1. What factors resulted in growth in EMS industry during 1990s?

The 1990s were characterized by strong growth in electronics manufacturing service industry. The economic slump of early 90s in electronic industry forced many original equipment manufacturers to outsource their manufacturing facilities to EMS. There are multiple factors that affected the expansion of EMS industry. Some of these factors are listed below:
Economic slump in 1990s: The economic slump of 90s hit the electronics industry quiet

hard, which forced OEM to sell their manufacturing facilities to EMS, thus presenting EMS with growth opportunities.
Maturing electronic industry: As the industry matured in 1980 and 90s, EMS firms

expanded their capabilities to handle all aspect of production process from component manufacturing to assembly, testing and packaging.
Outsourcing from OEM: In order to differentiate their products, OEM outsourced their

production to EMS, so that they can focus on their strength i.e. product design and marketing. The manufacturing experience of EMS firm enabled them to manufacture the product at lower cost than OEM, thus increasing the profit margin of OEM. Thus outsourcing allows EMS to attract business from OEM.
Benefit of Economic of scale: By serving multiple OEMs for the production of similar

type of products, EMS took advantage of economic of scales, as they can reduce the fixed asset cost efficiently. Economic of scale allow them to purchase raw material and components at discounted rate.
Broad Geographic presence: With manufacturing facilities spread across multiple

regions, EMS firms were able to reduce the risk that some OEMs would face if they were forced to concentrate their manufacturing capacity in a single region.
Acquisition: One of the other factors responsible for the rapid growth of EMS firm is

acquisition of independent companies that possessed capabilities in key area of manufacturing and product design or by acquiring underutilized manufacturing assets from

OEMs. Through such acquisition, EMS firms have either increased scale of their existing manufacturing capabilities, or they enlarged the scope of capabilities that could be offered to customers.

All these factors resulted in growth of Electronic manufacturing services industry in 1990s.

Q2: What are the Operational Issues that Flextronics must consider before moving in Product Design?

Flextronics has an impressive history of successful Contract Manufacturer (CM). The company started in 1969 at Newark, California, USA grew into a 13 Billion USD by 2002 with 78000 employees worldwide. The company with the successful track record of CM started moving into the arena of lucrative ODM (Original Design & Manufacturing) leveraging on its capability to integrate the Design part & Manufacturing part. Flextronics before moving into ODM from pure CM business should consider following points, which can be, hurdles into this way:
Risk related to manufacturing process:

Flextronics being a pure CM company had no prior significant experience of design. The ODM rather than the CM covers any risk by design fault in manufacturing.
Selection of Reference Design Stock Design:

Flextronics has challenge of successfully integrating the Reference Designs available with the vendors and suppliers design of chip market (which is a common problem faced by any ODM and CM integration).
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 Extensive Market Analysis: Flextronics being a pure CM in past has no experience of customers preferences and choices. Before moving into ODM field Flextronics need an extensive market analysis for better understanding of the required and desired product.

Correct Balance between getting the Technology right and the Price: Flextronics has no prior experience of incorporating the risks involved with the price deterioration faced by the product on late arrival. This needs to be addressed.

Choosing Technology between GSM and CDMA: Throughout development of Phone1 to Phone3 Flextronics realized it is easier to design on GSM model but harder to sell because of complex and labyrinth Intellectual Property (IP) rights involved for which the company can be sued later on after the launch of product. As an alternative the company can choose the path of CDMA model manufacturing in tie up with Qualcomm which is sole IP rights holder of CDMA technology.

Q3. Should Flextronics move in ODM industry? Flextronics should venture into strategic expansion that involves the original design and manufacture (ODM) of complete products, often before the company has a commitment from any customer. Accelerate new product introductions (one stop shop): In a highly competitive marketplace, cell phone makers will look for contractors who are ready to help them meet disparate needs and react quickly to market changes. Allows OEMs to focus on core competencies: Typically, the ODM contractors design the basic phones that deliver service at the lowest possible price and the brand-name cell phone makers
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(OEM) can focus their energies on designing cutting- edge phones with the latest cameras, music, messaging, video, and other features that appeal to consumers in Japan, Western Europe, and the United States. Flextronics competency in design to manufacture: Flextronics owned all of the key capabilities required to take the product from concept design through manufacturing. The companys design engineers had a deep understanding of Flextronics manufacturing process. They could design the product to take advantage of companys unique manufacturing capabilities. Pursuing higher margins: ODM phone projects, if successful, promised higher margins for Flextronics (ODM will give 11.5% margin as compared to 9.7% & 6.25% margin for CDM and CM respectively) S The challenge which Flextronics will face is to convince cell phone makers regarding the confidentiality .The design contracts will bring with them manufacturing contracts which in turn add on to the profit margin. ODM will also help cell phone makers to reduce the lead-time for phone (achieve faster time-to-market).

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