Market Expansion at CMS Electronics Harvard Case Solution & Analysis

Market Expansion at CMS Electronics Case Solution


The Royal Philips group is an electronics company in Amsterdam responsible for producing electronics components as well as in combining them in its own plant. Philips had adopted global corporate strategy by manufacturing and assembling electronics components and to sell them to the German industrial company, AIK. The market demand has shifted towards the mobile phone industry therefore, in order to meet this demand the company invested heavily.The company’s sales revenue declined due to another shift of production and consumer electronics from Europe to Asia, as a result this led the company to face bankruptcy.Furthermore, in order to save the company, the managing director, Velmeden, presented an idea to target the automotive supplier industry. Due to which the company become an independent electronic manufacturing service company. In 2003, the takeover company became the CMS Electronic GMBH.

CMS Electronics is an Austria based Electronics Company, as well as it is a specialist contract manufacturer in the electronics industry. It was first owned by Philips and then by AIK Electronics for system and components production. The company was 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.

CMS Electronics in Asia:

Throughout the time period of Philips, most of the labor intensive procedures were used to outsource to Hungarian subcontractor. However,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 the labor in Hungary was cheaper as the company operated in Austria where the labor was costly.

On the other hand,most of the major suppliers of electronic components were located mostlyin Asia, therefore in 2012, CMS opened its office in Hong Kong. The company benefited with its presence in Asia as it allowedthe company to benefit fromthe 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 establishedits office in Asia.Purchasing was considered as an important activity for EMS companies, thus, purchasing was optimized through high-quality system of supplier management.

Moreover, the increased demand in the automotive sector in China caused many suppliers and subcontractors to move to China. The growing demand in China forced automotive industry to produce locally, therefore this development enforced CMS to present its manufacturing services in China. The supplier of automotive industry demanded many EMS companies not to outsource the manufacturing services and forced international firms to establish their production facility in China.

CMS electronics operated in four different markets; automotive, industry, medical technology and energy systems, however the most important group of thecustomers was the suppliers in the automotive industry. These suppliers produced and manufactured components for the automobile industry. Furthermore,CMS was a small sized firm and therefore, it was not highly specialized in areas which involved large volumes.

 CMS also opened its sales office in Germany in order to get closer to its German customers as many of the company’s large customers were located in Germany. Furthermore, the company identified another opportunity in the automotive sector and established its office in Turkey in 2012.

Problem Statement:

The increased demand in the automotive industry in China forced the company to establish its own production facility and factory to compete in Asia. Establishing a new factory involved with high risk and investment, which was quite difficult for such a small player.................

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