CMS Electronics, road to China

Market expansion at CMS electronics

SME and Globalization

Contents

Abstract        3

Introduction        4

Analyses        5

China EMS SWOT Analysis        7

China PESTEL analysis        8

Porter Five Forces industry analysis        9

CMS electronics SWOT Analysis        10

Results of the research and discussion of the findings.        11

Strategic internationalization alternatives        12

Recommendations        13

References        14

Abstract

Current study sheds light on the expansion plan of CMS electronics. CMS electronics chose to use a strategy called “Follow the Customer”, a choice made due to the massive migration of end-product manufacturers to Asia in this case. Notably, the shift was made by automotive industry and its suppliers, and CMS electronics had to go where their customers went to not to lose them. This study will elaborate a plan for the best strategy for CMS to expand on the Chinese market, which grows increasingly fast and thus has a lot of potential. This study will analyze CMS electronics’ internal and external environment and electronics industry in China as a whole while using SWOT, PESTEL and Five Forces of Porter analyses. Furthermore, in the end of this study the results of findings will be elaborated based on analyses, followed by recommendations to successfully implement expansion strategy for CMS electronics to Chinese market.

Introduction

Nowadays day to day life is unimaginable without electronics and electronic components. Electronics are a part of all modern products and service-based businesses, making it a great business opportunity

For CMS electronics it all started in the early 1960’s, with Royal Philips Group and its manufacturing facility in Klagenfurt. Later on, in the 90’s a part of Royal Philips Group was sold to the German industrial company named AIK, which failed to survive the crisis in electronics segment on European market in the beginning of 20th century. German group tried to save the company and sent the general manager to find a and save the company from bankruptcy. However, management realized that saving the company and maintain its survival was pointless, and managerial buyout was arranged.

        After analysis management defined new target market (automotive industry) to start with, and CMS electronics was created in 2003. The choice of automotive industry was justified by a huge increase in demand on auto parts and thus the increase in prices on auto parts. The role of Electronics manufacturing services in this sector was constantly increasing, with almost 90% of all innovations made in the automotive industry being electronic/technology-related innovations. The added value of EMS’s in this industry was also increasing drastically over the years (Figure 1) and thus the potential market for CMS electronics was there (Gtai.de, 2016).

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Analyses

What is internationalization?

        Internationalization or globalization the expansion of a firm into foreign economies by exporting, but more specifically foreign investment in the establishment of components factories, manufacturing plants and sales subsidiaries (Collins Dictionary of Business, 3rd ed. © 2002, 2005).

Why do companies internationalize?

         Most of the time, companies are motivated to internationalize or sometimes obliged to  due to particular reasons, such as:

• The possibility or necessity of increasing sales
• Diversifying its operations and associated risks
• Getting closer to its clients
• Reducing costs of labor production or supply
• Compensating for home market decline or saturation (Forbes.com, 2015).

Why internationalization is necessary for CMS electronics?

        However, to successfully compete in automotive industry CMS has not enough capacities (financially and physically), the market is flooded already by giants like Bosch and Continental for example. Huge companies that have low mix but high value are more attractive for car manufacturers as their products are cheaper. CMS has a small structure and operates in high mix low values segment, thus in order to compete the company needs expansion, precisely in Asia.

The option was locating a sales office in China, where most of potential customers went due to cheaper labor force, to be following the customer. However, this move was problematic due to company’s managerial issues and difficulty to recruit labor force, which resulted in lowering the production.

        Nevertheless, this move to China is mandatory for company’s survival, regardless to the fact that small companies are generally afraid of going to China due to fierce competition. Even with all risks considered CMS electronics has to follow modern trends and take those risks, because staying where they are is also not an option.

        All things considered, move to China also represents numerous advantages like technical development, know-how and expertise, increased production capacity, huge market with new potential customers and contacts with suppliers. To survive in this market CMS will have to constantly innovate which will result in overall increase in company’s experience and attractiveness. China being the heart of modern electronics development will help CMS to simply have better prospects.

        The main competition is represented by giants like Foxconn, Flextronics and Pegatron, Taiwanese companies all having their manufacturing and sales in China (Evertiq.com, 2018). However, the image of those companies is damaged by reportedly unsafe and unhuman working conditions and even suicide cases (Chinalaborwatch.org, 2018).  

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