Apple: Outsourcing, Bargaining, and Network Exchange Theory
Apple is always working on improving and scaling the production of their products, but most of their production does not occur internally. For example, Apple does not make the OLED displays used for the iPhone, rather the production is outsourced to another company. Although outsourcing isn’t an uncommon practice amongst technology companies, Apple interestingly relies solely on their largest smartphone competitor, Samsung, to produce the displays for the iPhone.
Recently, another Korean technology company, LG, has recently worked a deal that will provide Apple with an initial 2-4 million OLED displays. The addition of another supplier for Apple lessens the burden of dependency on Samsung – meaning that Apple will likely be able to negotiate better prices with the addition of an outside option. The dynamics of the relationship between these companies relates to the concepts discussed about power dynamics in social networks. In this case, there is a network of large and small technology companies competing, collaborating, and growing together constantly. For those that choose to interact, their interactions can be related to the concepts of power in networks, and Network Exchange Theory.
Network Exchange Theory refers to how the structure of a social network can have implications on the power dynamics between individuals within the network. For the relationship between Apple and Samsung in the network of technology companies, although both companies are giants in their respective and shared fields, Samsung used to be able to isolate Apple from the rest of the OLED display market. Samsung was the largest and best provider, so it dominated it the supply – Apple had no outside options. However, the LG striking a deal with Apple reduces the power Samsung possesses over Apple’s iPhone production. The deal and relationship between Samsung and Apple will have gained some stability within this network, but still remains unstable, as the competition for OLED screen producers is rising. It will be interesting to see whether Samsung continues to be Apple’s primary supplier for iPhone OLED displays – an essential part of the product. With LG making a deal, other companies will likely try to break into the provider market.