Analysis of Strategic Management at Foxconn International Holdings
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The Foxconn International Holdings is a multinational business group which is anchored by the Hon Hai Precision Industry, a Taiwan-registered corporation. Foxconn is the largest manufacturer both in electronics and components and in CMS (Contracted manufacturer service) including EMS (Electronic Manufacturer service) and ODM (Original Design Manufacturer) for other companies.
Foxconn produces the Mac mini, the iPod, the iPad, and the iPhone for Apple Inc.; Intel-branded motherboards for Intel Corp.; various orders for American computer manufacturers Dell and Hewlett-Packard; motherboards for UK computer manufacturer Zoostorm; the PlayStation 2 and PlayStation 3 for Sony; the Wii for Nintendo; the Xbox 360 for Microsoft, cell phones for Motorola and Nokia, the Amazon Kindle, and Cisco equipment.
Purpose of the report
The purpose of the report is to gain more profit and market share for Foxconn International Holdings meanwhile cut down the useless expense in order to increase the profit of the total group. The estimated sales turnover is going to be $ 8400 million USD, which has a 16% increase company with 2009. The expense also will be cut down to $6000 million USD which is 10% decline. Thus the gross profit will be $ 2400 million USD. The number of staff will be decline from 825,000 to 750,000 meanwhile the percentage of skilled workers will be in increased.
The Internal Analysis of the Organization
Mission of Foxconn
Provide electronics users the most cost-effective, high quality 6 Cs products (computer, communication, consumer electronics, and channels for electronic products, car, and content).
Vision of Foxconn
Through the most efficient "Total Cost Advantages" to make comfort of electronic products usage an attainable reality for all mankind;
Through the proprietary one-stop shopping vertical integrated eCMMS model to revolutionize the conventional inefficient electronics outsourcing model;
Through the devotion to greater social harmony and higher ethical standards to achieve a win-win model for all stakeholders including shareholders, employees, community and management
Core Value of Foxconn
Continual education, investing in its people long term and localization globally
Objectives of Foxconn
Continued evolution from a manufacturing leader to a technology leader and to rally the best of our workforce (FIH, 2009).
Past and present
Hon Hai Precision Industry Company Ltd. was founded in 1974 as a manufacturer of plastic products by Terry Gou. The company opened its first manufacturing plant in Shenzhen, China in 1988, which is now the company's largest plant, with 420,000 employees working in shifts and living inside the compound. Currently Foxconn employs 800,000 people in mainland China including those working at the massive Shenzhen complex.
Beginning in 1994, Foxconn purchased development centers in the United States and Japan. In 1997 and 1998, it established additional manufacturing plants in the United Kingdom and the United States. As of 2007, the company and its subsidiaries owned plants in the Czech Republic, Hungary, Mexico, Brazil, India, and Vietnam. By 2010, the company had been granted over 25,000 patents worldwide. It is the largest exporter in Greater China (FIH, 2009)
Culture and Structure
Power Culture and Structure
The power culture depends upon on a strong leader, with central power, manipulating all the activities of the organization. For example, Mr. Terry Gou is the strong leader of the Foxconn Technology Group.
The structure is mainly base on the boss.
Role Culture and Structure
This kind of culture, logic and reason, impersonal systems and procedures rule behaviors.
In the role structure, everyone has their designated job description, procedural handbook and so on (Elearn, 2005).
Organization management structure and stakeholders
The organization structure of Foxconn Group is the Followings:
Foxconn group is headquartered in Taipei. The group's anchor companies, Hon Hai Precision Industry Co. Ltd. Hon Hai's Broad of Directors are responsible for protecting the interests of the shareholders, and considering views of stakeholders, such as employees, customers, suppliers, communities, government, NGOs and others. Foxconn has organized committees to oversee human resources, finance, logistics and different manufacture processes. The committees provide final approval of the senior-level hiring and promotion process in their specific fields (FIH, 2009)
The recent performance for Foxconn groups is followings
The turnover of 2009 is $ 7,213,628,000 USD
The cost of sales of 2009 is $ 6,785,266,000 USD
Gross Profit of 2009 is $428,322,000 USD
Profit of 2009 is $39, 622, 00 USD
The cost of sales is 94.1% of the total turnover in 2009 which is highly over the 70% standard (Foxconn International Holdings, 2010).
2.1.8 Resources and Capacities
Resources are firm-specific assets that enable the firm to perform activities in a manner superior to competitors. There are tangible, intangible and human resources.
Resources and capabilities appraisals. (See Appendix 1) (Grant, 2010).
2.1.9 IFAS Table
From the analysis above, a IFAS table is concluded below.
External Environment Analysis
PESTEL Analysis (See Appendix 2 )
The Political trends are mainly the government influences, legislations and administrative aspects.
The Foxconn mainly own plants in mainland China, especially in the coastal area such as Sheng Zhen etc. With the specific situation in Mainland China, the government influences have a big effect on the operation of the organization.
The economic trends are the economic indicators affects industry,.
The Foxconn is mainly effected by the inflation rates, exchanges rates, taxation rates and so on.
The social trend is the spotting trend and the understanding of the new attitudes.
The Foxconn is a manufacturer which mainly taking the ODM and CEM business, since the ODM and CEM are mainly determined by the demands of the customers, thus spot the trends of the customers is very important.
Technological trend is the technological revolutions.
The Foxconn is a mass production manufacturer; the technological trends are including the inventions, innovations and diffusions which may impact all the aspects in the product procedure from designing to the after sale service.
The environmental trends are the sources needed by the organization.
The Foxconn have a great demand for the resources they need for operation and also they have to face the problems such as the environmental problems.
The legal trends mainly behaviors in the development of the legal system.
The Foxconn is now facing the legal aspects such as the lowest salaries and labor protections and so on (Porth, 2002).
Five Force Industry Analysis (see Appendix 3)
From the exhibit below we can analyze the following factors. (Appendix 3)
Threats of new entrants(High)
The new entrants maybe the experience competitors or can also be the newly entered rookie manufacturers without any experiences, since the industry Foxconn now in need very little investment but what most need is the low cost of money and time. Thus we can say that the threats of new entrants are quite high.
The bargain power of the suppliers(Low)
The supplier for Foxconn is called the Vendor-managed Inventory Supplier. The VMI model can be conclude as there is only one supplier for Foxconn, all the materials Foxconn need is order through the VMI supplier. The supplier and organization may have contract which is in the high risk that the contract between buyers and company maybe relieved.
The bargain power of the buyers.(High)
As the manufacturers as Foxconn is, what and how the customers (buyers) wants is most important. The buyers for Foxconn may only be the group buyers, such as the world well known brand companies such as the Apple Inc
Nokia and Cisco or those newly entered unwell-known companies. The requirement from these companies all demanded a low cost and fast production meanwhile with the good quality. Most of the time the companies may have 30 or longer days of due date after getting the products from the manufactures which may also a compete factors among all the manufacturers. In this case we can say the bargain power of the buyers is high.
Threats of substitutes(Medium)
There may be possible substitutes for Foxconn like such organizations which only specific in single category but got more diversification and faster R&D speed. But since the Foxconn already existed in the market for so long, there is something they can depend on which we can say the threats is just medium.
Industry rivalry among existing competitors(High)
The competitors for the Foxconn may mainly take measures such as lowering the cost in order to win the other competitors. The other ways of competing may also be the service and time. With the steady growth of the industry and low exist barriers, the rivalry among existing competitors is quite high (Porter, 1998).
Industrial Market Segmentation
Metric of market segmentation
Characteristics of the organizations.
Purchase / Use situations.
Needs and preferences for the products.
The characteristics of the organizations are followings:
Location, size, technology, profitability and management of the organization.
The purchase / use situations of the organizations are followings:
Applications, importance of purchase, volume, frequency of purchase, purchasing procedures, choice criteria and distribution channel.
The needs and preferences for the products are followings:
Performance requirements, assistance from the suppliers, branded preferences, desired features, quality and service requirement.
Thus from the market Foxconn is in, we can conclude following market segmentations:
The markets which has a large size, pursuing of great profitability, with a great volume and frequent purchase of the products. The products for this kind market are mainly focus in the performance. The manufacturer is only produced the products under the requirement from the buyers which the market is also called the ECM (electronic contract manufacturing) market. Briefly, we can say the company only requires the manufacturer to manufacture the products following the contract.
The markets which require companies that design, test, manufacture, assemblies for original equipment manufacturers which are called the EMS (electronic manufacturing service) market. For example, the company may require the manufacturer to do all the design, manufacturer and after-sale service.
The market which requires a company designs and manufactures a product which is specified and eventually branded by another firm for sale. For example, the company requires the manufacturer to design and manufacture a kind of products but with the company's logo and the company is responsible for the service and repair of the products. This market is call the ODM (original design manufacturing) market.
As we can see more and more OEM market are developing into the ODM or the EMS markets which will lead the new trends of the market segmentation (Krishna, 2005).
Key Success Factors
The Industrial KFS:
The manufacturing industry now all facing problem how to lower the cost in all aspects for such as the labor, operational and resources cost.
The Environmental KFS
The environment KFS for Foxconn can be followings:
More sensitive exchange currency settlement
Flexible for the economy changing
The management KFS
Manage employees in a new, humanistic way (Bullen and Rockart 1981).
3.1 SWOT analysis (See Appendix4)
3.2 Critical Implication
The critical implications emerge from the SWOT can be followings:
Keeping pace with the latest technology which may improve Foxconn's competitiveness in cost, innovation aspects.
Use public relations properly in order to gain the good relationship with the local government.
Widen the market in Africa and Middle East meanwhile strengthens the market share in Asia, Europe and America market.
The Foxconn should launch polices which may improve the operation efficiency.
Foxconn should improve the global distribution abilities.
The most challenge is to making polices in order to improve the operation efficiency. The operation efficiency can be concluded as the efficient supply chain, highly motivated and loyal, educated and skilled employees, fair promotion and rewarding policies, good productivity and so on.
Implication of Challenge
The challenge may increase the competiveness of the Foxconn in the future since it can increase the company's tangible, intangible and human capabilities.
In order to achieve such objective, the company should perform in the following ways:
Build the group institute in order to provide education to the employees, which enable them to suit the technology revolution.
The group institute could provide employees who have little education great opportunities to continue their study. This may also help them to master the latest technological skills in the operation. On the other hand, employees with good educations may also lead the development of the company culture and employees loyalty.
Provide fair promotion and rewarding opportunities to the employees.
This may increase their motivation and loyal. It also may help company keep as many as skilled employees as much as possible. In the modern world and modern organization, skilled workers are the treasure of the business. The other way is provide good welfares for the employees, such as providing free lunch, dinner and so on,
The company should establish an e-supply chain management system in order to increase the efficiency of the supply chain management. The e-system may directly increase the efficiency of all the aspects during the operation which cut down $ 10 million USD expense in the management aspect.
Automatization of equipment.
The Automatization of the equipment may increase the quality of the products meanwhile decline the number of stuff needed in the production procedure. An optimistic estimation is that the number of staff can be declined to 750,000.
SWOT Matrix Analysis
The following strategies are recommended as the strategic options:
Strategic Option 1: Develop the Human Resources and lean manufacturing strategies.
The Human Resources Strategies are including the followings:
Provide continuous education for employees.
The Foxconn should provide education chances to the employees which may increase the number of the skilled workers. On the other hand it may help reduce the number of rookies which can save the expense on staff.
Provide promotion, rewarding and welfare for the employees.
Provide fair promotion and rewarding opportunities and also good welfare for the employees may increase their loyalty and motivation to the company.
For example, company could provide free lunch and dinner for the employees since sometimes money cannot satisfy everyone, humanity may also impress people.
The Human Resources Strategy may help Foxconn reduce 75,000 of staff meanwhile cut the expense down of $ 100 million USD.
The lean manufacturing strategy will cut the expense down of $ 300 million USD.
Strategic Option 2: Concentrate on the OEM and CEM business.
The Foxconn should be concentrate on the ODM and CEM business which may gains more profit than the normal OEM business, since in the ODM and CEM business are the end- to end service where there are more profit points than the single ODM.
For example, an ODM may include following steps: design, testing, manufacturing, assembly, repairs and refurbish. The company can charge for more profit than only doing the single manufacturing.
The strategy may increase about $ 400 million USD annually.
Strategic Options 3:Development in high value low volume products:
The high value low volume products such as the plants equipments, digital control tools, and numerical control tools and so on. All these products contain high profit but need less labor.
This strategy may increase $ 100 million USD turnovers and decrease $ 100 million USD expense due to low volume and high value.
Strategic Option 4: products diversification and marketing in Asia and Africa.
Asia and Africa are two of the fastest developing continents in the worlds, the market there need all kinds of products from low-end to high end. Thus diversification of the product may help the company to occupy the market share to about 40%. On the other hand, the diversification also enables the company profits more in a high demand market.
It estimated that there might be $ 700 million USD turnover added annually.
Strategic Option 5: Use technology to increase the quality.
In the mass production, the quality control is very important. The good quality control can help company gain profits meanwhile decrease the expense since there are less substandard goods produced.
The use of the Six Sigma may help the company with the quality control. On the other hand, with the automaziton of the equipments, quality can also be increase.
The strategy might cut down the expense for about $ 200 million USD annually.
Implementation for Strategic Option 1
Develop the Human Resources Strategies is including the following points:
The Human Resources Strategies are including following points:
The employees promotion, rewarding and welfare policies, the Foxconn should ha s a series of policies which could offer employees fair promotion and rewarding right and can be provided with good welfares such as the free lunch and dinner.
The employee education policy which will establish an institute provides employees continuous education in order to improve their skills.
The lean manufacturing strategy is followings (See Appendix 5):
Elimination of Waste and Pull system strategy.
The lean manufacturing strategy is designed to eliminate waste and enhance the value of the company's products to its customers.
Kaizen (continuous improvement)
Kaizen refers to practices that focus upon continuous improvement of processes in manufacturing. The Kaizen is to eliminate waste by improving standardized activities and processes.( ReVelle, 2002).
The Kaizen may only cost company few million USD per year, but the result is profitable asince there will be a lot saved by eliminate waste. The estimated aomunt is $ 10 million USD which can be invested in to other strategic options.
Implementation for Strategic Option 2
Concentrate on the ODM and CEM business.
The ODM is the Original Design Manufacturing; the CEM is the Contract Electronic Manufacturing. Foxconn should concentrate in these two businesses. The company could launch a series of service in order to attractive the buyers, such as establish testing centre, shorten the period of development or even provide end to end service. These services may cost company $ 3-4 million USD annually.
Implementation for Strategic Option 3
Development high value and low volume strategy.
The high value and low volume can be concluded as all kinds of digital control tools, the numerical control tools and plant equipments.
In order to development the high value and low volume strategy, the Foxconn must use their own brand instead of manufacturing for other company. The own brand could profit more than the OEM business, even the ODM business. Foxconn should pay attention in the quality and service. When first enter the market, company can use the lower price to gain the market share as much as possible. After have a base in the market, the company should keep forward entering the high-end market. The option might need company to drop some of the profit making business temporally since it needs lots of resources which may cost company $ 10 million USD initally.
Implementation for Strategic Option 4
Products diversification and market in Asia and Africa.
Asia and Africa are the two fastest grow market, consumer of those markets have a less branding awareness than the customers in Europe and America market. Thus Foxconn could use its own brand to enter this market. The products diversification could be useful for the company since the market in these areas need all kinds of electronic products in low end to high end. Also the Foxconn could cooperate with the local telecom operators in order to gain as much as market share they can.
Foxconn could use the postmodern marketing to occupy market share in those market.
They could have a good opportunities in symbolic their products and own brands which will help company to gain the market share. On the other hand, the size of the company may have advantage in after-sale service
(Baines et al. 2008).
Implementation for Strategic Option 5
Use the technology to increase the Quality.
The follow technology can be used to increase the Quality:
Six Sigma Qualities (see appendix 6)
Six Sigma includes quantitative and problem-solving aspects, along with underlying management issues. It seeks to improve the quality of process outputs by indentifying and removing the causes of defects and minimizing variability in manufacturing and business process. Foxconn could use the DMAIC methodology with few tools to improve the quality (Devane, 2004).
ISO 9001:2008 Quality management systems
The ISO 9001 could bring Foxconn following advantages:
Create a more efficient, effective operation.
Increase customer satisfaction and retention.
Improve employee motivation, awareness, and morale.
Reduce waste and increases productivity (Cochran, 2008).
In order to perform above standards and management issues, the company might cost few million USD in training the management levels, improving the product processes and keeping standards,
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Resources and Capabilities Appraisal
Government may directly influence the operation and decision making of the organization. Nowadays, mass production manufacturers like Foxconn maybe greatly influenced by the government since it cannot make much profit but may lead to numbers of serious problems such a crime level etc.
The legislation may also effect the organization, such as establishment of the regulations, and laws. With reinforce of all kinds of laws and regulation in China, Foxconn has to face and adapt this change by all means which may increase the cost.
The technological revolutions can be concluded as the inventions, innovations and diffusions. These 3 factors not only changes the end products of the manufacturer but also influence the R&D, products and other procedures which many greatly change the way that Foxconn operations.
The social trends nowadays are people willing to pay money for the latest products and the customers especially young customers demand innovations in the products which is most important in the ODM business since Foxconn is responsible from Designing, manufacturing and after-sale service. How to spot the trends is important.
The inflation is not only influence the cost of all kinds of materials and service, but has effect the cost of the labors, which may be a great challenge for Foxconn to face since maintain the lowest cost is the way of survive in the manufacturing industry.
The exchange rate has a great influence on the organization such as Foxconn, since they mainly used USD as their settlement currency. With the even small fluctuate of the currency may also lead the great lost in business.
Development of the legal system
The Foxconn now face a great legal trend in mainland China. Many cities have launched law to regulate the lowest salary for the employees which may on the other hand increase the cost of the operations.
The other problem is that there are more specific regulations and laws on labor protection and environment protection and so on which may also lead to in the increasing cost for operations.
With both the people and government pays more and more attention to the Green Economy, how an organization operates and develops in a green way has raise concern from either the manufacturers or the customers and governments.
Porter's Five Force Analysis
Existing manufacturers with a lower price
Specific manufacturer with a single but outstand products
Bargain power of supplies
Use many suppliers in many categories
May choose multiple suppliers in the same industry
Price and timing are the most important compete factors
There are due date exists
Products may be produced before paid.
Industry Rivalry among existing competitors
May low the pricing or diversify their products
Characteristics of Competitions
Steady industry growth
Low exist barriers
Bargain power of buyers
Companies with well know branded
Companies newly came out
For companies well known pricing and timing are key compete factor
For companies newly entered, pricing is mainly affected
Provide before paid
Great risk especially with the newly entered companies
Threats of New Entrants
Possible New Entrants
Totally new manufacturers
Companies in the similar industry transferred
Notable barriers to entry
Low investment but need good quality
Do serious on the timing
Need strong connection with the buyers
Need strong connection with the suppliers
The strong productivity is a sign of the mass production while will effectively lower the cost of the products.
Foxconn establish the R & D centers near the main clients' plants in order to shorten the product developing time meanwhile ensure the quality of the products.
The Foxconn invest $196,499,000 USD in the long and short term R&D.
The Foxconn use the extraordinary strategies in Human resources and operation management in order to motivate the middle and high management class.
The Foxconn offer the employees a integrated living place which looks like a campus. The campus provides all kinds of service needed by the employees.
Since being the suppliers of the Foxconn is a sustainable way of profit, the competitions among the suppliers are very fiercely, thus Foxconn can get advantage among the suppliers.
The Foxconn got different business from mobile phone to laptops and pc components which may great diversify the products of Foxconn.
The turnover of 2009 is $7,213,628,000 USD and the cost of sales of 2009 is $ 6,785,266,000 USD which is over the 70%.
The low education of the labor may lead to low efficiency. The inflation and legislation on labor protection may great impact the cost of Foxconn due to the increase of the lowest pay.
The mainly plants are located in Mainland China which may be greatly influenced by the increasing price of the fuel price and so on.
The global distribution is not so effective that can not satisfy the demand of the global customers.
The employees are lack of motivation due to the low pay and long time over time working.
The relationship with the government is not so good, which may lead to the bias from the government to the Foxconn. This would greatly influence the operation of the company.
People nowadays are looking forward to new electronic products, thus lead to a higher demand of the latest products, the company still has a empty market to occupy.
The technology revolution may help Foxconn low the cost, for example when Foxconn update the equipment which may help the company increase the efficiency meanwhile low the cost.
The less investment required will help the organization to expand business easily.
With the development of the Asia and Africa market, the products from Foxconn can meet the needs of low price and good quality which has advantage in occupying the new market.
More and more companies are willing to give the business to Foxconn in the type of ODM or CEM, which they only need use their brands, the Foxconn will doing the design, manufacturing and service job for them, which may lower the cost of the companies meanwhile maintain the quality.
The governments' policies are always changing all the time, in some case the regulation from the local government is even vary from the national law which would make many obstacles in the developing of the countries.
The inflation is now become a major threat due to it might increase both labor cost and the supply costs such as the raw materials, the operation cost, transportation and utility cost.
The rapid change of foreign currency may lead big problem especially to Foxconn who use the Foreign exchange settlement may be influenced greatly mainly because of the float of the USD with the local money.
The consumers nowadays are more concern about the environment issues. Consumers may require for greener products which may increase the cost and technology difficulties.
In the past, companies simply passed costs on to the customer. The pricing formula was
Cost + Profit=Price
Nowadays, in competitive market, customers insist on a competitive market as well as world-class quality and product features. This means that companies must reduce costs to make profit.
Price - Cost= Profit
The lean manufacturing gives a company a key competitive advantage by allow it to build high-quality inexpensively because customers not manufacturers set price and determine the acceptability of the products and service they use. The lean manufacturing has 3 principles:
Definition of value
Value must be defined only from the ultimate customer's perspective and should not be adjusted by preexisting organization, technologies.
Elimination of waste
The waste can be defined as the activity that absorb resources such as cost or time but adds no value. There are two kinds of wastes existed, the obvious waste and hidden waste.
The following wastes may emerge in operation of Foxconn:
Waste of inventory.
Waste of inventory affects every production process which depends on the materials and previous process. In the mass manufacturing, it may be estimated 20-40% of the company's revenue. Thus to eliminate this, company should use pull- system.
Waste of correction.
Waste of correction mainly happen when correcting or repairing a fault in materials or parts that adds not value but unnecessary costs because of additional equipment, labor and materials needed. A JIT (Just in time) can help to eliminate the waste.
Waste of motion.
Motion of people or equipment which does not add value to products is a waste.
Waste of waiting and overprocessing.
Waste of waiting is that the labor or the equipments waiting for information or each other. This requires a schedule and an efficient supply chain to eliminate.
Waste of overprocessing is that process adds no value to the products or service in the perspective from the customers.
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