of cars in China, Europe and North America. Finally, the combination of standardization and flexible manufacturing allows OEMs to exchange non-performing or uncooperative CMs, which are about as simple as they can replace products. The reciprocal nature of these relationships – and conversely the ability of one of the parties to withdraw at the first sign of clutter by his partner – makes them easy to embrace.