Market Expansion at CMS Electronics Harvard Case Solution & Analysis

Market Expansion at CMS Electronics Case Solution

Introduction:

CMS Electronics are the specialist contract manufacturer in the electronics industry. It was formed in 2003 and first owned by Philips and then by AIK Electronics for system and components production. The company previously operated as electronic manufacturing services EMS. The main business of CMS was the manufacturing of electronic components and system on contract. CMS was specialized in manufacturing electronics components by utilizing quality management system which was located in Austria and Hungary. CMS Electronics was operating under one-stop philosophy in which it offered product development support.

Throughout the Philips period, most of the labor intensive procedures were used to outsource to Hungarian subcontractor. But after the development of CMS, a joint venture was formed with a Hungarian partner which ensured the survival of the company in highly competitive environment. This alliance was favorable since labor in Hungary is cheaper as the company was operated in Austria where the labor is costly.

While the most of the major suppliers of electronic components were located especially in Asia, therefore in 2012 CMS opened its office in Hong Kong. The company was benefited with its presence in Asia as it enabled the company to attain the price advantages. The international firms offered different electronics products in various prices in Europe, Asia, and America and it was also difficult for the suppliers to export to Europe, therefore, the company had formed its office in Asia.

CMS electronics was operated in four different markets; automotive, industry, medical technology and energy systems. But the most important group of a customer was the suppliers in the automotive industry. These suppliers produced and manufactured components for the automobile industry. The CMS was a small sized firm and, therefore, was not highly specialized in areas which involve large volumes.  CMS also opened its sales office in Germany to get closer to its German customers as many of the company’s large customers were located in Germany. After that, the company recognized another opportunity in the automotive sector and established its office in Turkey in 2012.

Moreover, the increased demand in the automotive sector in China has caused many suppliers and subcontractors to move to China. The growing demand in China forced automotive industry to produce locally. Thus, this development enforced CMS to present its manufacturing services in China.

Problem Statement:

The increased demand in the automotive industry in China has forced the company to establish its own production facility and factory to compete in Asia. Establishing new factory was involved with high risk and investment, which was quite difficult for such a small player. The customers of CMS Electronics was doubted that how the small player in such a diverse sector could move successfully in China. The CEO of the company needed to decide the future growth strategy of its firm for its survival in China. This case also pointing out the cross management style as the company is moving in Chinese market.

Analysis: PESTEL:

Political:

The political influence on exports in China has restricted the company to export from China to Europe. There is a high level of bureaucracy is involved in China in doing business especially for foreign firms. It is also considered that the involvement of politics in conducting business restricted the firms to acquire the market share and to expand more.

Economic:

China is considered as the low labor cost country. However, the rise in the labor cost has been seen in recent years. Particularly in the electronics industry, the labor hourly wage rate has been increased from US$0.60 to US$2.50............

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