5504 Vertical Integration

Most mech designers never became good enough to challenge the market leadership of SKL Mech Industries.

It was sheer folly for them to even think about competing directly against this monster of a mech company!

Smaller players simply did not have the skills to compete against the large amount of excellent mech designers employed by SKL.

Even if there were individual mech designers who excelled so much that their products could actually achieve parity with the corresponding sickle mechs, their own mech businesses were simply too small and inadequate to match the industrial prowess of a giant mech enterprise.

"SKL's business model centers around two crucial advantages." Alexa explained the greater details of this market leader to Ves. "Due to its dominance in the industry and the market, it has always attracted a large number of excellent mech designers. The company maintains a policy of recruiting external mech designers from practically any state or background as long as they are good enough to design mechs according to its standards. SKL is never short on applicants, as many mech designers who worked for the company all received excellent treatment for their services."

Although working for SKL did not hold a great attraction to Ves who already owned his own successful mech company, the same did not apply to those who did not have a business empire on their hands.

There were many mech designers who worked for governments, other mech companies and research institutions for the majority of their careers.

Once their obligations to their old employers came to an end, these newly freed Seniors and Masters usually wanted to dip their toes into the commercial mech market, but did not want to build their own mech companies and everything related to them from scratch.

So long as they were good enough, there was a chance that they could get accepted by SKL, which granted them access to one of the best and most expansive business networks and industrial chains in human space!

SKL could take care of every problem, from marketing to sourcing rare materials. Mech designers only had to do their core job well and leave all of the other tedious work to other highly competent professionals.

"The other major advantage that SKL is counting upon to maintain its dominance in every mech market and mech industry is its high vertical integration. SKL sits at the heart of an industrial network that encompasses many different subsidiaries. They encompass mining companies, material processing companies, logistical companies, research institutions, development companies and even after-market service centers. In short, SKL utilizes its own in-house goods and services as much as possible, allowing it to control the entire supply chain from start to finish."

Ves looked impressed. "From what I have learned about business, most attempts at vertical integration fail. When companies spread their focus over too many different business activities, they tend to lose focus and allow a lot of inefficiencies to fester. The lack of external competition makes it so that a lot of links in the chain lose their competitiveness over time."

"That is true, sir, but SKL has managed to avoid that outcome. It relies on a combination of strict management as well as internal competition to keep its subsidiaries sharp. The company regularly does business with third-party companies in order to make direct comparisons."

The ability for SKL to build a large and vertically integrated supply chain on such an enormous scale reflected its strength as a company!

The Larkinson Clan and the Living Mech Corporation were incapable of doing the same.

The Larkinsons lacked the capital, the connections, the expertise and the motivation to do everything themselves.

The clan had no inherent advantage in essential links such as harvesting raw materials and shipping large amounts of goods across human space.

Trying to enter these industries was a bad idea. It did not matter if the Larkinsons took existing companies or set up new subsidiaries from scratch.

Without enough people in charge who excelled in these sectors, it would be difficult to make these subsidiaries as good and efficient as those run by established competitors!

Ves tilted his head in thought. "SKL's vertical integration is unmatched. The closest thing we have that can compete against this powerful force are the Open Consortiums, but that is not a fair comparison at all. Our supply chain is still made up of a lot of external companies that each demand their own share of the profits."

The Open Consortium had grown a lot since he initially founded it to make sure that the LMC's manufacturing complexes could always keep its production lines fed.

Just like many other daughter organizations of the Larkinson Clan, the Open Consortium established many different branches on many planets that hosted a large number of industries.

It usually cooperated closely with the local branches of the LMC on the same planets. Due to the reliability of contracts added to the Open Book.

The various Open Consortiums established on other planets did not need to acquire their own Open Books.

The only relic of its kind in existence was still in the hands of Chairwoman Calsie Doornbos.

In order to enable the activities of the other Open Consortiums, the holder of the Open Book was able to remove pages from it that still carried its power.

These pages could be shipped to other star systems where the local people in charge could use them to form agreements guaranteed by the Solemn Guardian.

"The Open Consortiums of our clan has recently experienced a large surge in popularity." Alexa Streon mentioned. "Your explosive rise in status has caused many companies to take our Open Consortiums seriously. We are able to bring a larger variety of companies into the fold, allowing our clan to expand our industrial network. While it is still difficult for us to cooperate with high-end businesses, it has become much easier for us to do business and negotiate favorable terms with less established enterprises. This has allowed us to contain the costs of our business activities."

Ves nodded in understanding. The Open Consortium promoted long-term business agreements. The LMC and the other divisions of the Larkinson Clan could take advantage of the stability afforded by these partnerships to earn steady profits even when the local industries experienced greater disruption.

However, the growing web of long-term business relationships could not match the tighter coordination of true vertical integration.

All of those subsidiaries had no need to earn substantial profits. They could provide their goods and services up the chain at lower prices. This made it cheaper for SKL Mech Industries to mass produce its mechs, thereby allowing this massive company to reap huge profits in the end!

"I will let you in on a secret, sir. On the surface, the Sulie Ancient Clan only owns 29 percent of the shares of SKL Mech Industries. That makes it seem as if it only has partial control over the mech company. What most people do not realize is that the first-class subsidiary companies that are part of the supply chain are all at least 50 percent owned by this very same ancient clan. Aside from that, the Sulies have also established excellent relationships with many of the other stockholders of the company."

That meant that the Sulie Ancient Clan pretty much determined the direction of SKL Mech Industries.

"That must make the Sulie Ancient Clan one of the richest of the Terran Alliance."

Alexa nodded. "That is true. It occupies a dominant position in numerous other industries. All of this added together has turned it into an economic powerhouse, both inside and outside Terran space. The only territories where SKL is unable to take root are within those controlled by the Rubarthan Pact. Other than that, sickle mechs can be found virtually anywhere else. Even the states that are highly protectionist do not have the guts to deny entry to a megacorporation owned by one of the most successful Terran ancient clans."

"So anyone competing against SKL is actually competing against an arm of the Sulie Ancient Clan, is that what you are trying to say?"

"That is one of the messages that I wanted to convey. You do not need to fear the Sulies. As one of the absolute market leaders of the mech industry, they have to contend against a huge amount of competitors, which also includes other megacorporations. You cannot even impact their bottom line."

"Then why should I pay attention to SKL at all?" Ves asked.

"SKL is so large, profitable and influential that it is able to design a large number of mechs across many different classes and product categories. The company does not like to lose, sir. Whenever one of its mainstream mech models drops in popularity, its marketing executives will become alarmed. The company will conduct a lot of research on the upstarts that had managed to dethrone its bestseller, before allocating a more competent and capable design team to develop an improved product that can regain market leadership."

That indeed sounded like a serious threat. SKL could afford to do this because it employed a huge number of excellent mech designers!

Ves was not surprised that the company aggressively defended its market dominance. This was the only way for it to sell so many mechs and support the operation of so many different subsidiary companies.

This was the downside to vertical integration. If the end business was not doing as good, all of the companies that were also a part of the supply chain threatened to become incredibly unprofitable!

Ves began to shift his attention to the overall design characteristics of the sickle mech that his Fey Fianna had to contend against.

The concept and vision of the two mech lines were completely different from each other.

Whereas the Fey Fianna largely focused on quality over quantity, the Sparrow Storm did the opposite!

The mech frame was relatively basic but extremely solid and cheap. It served as an excellent 'mothership' for its many spurs. The so-called Sparrows were relatively small and slender spurs that stood out for their disposable nature.

"The Sparrows are the highlight of this drone mech system." Alexa continued to explain. "Depending on the variant, a Sparrow Storm can carry 16 to 64 Sparrows at a time. Mech pilots can only pilot the variants that carry the most extreme quantities of Sparrows if they have specialized cranial implants tha vastly increase their multitasking ability."

These were the most dedicated and specialized drone mech pilots. Once they took this step, they would never be able to reach their full potential if they switched to another mech type!

"Our product isn't designed to appeal to these hardcore drone mech specialists." Ves spoke with regret in his tone.

"Yes. This is an advantage because we do not have to compete directly against the Sparrow Storm. It is also a disadvantage as we need to appeal to segments that have little experience with piloting drone mechs. We will have to break new ground."

"I am sure that the value proposition of our Fey Fianna will be attractive enough to win them over."

Alexa briefly smiled. "I think so as well, sir. The Sparrow Storm is a great product. It is especially popular because SKL not only designed over a hundred different varieties of Sparrows, but also supported the rise of a growing subcommunity of third-party developers who have designed their own Sparrows. The high degree of personalization and variation has made it so that the Sparrow System is not a mech, but a platform for deploying custom spurs that fit perfectly with the needs of their owners."

This was a strength that the Fey Fianna could not match. Not only was this product far too new, but it did not come with a large selection of different fey models.

Ves thought about this for a moment. He actually found the existing fey that he had paired with the mech design to be inadequate. Perhaps it might be useful for him to design additional fey, especially ones that incorporated his latest insights into E-technology and the elements!