Integrative Project in Modern Production Methods (IE285e)

1. Integrative Project in Modern Production Methods (IE285e) Lecture #3 12 September, 2005 Integrative Project in Modern Production Methods, IE285e

2. Topic: • World Industrial development trends, how Armenia could benefit from them: the rapid development of high tech in the world; need for outsourcing of mature technologies from the developed countries; etc. Integrative Project in Modern Production Methods, IE285e

3. World Industrial development trends • Increased competitiveness • Narrow specialization of specialists and companies, both in technology and business, e.g. emerging of high tech insurance companies, etc. • Separation and outsourcing of the production and businesses Integrative Project in Modern Production Methods, IE285e

4. World Industrial development trends • While in developing countries: businesses are taking advantage of inexpensive workforce; • In developed countries:businesses are taking advantage of established infrastructure and business environment, – advanced technologies Integrative Project in Modern Production Methods, IE285e

5. World Industrial development trends • The Technologies develop very fast in the world. • Moore's law: In computer business the performance (number of transistors on a processor chip) is doubled each 18 months! Integrative Project in Modern Production Methods, IE285e

6. World Industrial development trends Integrative Project in Modern Production Methods, IE285e

7. World Technological Hierarchy • “High End” technologies are the most advanced and scientifically intensive technologies. • “Low End” technologies or “Mature” technologies are still needed. Integrative Project in Modern Production Methods, IE285e

8. Hierarchy in Chip Manufacturing • In semiconductor industry technologies are described by the width of the narrowest element, e.g. of a transistor, that is possible to achive on a semiconductor substrate. • In parallel to the decrease in the smallest element size, the size of a semiconductor substrate, e.g. a silicon wafer is increasing. Integrative Project in Modern Production Methods, IE285e

9. Hierarchy in Chip Manufacturing • 5 micron technology, up to 2 inch – until 1980 • 1 micron technology , up to 3 inch – 1990 • 0.65 micron technology, up to 5 inch – 1994 • 0.35 micron technology, up to 6 inch – 1996 • 0.27 micron technology, up to 8 inch – 1998 • 0.17 micron technology, start design of 12 inch – 2000 • 0.1 micron technology, working on 12 inch – 2002 • Sub 0.1 micron technology is on its way now. Integrative Project in Modern Production Methods, IE285e

10. Hierarchy in Chip Manufacturing Integrative Project in Modern Production Methods, IE285e

11. Hierarchy in Chip Manufacturing Integrative Project in Modern Production Methods, IE285e

12. Hierarchy in Chip Manufacturing • However, Moore predicts that transistor miniaturization will reach physical limits around the year 2017. Integrative Project in Modern Production Methods, IE285e

13. Hierarchy in Chip Manufacturing Integrative Project in Modern Production Methods, IE285e

14. World Technological Hierarchy, an example • E.g. Toyota Camry Solara contains: • 2 Pentium processors • 3 processors 486 series level • 12 processors 386 series level • More than 40 lower end processors Integrative Project in Modern Production Methods, IE285e

15. Volumes of Hi-Tech production Hi End Low End Integrative Project in Modern Production Methods, IE285e

16. Outsourcing! • The same hierarchy applies in all technology related markets. • However different areas have different rates of increase. • The market for mature manufacturing is huge! • In many cases this market is still increasing! Example of Digital vs. Film cameras. Integrative Project in Modern Production Methods, IE285e

17. Product Life Cycle • Two aspect of “product life cycle” notion: • 1. Birth and Death • 2. Life Cycle that starts from the raw material acquisition and ends with the disposal - from energy and materials consumption to the long-run effect on health, environment and society. Integrative Project in Modern Production Methods, IE285e

18. Product Life Cycle 1. Integrative Project in Modern Production Methods, IE285e

19. Product Life Cycle • After a period of development product is introduced or launched into the market; it gains more and more customers as it grows; eventually the market stabilizes and the product becomes mature; then after a period of time the product is overtaken by development and the introduction of superior competitors, it goes into decline and is eventually withdrawn. Integrative Project in Modern Production Methods, IE285e

20. PLC stages • Introduction:- The need for immediate profit is not a pressure. The product is promoted to create awareness. - If the product has no or few competitors, a skimming price strategy is employed. Limited numbers of product are available in few channels of distribution. Integrative Project in Modern Production Methods, IE285e

21. PLC stages • Growth:Competitors are attracted into the market with very similar offerings. Products become more profitable and companies form alliances, joint ventures and take each other over. Advertising spend is high and focuses upon building brand. Market share tends to stabilize. Integrative Project in Modern Production Methods, IE285e

22. PLC stages • Maturity:Those products that survive the earlier stages tend to spend longest in this phase. Sales grow at a decreasing rate and then stabilize. Producers attempt to differentiate products and brands are key to this. Price wars and intense competition occur. At this point the market reaches saturation. Producers begin to leave the market due to poor margins. Promotion becomes more widespread and use a greater variety of media. Integrative Project in Modern Production Methods, IE285e

23. PLC stages • Decline:- At this point there is a downturn in the market. For example more innovative products are introduced or consumer tastes have changed. There is intense price-cutting and many more products are withdrawn from the market. Profits can be improved by reducing marketing spend and cost cutting.- In some cases here there might be a considerable value adding capability in niche markets. Example - high end audio. Integrative Project in Modern Production Methods, IE285e

24. PLC stages • Withdrawal: • Only rare exotic users could be clients here. Integrative Project in Modern Production Methods, IE285e

25. Problems with Product Life Cycle • In reality very few products follow such a prescriptive cycle. • The length of each stage varies enormously The decisions of marketers can change the stage, for example from maturity to decline by price-cutting. • Not all products go through each stage. Some go from introduction to decline. • It is not easy to tell which stage the product is in. Why? Integrative Project in Modern Production Methods, IE285e

26. Hierarchy in Chip Manufacturing Integrative Project in Modern Production Methods, IE285e

27. Hierarchy in Chip Manufacturing Integrative Project in Modern Production Methods, IE285e

28. Outsourcing! • All advanced brand name companies try to concentrate on introduction and growth - high end manufacturing. • They want to delegate the lower end mature manufacturing to other companies. • The best countries for outsourcing are the developing countries, such as: Malaysia, Taiwan, Singapore, Indonesia, Hong Kong, Korea. Recently also: China, Puerto Rico, Mexico. Integrative Project in Modern Production Methods, IE285e

29. Important Industry Areas • Which industries are attractive to get in, I.e. to start a manufacturing operation? • ANY, however the following two are special: • Introduction (Nokia example) • Maturity Integrative Project in Modern Production Methods, IE285e

30. Renewables: SOLAR • Solar Energy deliveres around 1700 kWh annually to any square meter of Armenia’s surface. • A square with a base equal to 6 km will provide all needed power for the country. • Is ecologically clean, but needs technological advances for decreasing the costs. • Currently around $6000/kW installed for photovoltaics (PV). Integrative Project in Modern Production Methods, IE285e

31. Renewables: SOLAR • Solar hot water costs are around $600/kW! • Solar hot water may give a solution to more than 50% of the energy needs. • In summer it will give up to 80% of consumed energy, in winter … • All solar options have strong seasonal pattern Integrative Project in Modern Production Methods, IE285e

32. Monthly Solar Energy Flow Renewables: SOLAR Integrative Project in Modern Production Methods, IE285e

33. Yearly dynamics of solar energy flow Integrative Project in Modern Production Methods, IE285e

34. Growth in World PV Capacities Integrative Project in Modern Production Methods, IE285e

35. Growth in Companies in Different Countries Integrative Project in Modern Production Methods, IE285e

36. Growth rate in Japan Integrative Project in Modern Production Methods, IE285e

37. World: 43% in 2003 57% in 2005 Japan: 45% in 2003 66% in 2005 World: 736 MW 1195 MW Japan: 363 MW 602 MW PV Industry Growth rates Integrative Project in Modern Production Methods, IE285e

38. Business Outsourcing Diagram Brand Name Company, e.g. Philips (Advanced Technologies) • Insurance Company, e.g. Comdisco Technology Transfer (mature technologies) Insurance • Materials supplier, e.g. Applied Materials Company in Developing country (mature technologies) USED EQUIPMENT MARKET • Outsourced business • Creation of a subsidiary Integrative Project in Modern Production Methods, IE285e

39. Fast Growing Areas • Nokia Example. • Internet • Renewable Energy Sources • Fuel Cells • Nanotechnologies • Biotechnologies … Find from the web 3 fast growing industries. Explain. Show volumes if possible. Write a one page essay about one of them. Integrative Project in Modern Production Methods, IE285e