VentureOutsource.com talked with Michael Marks, CEO with Flextronics. Transcripts from that discussion follow.
VentureOutsource.com: What two major changes do you foresee in the industry within the next five years?
Marks: Two big changes: more movement toward design with EMS activities and more movement of production away from Asia towards Eastern Europe and Mexico.
VentureOutsource.com: As outsourcing electronics becomes more sophisticated (for providers and OEMs) in terms of pricing and execution, there is becoming a greater number of providers who are struggling to find their footing. Without knowing the true ailments hampering these companies, what do you feel are likely to be among the top two or three general remedies these providers will need to administer to remain in business and be competitive?
Marks: I don’t think it can be done. This is a maturing industry, which always tends to favor the chains and the boutiques. The middle goes away when this happens, no matter what the industry. So, there will be only two or three large, successful companies and quite a few very small ones. The others can’t regain their footing. The barriers to entry are too high.
VentureOutsource.com: Flextronics has been doing quite well with its collaborative design manufacturing (CDM) services. Which do you feel is more difficult to execute: a.) an EMS provider branching out and offering design services where the IP is owned or jointly-owned by the EMS provider or, b.) a pure play ODM adding EMS services? Why?
Marks: The ODM players are great design companies but they are not low-cost manufacturers, so they can never get to the lowest possible costs, which the EMS providers can.
On the other hand, being a great design company is difficult, and it will be tough for the EMS companies to get as good as the best ODM players, so it’s a toss-up at the moment.
VentureOutsource.com: Flextronics differentiates itself in the market with depth in design, software, vertical integration, and low cost manufacturing — all of this as the world’s largest end-to-end provider. Meanwhile, Foxconn continues to get bigger in terms of market size and revenues. When you look in your rear-view mirror, what do you see and how do you view a company like Foxconn when it is within striking distance of challenging Flextronics for the number one position in industry?
Marks: Depends on what you mean by the number one position in the industry. Foxconn is already larger in terms of absolute profits and market cap, although apples-to-apples comparisons are difficult as Foxconn does not report in GAAP numbers. If they did, we would be quite similar. Foxconn’s biggest advantage is that they are a very strong PC player, which is an extremely large market that Flextronics does not play in.
Foxconn also has nearly 50% of their business with only two customers, which is much easier and more profitable, but more risky. That having been said, they are a very strong company and a pretty direct competitor to Flextronics in both their offering and financial results.
VentureOutsource.com: Flextronics has a unique culture that seems to empower employees at all levels. What two factors do you feel play the biggest part in developing and sustaining this type of company culture in a dynamic company like Flextronics?
Marks: This is a tough one. A culture is built up over a very long time. I think we do have the culture you have described. Our operating executives all have the same view, presumably everyone hires in their own image and as long as the company works, that tends to sustain it.
VentureOutsource.com: Who do you admire most (living or dead) and why do you admire this person?
Marks: Too many people to narrow to a single person. I admire people who have been very successful, but have not lost their affinity for the ‘little people’. In other words, people who recognize that much of their success is related to accidents of birth, luck, and the support of lots of other people.
VentureOutsource.com: Thank you , Michael.
Marks: You’re welcome. Thank you.
VentureOutsource.com, June 2005
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