Few management theories have been as influential as the Smile Curve. And few have been as destructive. The influence of the Smile Curve has been profound, embedding itself in the strategies of global corporations for over three decades. While the curve may have “worked”, it was always measuring the wrong thing, misleading America into its current de-industrialized and de-skilled predicament.
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Through its various business lines, Shih discovered that most of the value was captured in R&D/branding, which differentiated products, and marketing/service, which drove revenue. The least value was captured by the company’s manufacturing arm, where competition compressed margins and capex requirements diluted returns.
With globalization – especially after China joined the WTO in 2001 – few business models were uncorrupted by the Smile Curve. Western companies (Japan and Korea included) crawled all over each other to divest manufacturing operations, become asset light and “move up the value curve.” Research, branding and design were sexy. Marketing and sales were rock and roll. Manufacturing was for hopeless bores with paunches and comb-overs.
Apple famously does not manufacture any of its products. Manufacturing had long ago been outsourced to original equipment manufacturers (OEMs) like Foxconn.