Abstract
The EMS provider Flextronics announced in March 2009 that it planned set up a joint venture with the digital camera manufacturer Asia Optical. The joint venture is to develop and produce digital cameras in Japan, Taiwan and China. The new joint venture will make use of Asia Optical's lens design and optical electro-mechanical capabilities and combine these with the production and R&D capabilities of Flextronics. The new venture will offer clients ODM and OEM services. This report will analyze the background of the joint venture and relevant industry trends, and will examine key factors for the joint venture's future development.
Economy of Scale and Cost Control Are Key Factors in DSC Contract Manufacturing
In 2009 digital camera market scale is forecast to reach approximately 120 million units. Based on rough estimates, outsourced orders are expected to account for roughly half of this volume, approximately 60 to 70 million units. In the past, specialized digital camera contract manufacturers have included Foxconn, Altek, Ability from Taiwan, Sanyo and Funai from Japan, as well as Flextronics from Singapore. The amount of orders obtained by each manufacturer differs, but is limited.
For EMS companies, a basic requirement for making profits is economy of scale. Therefore, if Flextronics wants to continue its digital camera business, important strategies include expanding order volume through alliances and lowering key component procurement costs.
Changes in Client Relationships Key after Alliances Are Formed or Acquisitions Are Completed
Since Foxconn acquired Premier in 2006, there have been numerous joint ventures and acquisitions in the digital camera industry. Reasons for acquisitions include not only obtaining technology to quickly enter markets and vertical integration to lower costs, but also obtaining client portfolios.
However, client relationships are not based on a single factor. Branded vendors make decisions on outsourcing partners based on price, delivery schedules, technology capabilities, and competitive relationships. Even though Flextronics acquired Kodak's production and R&D operations, Flextronics currently has not yet become the largest supplier to Kodak. Acquisitions or strategic alliances thus do not directly equal transfer of client relationships.
With an eye on creating a partnership which exceeds the sum of its parts, the key in future development is whether the joint venture can quickly pass through the necessary transition period, offer price-competitive products, and meet the needs of existing and potential customers in terms of quality, delivery time, cost, and technology capabilities. Other important factors are increasing competitiveness through vertical integration and pushing both companies' development in the channel brand and own brand markets.
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Table 2 |
Major Joint Ventures and Acquisitions in the Digital Still Camera Industry since 2006 |
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Date |
Event |
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June 2006 |
Foxconn acquires Premier to develop digital camera contract manufacturing business |
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July 2006 |
Flextronics acquires digital camera production and R&D operations from Kodak |
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May 2007 |
Ability acquires BenQ's digital camera production and R&D business units |
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November 2008 |
Panasonic acquires Sanyo (Sanyo is one of the major DSC contract manufacturers) |
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March 2009 |
Flextronics and Asia Optical establish joint venture for digital camera development and assembly |
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Source: MIC, March 2009 |
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Appendix
List of Companies
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Ability |
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Altek |
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Asia Optical |
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BenQ |
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Casio |
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Cisco |
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Dell |
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Ericsson |
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Flextronics |
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Foxconn |
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Funai |
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HP |
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Kinko Optical |
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Kodak |
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Kyocera |
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Microsoft |
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Motorola |
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Nortel |
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Premier |
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Sanyo |
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Sony |
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Sony Ericsson |
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Sun Micro |
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Xerox |