Solectron - Re-inventing itself
If it is to survive as a prosperous, profitable company, Solectron must find a way to re-invent itself.
Solectron operates a business where it must generate profits from margins that can be paper-thin. This requires the firm to squeeze out every cent of profit to stay afloat, and leaves it vulnerable to changing economic conditions.
Last year, it reported a net loss of $2.6 billion. While the result can in part be attributed to the global economic downturn, Solectron must nevertheless address why its losses reach this scale.
In an effort to save expenses, it has cut 30,000 jobs in places like south Wales where it used to base factories. Now it has relocated the centre of its European manufacturing operations to Romania where wage levels are around an eighth of what they are in Western Europe.
Taking advantage of low wage locations is not going to solve Solectron’s economic problems though. Its Romanian factory just outside the town of Timisoara, is well-ordered, bristling with technology, and works 24 hours a day, seven days a week. But Labour only makes up 10 to 15 percent of the final price of the products it makes.
Solectron must find other ways of cost-cutting and earning income. This has prompted it to look outside its own factories, to those of its suppliers.
Believing that there's money to be made by selling its intellectual skills, Solectron wants to widen the scope of its manufacturing services. It now wants to help its customers design and develop their products in the first place.
In effect, Solectron aims to tell its suppliers how to run their businesses more efficiently, and, critically, take a share of the savings that are made.
The President of the company's European division, Kurt Colehower, explained the strategy to us. "The real key to our success is based on how we actually set up the supply chain; how we make sure that we're negotiating and working with the best suppliers to position the parts to manufacture the goods, because a lot of the cost of manufacturing is determined far in advance of it actually getting into the factory."
This approach raises a danger that Solectron will eventually "consume" its own customers and suppliers by running much of what used to be their business. But Colehower emphatically asserts this will not occur, that there is a line over which the firm will not step. Namely, there will never be a Solectron brand.
What is clear is that as Solectron changes, it is squeezing itself into some unexpected and strange new shapes.
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