Bangkok Post Arnat Leemakdej Column.

Byline: Arnat Leemakdej

Nov. 2--The production process in the new economy has shifted from brand owners' factories into manufacturing by contract, as we discussed in last week's column.

Consider this: Microsoft guarantees that its new game station, Xbox, will not experience the shortages that affected its rival, Sony PlayStation 2, last year.

Why is Microsoft so confident about Xbox production, even though the company's main expertise is in software rather than hardware?

The answer is that Microsoft does not produce Xbox at its factories. It outsources production to Flextronics, a company of which few consumers are aware. However, makers of computer and telecommunications equipment are eager to do business with the firm. Xbox is now made at Flextronics' factories in Mexico and Hungary to ensure sufficient supplies for Christmas.

Indeed, the plants that make Xbox also have production lines for Cisco Systems' digital network routers, Palm Pilots and DirecTV set-top boxes.

Contract manufacturers are experiencing an influx of orders as many companies shut down their plants during the recession. However, the situation is different from Thailand where some contract manufacturers have laid off employees because of declining orders. Higher labour costs in Thailand are not the main culprit as production of electronic equipment requires highly skilled workers who cannot be substituted with cheap labour as in the textile industry.