Tech Components International Firm’s Strategic Plan

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Introduction

The technology industry, similar to many other sectors, has expanded worldwide, resulting in developers, manufacturers, and resources often being located on various continents. The technology industry has established global supply chains to manage production flow. Large manufacturers import both minor and major components to electronic devices from various vendors, which are assembled into the final product that is shipped to the consumer (Barboza). This set up of the industry has allowed businesses to financially benefit from the rapidly growing sales of electronics and technology by delivering semiconductors and related components to other manufacturers, even if they are competitors (i.e. Samsung provides vital display components to virtually every smartphone maker in the world). Tech Components International is a medium-sized business focused on filling gaps in the wider supply chain of the semiconductor industry and electronics components for major manufacturers of devices or network operators who outsource multiple aspects of production to smaller enterprises. Tech Components International company emphases the development and manufacturing of components such as semiconductors, processors and mobile network technology. As a medium-sized electronics component business, it is the strategic goal to increase sales through engagement with the established global supply chain through local channels in China and produce high-quality products that are recognized by major companies, allowing for growth and expansion of the business in the global marketplace.

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Business Overview

History and Background

The business was founded in China by a U.S. technology venture who saw the potential of working directly in the region where the majority of electronics components are produced. The company was meant to establish stronger ties between Asian and American companies and integrate into the local supply chain in order to ensure there is a greater U.S. presence in the market for components that ensures a safe and reliable supply chain for producers. The local market is the key element to the company’s operation. Despite, the supply chain stretching globally, the biggest concentration of the production supply chain remains in China and the nearby Indochina and Western Pacific regions. The region houses major electronics firms such as Samsung, Huawei, Lenovo, Sony, Samsung, Toshiba, and others that both develop and produce electronic devices, requiring a supply of components. This concentration occurs due to the region having the largest natural supply of rare metals required for electronics production, an abundance of cheap but skilled labor, and a business climate that promotes innovative strategic growth (Pham, 2017). The competition consists of hundreds of supply chain vendors in the Asia-Pacific region on which global technology firms rely on. Each uses unique approaches to the business, and some offer new technologies and innovations in the manufacturing of these components that allow major producers to choose and place large contracts with these vendors as well implement significant supply chain integration (Sundram et al., 2016).

Competitive Advantage

Firms in the electronics industry are consistently in tough competition and implement innovative ideas and introduce the newest technology on the market. This creates significant pressure on development and engineering teams to consistently innovate. Companies that specialize in specific niches, such as Tech Components International, in components and semiconductor manufacturing have to maintain profitability (Shin et al., 2009). Tech Components International maintains a competitive advantage in that it has been able to adapt its manufacturing technology and space to meet not only the demands of the semiconductor supply and electrical components segment but also towards networking and communication equipment. Both are rapidly growing sectors, but it is rare that a firm specializes in both. This creates competitive value for the company since it can work comprehensively with firms such as mobile device producers which require both electronic components and communication equipment. It opens up more opportunities and ensures better integration for the manufactured components within the specific order or device.

Market Analysis

MNC's position/involvement in the Chinese semiconductor industry
Figure 1. MNC’s position/involvement in the Chinese semiconductor industry

Component manufacturing firms such as Tech Components International, do not commonly engage in commercial sales but focus on attracting and fulfilling outsourcing orders from larger manufacturers, or potentially selling components directly to retailers. Although demand for consumer devices may flatten, semiconductors and related electronic components will be necessary for sectors such as the automotive industry or artificial intelligence. China is the largest semiconductor and electronics component market, accounting for 41% of the global total, assumed to grow to 57% of global consumption by 2024 (Deloitte, 2019). Multinational corporations (MNC’s) can enter and benefit from this market in China. This is evident especially when the firm has the upper hand in high-end technology design and manufacturing that are much weaker in the country unlike packaging, testing, and low-end design where China excels. The target market for the company is major electronic firms and manufacturers seeking to order components in bulk orders for their production. Tech Components International will utilize marketing that will focus on attracting major firms or governments needing electronic components, establishing quality and reliability, with the focus on establishing long-term contractual supply chains.

Strategic Planning

PESTLE Analysis

Political China is one of the largest and most powerful economic powerhouses in the world. It has a stable political environment, it is ruled by the Communist Party of China which exercises strict control over political, social, and economic freedoms. China attracts significant foreign direct investment, one of the largest in the world, but has a number of regulations that limit foreign ownership and investment. The country has also faced criticisms for creating laws that force international brands to open up intellectual property and trade secrets in order to operate effectively in the country as firms are forced to work with Chinese state enterprises and initiate technology transfers (Cheng, 2019). In the context of the recent trade war between China and the United States, as a response to sanctions against the Chinese tech giant Huawei, China has threatened to politically sanction a range of American technology companies that will create numerous barriers to business.
Economic China is strongly seeking to improve its economic climate by providing incentives for start-ups and foreign direct investment. As the biggest producer of goods in the world, China has well-developed supply chains along with relevant transportation infrastructure necessary for export business. Despite economic development in China, labor cost remains low while continuing to also offer highly skilled labor as well (West & Lansang, 2018). Chinese companies due to regulations often choose to work with domestic suppliers and producers. The biggest economic concerns for manufacturing in China consist of tariffs (also a political factor) that the country implemented itself and has been a target of in the U.S.-China trade war. This significantly increases the cost of doing business in the country and decreases already thinning profit margins. The U.S. has also labeled China as a currency manipulator, which makes Chinese exports cheaper, undermining competition in global trade and resulting in trade surplus with other developed nations (Lee, 2019).
Social Some social factors to consider is that China is a highly populated country. It has a literacy rate of over 90% and rapidly growing urban populations that are striving to work both in low-wage and highly-skilled jobs. Although a high-aging population, the country’s demographics should meet the demands for labor in the next decades. Chinese culture strongly values education and work. At the same time, the country is experiencing a boom of various industries, including numerous technological or technology-associated sectors due to consumer trends. China is a massive market for both commercial and component elements.
Technological Technology is vital to the manufacturing industry, particularly the electronics components sector. There are rapid technological developments consistently made by competitors that can dismantle the competitive landscape. This requires companies to continuously innovate in their methods and products. Improvement in technology can enhance the efficiency or quality of the production method or transform the offerings of the final product. The impact of technology places significant costs on the research and development for firms but can also have the potential to increase or reduce profits greatly. Technology also serves as the primary differentiator between firms.
Legal The company must abide by the legal framework of the country where it operates as well as the country of its origin/ownership. That can create challenges to navigate, particularly intense trade wars such as ongoing U.S.-China tensions that result in sanctions. Firms working with Chinese partners or using American equipment to manufacture must abide by the sanctions or face significant penalties. There are also numerous elements to consider from a legal standpoint. Intellectual property and data protection laws must be in place and supported based on regulation. Local governments may also have anti-discrimination and safety laws for the workplace that industries must follow.
Environmental Environmental protection has become a significant issue in a globalized society, even in China that is often laxer on environmental laws. Companies are encouraged to practice corporate social responsibility in the manufacturing practices, which may be challenging due to the number of potentially toxic or slowly degrading components are used in electronics manufacturing. Companies may knowingly or not contribute to environmental degradation, and it has become important to reconsider waste practices. Firms are expected to care for the natural environment in their practices as well as social environments by providing safety for local workers (Kolk, 2016). Climate change and weather can have an effect on the company as supply chains are affected, impacting the ability to receive certain resources or deliver components in a timely manner.

SMART Goals

Specific The objective goal of the company is to increase its contractual revenue and profitability by obtaining additional manufacturing orders that it can meet with its technological and production capabilities. The focus of the objective is to improve sales through a direct method of seeking out manufacturing contracts for electronic components as a vendor for larger firms.
Measurable The best method to measure the goal without the certainty of specific contracts is to set an annual growth target. It is a reasonable and achievable objective to reach 15% annual revenue growth in comparison to the previous business year.
Actionable The goals are actionable through a strategic and multilateral plan. The company can find new contracts by participating in bids offered by the larger companies, directly contacting representatives offering the services and describing technological and production capabilities of the firm, and engaging in sales of its existing inventory of components for both commercial or manufacturing purposes.
Relevant China is a major regional hub for the development and manufacturing of technological devices and their electronic components, an area of operations for major tech firms. It is relevant that the objectives to integrate into major supply chains by finding contracts for component manufacturing would occur in this location and time.
Time Bound Setting both short and long-term goals is important. As mentioned, the measurable goal is to reach 15% growth year over year. This can be achieved by signing a major contract within 12 months. More long-term goals can include profitability within 3 years and expanding manufacturing capabilities within this time as well.

SWOT Analysis

Tech Components International Strengths
  • Wide variety of products and technologies that can be produced, shifting manufacturing focus based on market demands.
  • Relatively strong performance in new markets due to strong demand for components.
  • Ability to continuously improve and innovate through technology, training, and automation.
Weaknesses
  • Lack of massive research and development and manufacturing facilities compared to established competitor manufacturers.
  • Weaker in comparison to domestic Chinese component manufacturers due to lack of big-scale production and supply chain integration.
  • Unclear positioning of the products and difficult to market technical components.
  • Dependence on highly competitive OEM (original equipment manufacturer) contracts with relatively thin margins.
Opportunities
  • Increased opportunities for sales and production contracts for components in the Asia-Pacific region.
  • Opportunities to expand into a variety of technology sectors ranging from devices and home equipment to solar and networking technology.
  • Significant investment opportunities due to stable cash flow in the industry.
  • Focus on the organic growth of the company.
S-O Strategies
  • Use the flexibility of manufacturing to seek out new contracts in the region or divert into different sectors.
  • Take advantage of the ability to innovate to seek out cash investment opportunities allowing to expand production and scale capabilities.
  • Strong performance in new markets can be helpful to organically grow the company.
W-O Strategies
  • Lack of established scale, both in terms of development and physical facilities can be addressed by taking advantage of numerous opportunities in the region to receive contracts and fund expansion.
  • Dependence on OEM contracts can be overcome by expanding into a variety of markets and taking advantage of investment cash flow in the industry.
  • Positioning and marketing of the products can be resolved with refining focus on the types of products offered and which sectors the company most benefits from.
Threats
  • Market share loss due to high competition and new entrants.
  • Increase of costs for production while experiencing a decrease in growth and margins.
  • Decrease in outsourcing demand for components.
S-T Strategies
  • Market share loss can be avoided by continuously innovating and offering new products.
  • Growing costs and decreasing margins can be avoided by monitoring the market and shifting production focus appropriately.
  • Decrease in outsourcing demand can be mitigated by entering new markets with strong performance, seeking out the demand.
W-T Strategies
  • Addressing market share loss will help to mitigate competitive disadvantages to larger-scale domestic manufacturers.
  • Decrease in outsourcing demand highlights the weakness of dependence on OEM contracts, with the necessity to seek out new ventures and markets.
  • Increased costs for production with a decrease of margins largely depends on the scale of manufacturing. Building up the scale will allow to greatly improve profitability.

Operating Plan

Timeline

1st month – apply for appropriate licenses and establish the business, apply for financing if necessary, meet all regulatory requirements.

2nd month – establish physical facilities, begin hiring workers, install appropriate equipment. Begin engaging in negotiations or bids at this time. Begin talks on establishing supply chains for raw materials, finished products.

3rd month – Begin production on initial orders. Finish setting up the supply chain. Find appropriate storage space for components and finished products.

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4-6th months – Finish delivery of initial orders. Simultaneously begin negotiations with larger firms for bulk orders. Expand production capabilities.

By the 12th month – accept and fulfill at least one major order. Begin plans for opening up a new manufacturing facility, expanding supply chain capabilities.

Use of Resources

The company will initially have 2 manufacturing facilities, both located in China. It will also have 2 warehouses in China, and 1 in the United States for optimal delivery of components to its consumers. It is necessary to establish a stable supply chain to receive the necessary raw materials for the production process as well as ensure that the company can safely deliver finished products in bulk that are fragile. The production process will be based on placed orders. When there are no orders, the facilities will continue to operate at a slower pace to produce fundamental electronic components that can be sold on the market and to retail. Operational capacity can be potentially increased within the facility by adding work shifts and increasing efficiency and power output. The latest manufacturing equipment will be used for electronics and all processes will continue to be updated to upkeep with the industry. Management models will be utilized within the factories to improve efficiency output. In terms of human resources, the majority of work line staff will be hired in China. People will work in traditional 8-hour shifts in the facility. Appropriate conditions and salaries will be provided, abiding by local and international labor laws. High-end research and engineering talent may be hired locally and abroad to develop new processes for manufacturing and component improvement.

Conclusion

Tech Components International is a semiconductor and electronic components manufacturing business founded in China by a U.S. venture. Its purpose is to integrate into the global technology supply chain and provide a bridge between the local Chinese component market and major technology firms in the U.S. The company’s objective is to work with major technology firms locally that outsource manufacturing and gradually expand its production capabilities through large bulk orders. As an American medium-sized business, the firm must navigate the complex socio-political and economic environment in China and strategically engage with established supply chains and competitors in order to develop capabilities and reputation that will allow it to expand to a level of recognition in the global component manufacturing and supply chain marketplace. Through taking advantage of the company’s strengths and opportunities, and having specific strategic goals, it is possible to achieve the objectives in the proposed time period.

References

  1. Barboza, D. (2016). An iPhone’s journey, from the factory floor to the retail store. The New York Times. Web.
  2. Cheng, E. (2019). China’s moves to boost foreign business also help Chinese companies. CNBC. Web.
  3. Deloitte. (2019). Semiconductors – the next wave. Web.
  4. Kaliani Sundram, V. P., Chandran, V., & Awais Bhatti, M. (2016). Supply chain practices and performance: the indirect effects of supply chain integration. Benchmarking: An International Journal, 23(6), 1445–1471. Web.
  5. Kolk, A. (2016). The social responsibility of international business: From ethics and the environment to CSR and sustainable development. Journal of World Business, 51(1), 23-34. Web.
  6. Lee, Y. N. (2019). The US and China are dragging currencies into their escalating fight. Here’s what you need to know. CNBC. Web.
  7. Pham, P. (2017). How Asia has become the world’s manufacturing hub. Forbes. Web.
  8. Shin, N., Kraemer, K. L., & Dedrick, J. (2009). R&D, Value chain location and firm performance in the global electronics industry. Industry & Innovation, 16(3), 315–330. Web.
  9. West, D.M., & Lansang, C. (2018). Global manufacturing scorecard: How the US compares to 18 other nations. Web.

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BusinessEssay. (2022) 'Tech Components International Firm's Strategic Plan'. 1 February.

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BusinessEssay. 2022. "Tech Components International Firm's Strategic Plan." February 1, 2022. https://business-essay.com/tech-components-international-firms-strategic-plan/.

1. BusinessEssay. "Tech Components International Firm's Strategic Plan." February 1, 2022. https://business-essay.com/tech-components-international-firms-strategic-plan/.


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BusinessEssay. "Tech Components International Firm's Strategic Plan." February 1, 2022. https://business-essay.com/tech-components-international-firms-strategic-plan/.