Supplier Convergence
Encyclopedia
Supplier convergence is a business model
in which a company
offers a combination of services or products
that were previously supplied by separate companies. It is not to be confused with product convergence
, where one product combines and replaces several others; rather, supplier convergence happens primarily through mergers and acquisitions
, or through the expansion of larger companies into areas previously dominated by specialty businesses.
, whose outlets offer a wide range of products in an attempt to make competing specialty stores obsolete. Essentially, each section in large department stores, such as hardware, electronics, and clothing, consequently aims to replace competing businesses specializing in just one of those areas.
While the above example deals with the combining of many different categories of products, supplier convergence can also occur with just one primary product. Examples of this trend would be the growth of book superstores such as Borders
and Chapters
, who have replaced many independent bookstore
s not by offering different products, but by offering a greater number of books that only several smaller stores combined could match.
discounts to customers who subscribe to a number of services such as land-line
telephone, wireless phone, internet, and digital cable
, companies are encouraging customers to receive all these services from a single company rather than several different ones. The expansion of wireless networks is also a factor in supplier convergence, as one national or international wireless phone company could replace many localized ones (InterTradeIsland 2002).
Websites provide another example of supplier convergence, often with regards to services rather than products. Mega-search sites such as Google
and Yahoo have expanded from their humble beginnings as search engine
s to comprehensive information portals
offering news, weather forecasts, and financial services. In doing so, they have created websites that replace or combine the services of many other specialized sites.
explains what it calls the “convergence pattern” (Trowbridge et al. 2004); that is, the process that businesses must go through in order to achieve supplier convergence. The convergence pattern consists of three main steps:
1. “Successfully promote your product offerings”
2. “Emphasize the portions of the chain which command the highest perceived value”
3. “Upgrade your delivery of the lower value products”
A drawback to supplier convergence from a business’s perspective can occur when a company applies convergence in such a way that makes it inconvenient for customers, and thus backfires on the company. For example, Belgian telecom company Belgacom decided in the late 1990’s to combine fixed and mobile phone services into a single subscription. The plan failed, however, when customers wanted to keep these services separate and the company had technical difficulties in producing a single bill for two services (Shankar 2003).
Another type of convergence is known as complementor convergence. This takes place when two or more companies become allies or form strategic partnerships in order to drive out other competitors. This is not supplier convergence because they are not merging and forming a united line of products, but simply complementing each other with a business partnership (Slywotzky et al. 1999).
Business model
A business model describes the rationale of how an organization creates, delivers, and captures value...
in which a company
Company
A company is a form of business organization. It is an association or collection of individual real persons and/or other companies, who each provide some form of capital. This group has a common purpose or focus and an aim of gaining profits. This collection, group or association of persons can be...
offers a combination of services or products
Product (business)
In general, the product is defined as a "thing produced by labor or effort" or the "result of an act or a process", and stems from the verb produce, from the Latin prōdūce ' lead or bring forth'. Since 1575, the word "product" has referred to anything produced...
that were previously supplied by separate companies. It is not to be confused with product convergence
Technological convergence
Technological convergence is the tendency for different technological systems to evolve towards performing similar tasks. Convergence can refer to previously separate technologies such as voice , data , and video that now share resources and interact with each other synergistically.The rise of...
, where one product combines and replaces several others; rather, supplier convergence happens primarily through mergers and acquisitions
Mergers and acquisitions
Mergers and acquisitions refers to the aspect of corporate strategy, corporate finance and management dealing with the buying, selling, dividing and combining of different companies and similar entities that can help an enterprise grow rapidly in its sector or location of origin, or a new field or...
, or through the expansion of larger companies into areas previously dominated by specialty businesses.
Convergence in the Retail Industry
Supplier convergence in the retail industry is often described as the creation and growth of, literally, “one-stop shopping” (Slywotzky et al. 1999), epitomized by retail giants such as Wal-MartWal-Mart
Wal-Mart Stores, Inc. , branded as Walmart since 2008 and Wal-Mart before then, is an American public multinational corporation that runs chains of large discount department stores and warehouse stores. The company is the world's 18th largest public corporation, according to the Forbes Global 2000...
, whose outlets offer a wide range of products in an attempt to make competing specialty stores obsolete. Essentially, each section in large department stores, such as hardware, electronics, and clothing, consequently aims to replace competing businesses specializing in just one of those areas.
While the above example deals with the combining of many different categories of products, supplier convergence can also occur with just one primary product. Examples of this trend would be the growth of book superstores such as Borders
Borders Group
Borders Group, Inc. was an international book and music retailer based in Ann Arbor, Michigan. The company employed approximately 19,500 throughout the U.S., primarily in its Borders and Waldenbooks stores....
and Chapters
Chapters
Chapters is a Canadian big box bookstore banner owned by Indigo Books and Music. Formerly a company in its own right competing with Indigo, the combined company has continued to operate both banners since their merger in 2001.-History:...
, who have replaced many independent bookstore
Independent bookstore
An independent bookstore is a retail bookstore which is independently owned.-Literary and countercultural history:Author events at independent bookstores sometimes take the role of literary salons. The bookstores themselves, "have historically supported and cultivated the work of independent...
s not by offering different products, but by offering a greater number of books that only several smaller stores combined could match.
Convergence in the Technology Industry
The boom of technology and the internet in recent years has been a key factor behind the trend of supplier convergence. The bundling of products together is a prime example of how a telecom/entertainment company could exploit the convergence pattern to their advantage. By offering triple playTriple play (telecommunications)
In telecommunications, triple play service is a marketing term for the provisioning of two bandwidth-intensive services, high-speed Internet access and television, and a less bandwidth-demanding service, telephone, over a single broadband connection. Triple play focuses on a combined business...
discounts to customers who subscribe to a number of services such as land-line
Land-line
In the UK Land-Line is a comprehensive dataset, provided by Ordnance Survey, depicting man-made and natural features ranging from houses, factories, roads and rivers to marshland and administrative boundaries. Land-Line is a vector format ....
telephone, wireless phone, internet, and digital cable
Digital cable
Digital cable is a generic term for any type of cable television distribution using digital video compression or distribution. The technology was originally developed by Motorola.-Background:...
, companies are encouraging customers to receive all these services from a single company rather than several different ones. The expansion of wireless networks is also a factor in supplier convergence, as one national or international wireless phone company could replace many localized ones (InterTradeIsland 2002).
Websites provide another example of supplier convergence, often with regards to services rather than products. Mega-search sites such as Google
Google
Google Inc. is an American multinational public corporation invested in Internet search, cloud computing, and advertising technologies. Google hosts and develops a number of Internet-based services and products, and generates profit primarily from advertising through its AdWords program...
and Yahoo have expanded from their humble beginnings as search engine
Search engine
A search engine is an information retrieval system designed to help find information stored on a computer system. The search results are usually presented in a list and are commonly called hits. Search engines help to minimize the time required to find information and the amount of information...
s to comprehensive information portals
Web portal
A web portal or links page is a web site that functions as a point of access to information in the World Wide Web. A portal presents information from diverse sources in a unified way....
offering news, weather forecasts, and financial services. In doing so, they have created websites that replace or combine the services of many other specialized sites.
Convergence Pattern
A 2004 paper published by MicrosoftMicrosoft
Microsoft Corporation is an American public multinational corporation headquartered in Redmond, Washington, USA that develops, manufactures, licenses, and supports a wide range of products and services predominantly related to computing through its various product divisions...
explains what it calls the “convergence pattern” (Trowbridge et al. 2004); that is, the process that businesses must go through in order to achieve supplier convergence. The convergence pattern consists of three main steps:
1. “Successfully promote your product offerings”
2. “Emphasize the portions of the chain which command the highest perceived value”
3. “Upgrade your delivery of the lower value products”
Benefits of Supplier Convergence
Supplier convergence, when properly executed, can provide benefits to both companies and customers. The 2004 Microsoft paper by Trowbridge et al. singles out mergers and “bundling” as a particularly positive aspect of supplier convergence. By merging, it says, companies can increase their overall efficiency; that is “the cost of performing multiple business functions simultaneously should prove to be more efficient than performing each business function independently, and therefore drive down overall costs” (Trowbridge et al. 2004). This can also prove beneficial to the customers, as they can often receive a number of services and products at a better value from one company than from several smaller ones. The convergence of information suppliers, such as websites, also offers the public the ability to view and receive information from one source.Drawbacks of Supplier Convergence
A key drawback to supplier convergence is that one of the main concepts of it is to force smaller companies into mergers or out of business by replacing or threatening to replace them with one large company offering different products or services. Wal-Mart and Borders, two of the superstores cited above, have received criticism for forcing local, independent stores out of business by offering convenience and prices that smaller retail stores would not be able to match. For many, this is a concerning trend, as it means local retail outlets will continue to be replaced with large, multinational firms.A drawback to supplier convergence from a business’s perspective can occur when a company applies convergence in such a way that makes it inconvenient for customers, and thus backfires on the company. For example, Belgian telecom company Belgacom decided in the late 1990’s to combine fixed and mobile phone services into a single subscription. The plan failed, however, when customers wanted to keep these services separate and the company had technical difficulties in producing a single bill for two services (Shankar 2003).
Supplier Deconvergence
Although much more rare than supplier convergence, supplier deconvergence occurs when a company offering several services or products breaks into a number of smaller companies specializing in a specific service or product (InterTradeIreland 2002). This may occur as part of a restructuring process for companies, or may be a strategic decision to associate different companies with specific services or products.Similar Types of Convergence
As noted in the definition above, supplier convergence is not to be confused with product convergence, which occurs when two or more different products “evolve […] over time to the point where they overlap and address the same customer need” (Slywotzky et al. 1999). Supplier convergence does not reduce the number of products or services available, but merely the number of companies offering them.Another type of convergence is known as complementor convergence. This takes place when two or more companies become allies or form strategic partnerships in order to drive out other competitors. This is not supplier convergence because they are not merging and forming a united line of products, but simply complementing each other with a business partnership (Slywotzky et al. 1999).