Flextronics' Growth Strategy

Dec. 21, 2004

The focus: lots of new business and many low-cost locations.

Like many other contract manufacturers, Singapore-based Flextronics International Ltd. is taking some financial hits this year. Two months ago, Flextronics' stock was trading about 30% below its all-time high.

And earnings in the calendar quarter just completed, the first three months of Flextronics' 2002 fiscal year, were projected to be 18 cents to 22 cents per share, compared with 22 cents a share in fiscal 2001's final quarter and 26 cents a share in the third quarter of fiscal 2001.

But Chairman and CEO Michael E. Marks expects business to get a whole lot better in part because of what he calls "the final capitulation of the OEMs." He anticipates, for example, such well-known OEMs as Motorola Inc., L.M. Ericsson Telephone Co., Siemens AG, and Lucent Technologies Inc. will be outsourcing new programs as they go through massive restructurings.

Marks is aggressively going after such new business as part of his growth strategy for Flextronics. In May, for example, he was negotiating a total of $10 billion in new business, a figure only $2.1 billion shy of Flextronics' $12.1 billion net sales for all of its 2001 fiscal year.

Another key strategic element in Marks' growth strategy is manufacturing in low-labor-cost locations. With its OEM customers themselves increasingly cost-conscious, Marks expects the bulk of Flextronics' high-volume production will now be done in such countries as China, Malaysia, Mexico, Poland, Hungary, and the Czech Republic.

Low-volume, more-complex work will be done in higher-cost locations, although capacity at Flextronics' manufacturing facilities in high-cost San Jose, the company's operational headquarters, has been cut about 50% and, says Marks, "we will not increase that again."

About the Author

John McClenahen | Former Senior Editor, IndustryWeek

John S. McClenahen, is an occasional essayist on the Web site of IndustryWeek, the executive management publication from which he retired in 2006. He began his journalism career as a broadcast journalist at Westinghouse Broadcasting’s KYW in Cleveland, Ohio. In May 1967, he joined Penton Media Inc. in Cleveland and in September 1967 was transferred to Washington, DC, the base from which for nearly 40 years he wrote primarily about national and international economics and politics, and corporate social responsibility.

      McClenahen, a native of Ohio now residing in Maryland, is an award-winning writer and photographer. He is the author of three books of poetry, most recently An Unexpected Poet (2013), and several books of photographs, including Black, White, and Shades of Grey (2014). He also is the author of a children’s book, Henry at His Beach (2014).

      His photograph “Provincetown: Fog Rising 2004” was selected for the Smithsonian Institution’s 2011 juried exhibition Artists at Work and displayed in the S. Dillon Ripley Center at the Smithsonian Institution in Washington, D.C., from June until October 2011. Five of his photographs are in the collection of St. Lawrence University and displayed on campus in Canton, New York.

      John McClenahen’s essay “Incorporating America: Whitman in Context” was designated one of the five best works published in The Journal of Graduate Liberal Studies during the twelve-year editorship of R. Barry Leavis of Rollins College. John McClenahen’s several journalism prizes include the coveted Jesse H. Neal Award. He also is the author of the commemorative poem “Upon 50 Years,” celebrating the fiftieth anniversary of the founding of Wolfson College Cambridge, and appearing in “The Wolfson Review.”

      John McClenahen received a B.A. (English with a minor in government) from St. Lawrence University, an M.A., (English) from Western Reserve University, and a Master of Arts in Liberal Studies from Georgetown University, where he also pursued doctoral studies. At St. Lawrence University, he was elected to academic honor societies in English and government and to Omicron Delta Kappa, the University’s highest undergraduate honor. John McClenahen was a participant in the 32nd Annual Wharton Seminars for Journalists at the Wharton School at the University of Pennsylvania in Philadelphia. During the Easter Term of the 1986 academic year, John McClenahen was the first American to hold a prestigious Press Fellowship at Wolfson College, Cambridge, in the United Kingdom.

      John McClenahen has served on the Editorial Board of Confluence: The Journal of Graduate Liberal Studies and was co-founder and first editor of Liberal Studies at Georgetown. He has been a volunteer researcher on the William Steinway Diary Project at the Smithsonian Institution, Washington, D.C., and has been an assistant professorial lecturer at The George Washington University in Washington, D.C.