Just-in-time Labor Division

Low cost contract manufacturing, online coordination among far-flung service providers and Internet viral promotion have propelled many startups into overnight empires.

• Keen Footwear, a start-up shoe company that came up with a new line of sandals and cloggs from conception to production in 2 months in 2003. In barely a year, Keen sold 700,000 pairs of shoes worth $30 million. In the normal-speed world, footwear companies can spend up to 10 months designing new styles. Teva, another shoe company specializing in sandals, took 3 years to reach just $1million in annual sales.
• Kidrobot got a new toy designed, manufactured, and available for sale in 4 months. Changes to the design can be executed in just 24 hours. Established toy companies such as Mattel and Hasbro usually take more than a year to bring out a new toy.

What makes this high-speed business process possible?

In a word, it is just-in-time global labor division. Just-in-time global labor division makes it possible to outsource almost every company function except conception of the original product idea. Outsourcing rather than in-house production allows the startup to tap the lowest-cost specialists all over the world without the large overhead cost of hiring people and building in-house infrastructure from scratch. But traditionally, finding and coordinating the far-flung suppliers have been too costly for global outsourcing to be practicable. But the Internet, product-life-cycle management online application, and the emergence of low-cost contract manufacturers and logistics specialists have greatly reduced the cost and the time needed for such global labor division.

Outsourced manufacturing and logistics support have long been available to the big guys who can afford big upfront overhead costs, but the Internet has made them widely available also to startups with shallow pockets.

The Internet has also made it possible to generate buzz for new products with little or no organized marketing. Weblogs, online bulletins, social-networking sites can quickly spread news about new and cool products. For example, Cool Tools (the popular blog with hundreds of thousands daily hits) praised the quick-drying Keen sandals in May 2004 as "give-me-everything sandals."

But the rise of contract manufacturing and design and rapid spread of once innovative management practices such as near-zero-defect and efficient supply chain have also lowered the entry barriers for all comers. When speed and quality are commodities at every company's disposal, the market advantage of any innovative products has become extremely fleeting. Trade secrets have become an open book. And the treadmill of competition turns ever faster. Meanwhile, consumers are enjoying ever larger consumer surplus as prices fall in response to competition to copycat products.