Electronic Commerce Business Impacts Project - …

1 The Case of the Canadian Optical Connectivity Equipment Value Chain Lefebvre et al, 2001 1 THE CASE OF THE CANADIAN OPTICAL CONNECTIVITY EQUIPMENT VALUE CHAIN Prepared for In the framework of the OECD Electronic Commerce Business Impacts Project by Louis-A. Lefebvre, Director, Centre ePoly, and Full Professor, cole Polytechnique de Montr al Pierre-Majorique L ger, Researcher, Center ePoly, and Candidate Luc Cassivi, Researcher, Center ePoly, and Candidate Raphael Lapointe Research assistant, Center ePoly Pierre Hadaya, Researcher, Center ePoly, and Candidate February 2001 Montreal, Canada The Case of the Canadian Optical Connectivity Equipment Value Chain Lefebvre et al, 2001 2 TABLE OF CONTENTS EXECUTIVE 7 1.

2 BACKGROUND INFORMATION ON THE INDUSTRY .. 8 DESCRIPTION OF THE CANADIAN TELECOMMUNICATION EQUIPMENT 8 DESCRIPTION OF OPTICAL CONNECTIVITY 9 THE INDUSTRY 10 Harnessing the radical technological shift .. 11 Responding to the booming demand for bandwidth capacity with 11 2. VALUE CHAIN ANALYSIS .. 13 PRODUCT AND TRANSACTION 13 Dominant characteristics of the product group .. 13 Dominant characteristics of the transaction structure .. 14 VALUE CHAIN 14 Network 15 System 16 Assemblers.

3 21 23 MARKETPLACES AND TRANSACTION 24 3. CASE STUDY 27 POSITION OF PROACTIVE FIRMS IN THE VALUE 27 PRESENTATION OF THE 28 The case of an integrator/assembler: Nortel Networks .. 28 The case of an assembler: Celestica .. 31 The case of sub-assembler: 33 The case of sub-assembler : 35 TECHNOLOGY PROFILE OF THE VALUE 36 THE FIRM S MOTIVATIONS AND EXPECTATIONS REGARDING 39 OBSTACLES AND ADVANTAGES FOR EXPLOITING E- Commerce S 40 The Case of the Canadian Optical Connectivity Equipment Value Chain Lefebvre et al, 2001 Factors relating to the telecommunication infrastructure.

4 41 Regulatory 41 Internal 41 External factors relating to relations with other 41 Strategic factors relating to competitiveness .. 42 Government policy in 42 42 Nortel Optical s evaluation grid .. 43 Celestica s evaluation grid .. 46 Sub-assemblers evaluation grids .. 48 Electronic Commerce 51 4. Electronic Commerce IMPACT ANALYSIS AND FUTURE DEVELOPMENTS .. 52 E- Commerce SUPPORTS PROCESS 52 PRODUCT INNOVATIONS WITH 54 RELATIONAL 54 POLICY 55 56 PEOPLE INTERVIEWED.

5 58 APPENDIX A: NORTEL MILESTONES FROM 1997 2000 .. 59 The Case of the Canadian Optical Connectivity Equipment Value Chain Lefebvre et al, 2001 4 LIST OF FIGURE Figure Telecommunication infrastructure ..9 Figure The growth of data traffic Nortel Optical s evaluation grid .. 11 Figure Product and transaction characteristics .. 13 Figure The Optical Connectivity Equipment Value Chain .. 15 Figure Expected revenus by market segments .. 17 Figure Market share in each optical segment in 2000 .. 18 Figure The Optical Connectivity Equipment Value Chain.

6 27 LIST OF TABLES Table Drivers of the transaction structure in the 25 Table Nortel Optical s evaluation 43 Table Celestica s evaluation grid .. 46 Table SUB1 s evaluation grids .. 50 Table SUB2 s evaluation 51 The Case of the Canadian Optical Connectivity Equipment Value Chain Lefebvre et al, 2001 5 EXECUTIVE SUMMARY This document presents an analysis of the Impacts of Electronic Commerce on proactive firms in the Canadian optical connectivity equipment industry. The study, which was conducted from September 2000 to January 2001, is based on the value chain methodology proposed by the OECD Electronic Business Impact Project (EBIP).

7 The optical connectivity equipment industry is currently the leading segment in the telecommunications sector. Optical connectivity equipment is used for telecommunications and comprises both hardware and software components used to transmit information along fibre-optic media. Canada s Nortel Networks is a leader in this industry segment with a worldwide market share of 43% in optical connectivity solutions. Driven by Nortel s Optical Division, members of all four layers of the value chain, namely network operators, system integrators, assemblers and sub-assemblers, have implemented leading-edge Electronic Commerce tools to support supply chain strategies.

8 Ten Electronic Commerce initiatives identified in the optical connectivity value chain were analyzed for each layer of the chain. The findings of all four case studies clearly reveal that Electronic Commerce initiatives primarily influence process and relational innovations. However, due to the complexity and high level of customization of optical equipment, the Electronic configuration of optical equipment by the final end customers is difficult and has not yet induced major product innovations.

9 The Impacts of Business -to- Business e- Commerce on process innovations can be categorized by two main trends: (i) use of visibility tools to improve transaction preparation, and (ii) implementation of demand-driven supply chain strategies to complete transactions. The real benefits of Electronic Commerce will come with end-to-end visibility in the supply chain, which is achieved by making accurate information, such as forecasts, schedules and production capacity, accessible to all members of the chain. Furthermore, customization and diminishing lead times are forcing the implementation of demand-pull strategies for all levels of the optical connectivity equipment supply chain.

10 In order to quickly produce only what has been sold, system integrators are keeping inventories at a minimum and now rely on efficient procurement cycles to fulfill their needs. The Case of the Canadian Optical Connectivity Equipment Value Chain Lefebvre et al, 2001 6As for relational innovations, Electronic Commerce in the value chain strengthens existing relationships between Business partners. The learning process required to develop efficient Electronic collaboration between the supply chain partners constitutes a significant switching cost for the assembler.