Abstract

Focus on Vertical Integration or Core Competence?

While most of these companies may be considered EMS businesses, the development strategies of each are somewhat different. Roughly speaking, some are focused on aggressive expansion while others aim to improve core competitiveness. FIH and Flextronics fall into the first group, while Elcoteq and Jabil are in the latter. Although FIH and Flextronics have used mergers of ODM/design houses and component makers while they proceed with horizontal and vertical integration to boost their cost competitiveness, these companies face post-merger integration issues. With FIH for example, although the centralized structure allows group resources to be used effectively, the completely different management models of ODM and EMS companies is a challenge for management. Flextronics faces component integration issues in each of its locations. With camera modules for example, the Beijing team of Flextronics and the Malaysian company it acquired face issues regarding integration and overlapping resources. As the company's component strength lags behind other companies, Flextronics has not met its original expectations for improved results from mergers of handset component companies.

Focused on the communications industry and with its long-term partnership with Nokia, Elcoteq's revenue from its mobile phone operations still shows stable growth. Jabil lacks leading communications technology and component support, but it has been eager to cooperate with customers. Rather surprisingly, the company received assembly and peripheral product orders from Nokia in 2005.

One-Stop Shopping Remains Priority in ODM Sector

Although EMS companies have won orders in the mid-range and value-line market, some of their activities in the value chain are not as good as the ODM companies. While EMS companies work with chipmakers or have used mergers to gradually upgrade their hardware design, in production design and back-end testing, they still lag behind the ODM companies. For large branded companies, which emphasize global supply chain management, the capabilities of EMS companies have gradually matured. For brands, which hope to simplify their involvement in the value chain, ODMs remain the main choice. For companies such as Nokia, which have high expectations for value chain management, the EMS companies are better able to meet demand.