Electronics Production | December 16, 2010

Europe is becoming more important for global manufacturing

Mattias Lindhe, Vice President at Flextronics SBS, has given us an update on what role Europe might hold in the future manufacturing industry and where Flextronics SBS fits in.

Where does European contract manufacturing stand in the world?

Europe continues to play an increasingly important role in global manufacturing. Many customers across many different industry sectors request local interface requirements thereby allowing them to communicate real-time in local time zones and local languages. In addition, more and more customers are today thinking “Green and the Environment” and looking to improve the Carbon Footprint of moving products around the globe. This is one of the reasons why local EMS providers have evolved their capabilities across the services value chain and are now focused on higher level assembly in local regions close to end markets, for example.

What production focus does Flextronics SBS have in Europe?

At Flextronics, we have a focused market segment strategy that allows us to target a highly diversified portfolio of customers across many sub-sectors. Recognizing the strength of this strategy, during the last 12 months in particular, the SBS team has continued to research the local markets in depth, and strategically aligned our regional capabilities to meet the needs of the largest growth markets in their respective regions.

But, I should stress, this is by no means an exclusive approach and this does not mean that a customer within a specific market sector cannot be addressed by a specific local site. But, by concentrating our efforts, it allows each of the respective sites to build up strategic competence and capabilities best positioned to meet the growing needs of the target customers in their local market.

What are the main segments that you focus on in Europe?

Our main focus is Industrial which covers everything from Clean Tech, Aerospace & Defense, Capital Equipment, Self Service Kiosk, Meters and Controls, to name just a few. But we continue to focus on other key sectors including Medical, Infrastructure and Enterprise.

Flextronics is big enough to have most, if not all, facilities certified for all kinds of production. Something that you would consider doing or automatically do?

As I mentioned earlier, our strategic approach is to best align our site capabilities that best fits the local environment which it operates today and also provides the best value fit for our customers. In particular if you look at the markets that have specific certifications or regulatory requirements such as Medical, Automotive, Aerospace and Defense, then yes, we believe it makes sense to have this type of business concentrated on a fewer number of sites.

Our own customers also tell us that they like this approach, as they recognize that this allows us to harness industry knowledge and expertise in a much more focused way and allows the teams to become experts in that sector, whether you are a buyer seeking to purchase obsolete type components, or whether you are an engineer driving lean improvements through our systems and processes.

So were do you see you competitors in Europe? Other 'Biggies' like you or more the local Tier2 / Tier3 EMS-providers?

Each region we operate in today has a very different mix of competitors, ranging in size, capabilities and target markets. But if I were to try to categorize this, I would say the Flextronics SBS competes with companies in revenue range of $30m to $300m.

If I consider the “Biggies” for a minute, we really don’t compete with them as often as you might expect, simply because they don’t have the same local presence that we maintained and developed into the SBS strategy. This is kind of what makes us pretty unique in this space.

I believe our largest competitors in Europe are those guys who have successfully developed their own back-yard so to speak, and are now expanding into other countries through local acquisitions.

Flextronics has recently opened a new facility in China. Mexico has been in the news too, as being more competitive when it comes to US customers. What is behind that decision in favour of China?

These are two completely different things. And to get the full picture on that, we need to make the same kind of analysis as we did earlier for Europe. Segmentation, identifying the 'sweet spot' if you will. In that respect, the new facility makes perfect sense. Not to go into too much detail, but China offers a strong local demand, the supply chain is available and strong. Therefore, from a cost / technology perspective, the new facility is a correct decision. Furthermore, our customers are present in this market. Before you open a new facility, you need to investigate the needs of the market.

And I guess that your next questions will be: What is in store for Europe?

Correct! What is planned for Europe?

We will always continue to monitor our customers, analyze the market and then make sure that we have the right resources in the right place to support the needs of our customers.

The unit in St. Etienne was recently sold. Pretty quietly I might add. What was behind that decision? Where is Flextronics heading in France from here?

The decision was taken based on the needs of our customers and the local market. We are still active in the French market place and support several leading OEM’s from other locations.

You mentioned Sweden. What are the plans for Scandinavia?

Scandinavia is a very interesting and diversified market. If we reflect on the different segments that we spoke about, you find strong customers from each one of these segments. Maybe they are not owned by Scandinavians today, but they are at least managed from Scandinavia. So – for us – Scandinavia is a very important place to be. And we will continue to be there.

Scandinavia was a very vibrant place with many players on all levels. I expect this market to evolve creatively moving forward. Ten years ago the general belief was that you had to be in Asia to produce. That is not the case anymore. Yet again, it is all about total cost of ownership.

What is Flextronics doing – in China, but also in Europe – to prevent exploiting working conditions?

For many years now, we have been working hard on FLEX Pledge which is the backbone of our Corporate Social Environmental Responsibility (CSER) program. This covers everything from working conditions, to helping local communities, education programs, reducing our own carbon footprint and so on.

What about checking our suppliers?

Yes, we do. We follow the regional standards and regulations. We have a procedure in place and we do audit our suppliers and hold them to very high standards that ensure our business integrity, business ethics and social responsibility are beyond reproach throughout the supply chain. Exactly how and when we conduct supplier audits depends on what kind of supplier it is, as well as what relationship and history we have with this supplier. But we focus on evaluating all of our suppliers on a regular basis.

What happens to suppliers that fail in these checks?

As I am not subject matter expert, I am probably not best positioned to respond. But from experience the way which we approach this is to help educate the suppliers and offer a continuous support process that allows them to implement required changes and improvements according to our expectations.

Would you terminate the supplier relationship in any other case?

We approach our suppliers as our partners, so you need to find ways of solving problems where possible. We engage with some of the most respected and ethical suppliers in the region and the world throughout our entire supply chain. We are proud of the supplier relationships we have, so this is not a common issue. Hypothetically, termination would depend on the issue and whether or not the issue was completely resolved within our set time frame.

Thanks for the interesting conversation.
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