The company culture and the belief on respect for the individual are taken into account when acquiring another company or operation. Solectron invests (or used to invest) a lot of time, attention and effort in integrating the employees of acquired companies. Solectron assigns “an integration team to work with the acquired operation composed of four to eight people representing the major functional areas”. This integration process starts before the decision is finalized and continues months after it. The group is using an extensive checklist, which deals with account management tasks, facilities tasks and finance tasks.
Naturally also the IT-systems and ERP-systems must be integrated, because they are a very important element for Solectron as a supply chain integrator. The company’s culture, which greatly emphasizes quality in every sense, is favourable for both the customer and the employees. Mission, vision, values and beliefs are not empty words, but they can be seen throughout the organization and in everyday practices as well. When the business boom was ending in 2001, the company seemed to handle the situation in the same systematic and value-driven way as it handled for example the acquisitions.
They could also see the brighter future, although the time was very difficult for everyone. As it is said, “despite the short-term slow-down, and the painful steps that were taken, Solectron remained optimistic for the long-term”, which is partly due to their culture. In 2000, 88% of Solectron’s sales were generated from the Global Manufacturing Business Unit. It means the majority of Solectron’s business is relied on OEMs. When the OEMs started to shrink, EMSs has to suffer as well, no matter how good is your product or what kind of brilliant service you offer.
In appendix 1, Solecton’s main competitor SCI Systems’ net income also shows that Solectron is not the only company that suffered from the poor economic situation. Currently, Solectron is offering services besides its global manufacturing unit like design and product launch expertise, and supporting services, like repair and maintenance, but the scale and the importance appears to be quite limited, according to the case text. It is hard to predict the future demand, but competing only on manufacturing will make no sense to Solectron because most of the EMS’ manufacturing activities are done in low cost countries (e. g.
70% of solectron’s manufacturing is done in low cost country1). We thus suggest that Solectron should concentrate on strategic service and being a supply chain integrator because the overall situation is still with the production in one side of the world and the consumption in the other side of the world and this won’t change in a short-term view. Appendix 2 shows Solectron’s current services, i. e. Product Design ; Launch Support, Lean Manufacturing ; Fulfilment, and After-Market Services. According to their annual report 2003, Solectron will differentiate themselves in three ways: execution, expertise and innovation.
This implies that Solectron has lifted the services and high-value services as its main businesses. However, the action doesn’t turn Solecton into profit because all those services are still over relying on big OEMs, like Ericsson, IBM, Cisco, etc. To this point, we would suggest that Solectron should develop new customers or diversify into some other areas. Since diversification will certainly engage in large capital investment and we have no practical knowledge about the issue, we will focus on new customer development.
Most of the time we are talking about how western companies can source successfully from low cost countries, but we ignored a fact that companies in low cost countries also want to go west. For example, the China phenomenon, numberless companies set production plant in China, this is not only a crash to the western manufacturing business but also a crash to Chinese domestic business. As a matter of fact, the domestic industry is also seeking a way to survive. But what they lack of are: effective information system, western market expertise and efficient supply chain management.
All those areas are the expertise of Solectron. Why don’t they try to develop new customers within this area? Of course, there will be a lot of difficulties, such as absolutely different corporate culture in Far East and languages, and it also requires a lot of efforts from Solectron to do market research, risk evaluation, customer evaluation, etc. But once it can conquer all those difficulties, the reward will show in their financial statements. In order to survive from the hard economical situation, there are not many things that solectron can do at the moment except continuously cutting cost.
First of all, Solectron should critically analyze the costs and other figures, e. g. cost of sales seems to be very high. Second, combine facilities by geographical location or business function, e. g. in European market Solectron has its global operations device in Germany, France, and Hungary; global service in France; micro systems in Belgium and England; technology solutions in Germany; some of them have to be combined or shut down upon real situation and evaluation (the locations in 2003 are introduced in the appendix 3, the corresponding information was not available in the annual reports 2002 and 2001).
When combining the facilities, Solectron has to pay attention to the balance of global presence and proximity to the customers and resources. Pros and cons of the present main business areas: Manufacturing is emphasized as a core competence and it is the biggest source of revenue. On the other hand, the quality and customer satisfaction have been key factors in the success of the company. Superior customer service has been developed ambitiously from the late seventies.
That would give excellent qualifications to focus the business more to the service side and grow revenue of global services in longer term. Additionally, manufacturing has a lower entry barrier for the competitors, while service business is more demanding and time-taking to build the competence. It could be wise for Solectron to take maximum advantage of the effort made during the decades concerning the excellence in customer satisfaction. In the appendix 4 there can be seen Solectron`s current strategy: “broad and integrated range of services”.
This strategy implies that the company is more and more concentrating on the services, as we suggested. Diversification: At the moment, Solectron manufactures wide range of products from telecommunication systems to medical equipments. Diversification is to a certain point a guarantee to survive, if business of some customers collapse, the company will always have other sources of revenue. At the same time, the company should carefully estimate the extent of diversification; otherwise it could lead to too fragmented businesses, which takes too much effort and resources to hold it together.