Flex Tronic S

Group – 11
Nikhil Gupta PGP/22/149

Manish Meghnath PGP/22/274
Dibyanshu Kumar PGP/22/348
Ashwini PGP/22/269
Nishant Yadav PGP/22/090
Q1. Does the economic or strategic rationale for the outsourcing of electronics manufacturing differ from that of
outsourcing of design? If so, what is different?
The rationale behind outsourcing of electronics manufacturing is as follows:

 The electronics companies had realized that product design and marketing were the areas where they could differentiate
themselves rather than production
 The production experience of the EMS firms enabled them to make goods much more efficiently than the OEM’s.
 Outsourcing to EMS, the production of devices, allowed them to benefit from Economies of scale
 The EMS firms had broad geographical presence , which could reduce the risks that some OEM’s would face if they were
forced to concentrate their manufacturing facilities in a single region
The rationale behind outsourcing of electronics design is as follows:
 As more and more Contract design and manufacturing firms started to offer services such as product design along with
contract manufacturing, the OEM’s started outsourcing their design as well
 The suppliers now had more autonomy to select their component vendors as per their choice
 The IPR however remained with the OEM’s only.
 In this model the OEM’s provided the specs, and the supplier would perform all the other functions of contract
manufacturing
What are the most important operational issues that Flextronics must consider as it moves into product
design?
In the ODM system On the other hand
• The risk associated with the fact that their • The issue regarding an exclusive deal with a
designs might not be viable in the market. customer.
• Ensure the market is willing to buy their design • Customers are interested in Flextronics
before starting to build the product because designs, but they want Flextronics to produce it
the market analysis and product architecture exclusively for them
become EMS company responsibility.
• But if Flextronics deal with one customer, the
• IP or licensing also becomes Flextronics others get upset.
responsibility.
• Possibility of OEMs being threatened by
• Distribution of IP (such as GSM) will burden Flextronics ODM products and would move
them to build a product design. their CDM/CM business to compete with EMS
firms.
Do you believe that moving into product design is a good idea for Flextronics? If yes, explain your rationale and decide whether you would
grant an exclusive relationship for Phone 4. If not, what alternate strategy would you recommend?
Flextronics core competency is in manufacturing at low cost. Hence, its strategy should be directed towards obtaining cost
leadership.
• Higher Profit Margin
ODM provides the highest profit margin at 11.54% as compared to CDM (10%) and CM (6.25%) (Exhibit 3) because
ODM’s product component and manufacturing costs are relatively lower.
• Pressure to lower manufacturing costs
Flextronics lost the PDA business of Palm Technologies to an ODM because of its inability to further reduce product
cost.
• Allowing OEMs to focus on new technological development
While the low-cost products or commodities are designed and manufactured by Flextronics, OEMs can use their
expertise for development of cutting-edge technology. As both the product categories are different, this strategy will
help prevent cannibalization in Flextronics’ business and avoid its competition with customers.
• Shift in market trends to ODM
ODMs’ market share is estimated to grow at higher rate as compared to CDM’s (7% in ‘02 to 18% in ’05). Moreover, it
is also inferred from the case that Flextronics’ main competitor Solectron is also adopting the ODM model.
Thus, venturing into product design is in-line with its cost-leadership advantage
ALTERNATE STRATEGY
• An exclusive access to a low-cost product will help the vendor create a competitive advantage.
• Flextronics can leverage upon such negotiations to charge a higher price from the buyers, establish long-term
contracts etc.
• An exclusivity clause can differentiate Flextronics from other competitors and help it gain a larger market share
with the vendors. But the exclusivity deal should be conditional in nature.

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Group – 11

Nikhil Gupta PGP/22/149

The rationale behind outsourcing of electronics manufacturing is as follows:

In the ODM system On the other hand

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