Harvard Case - Foxconn Technology Group: Acquiring Sharp to Move Up the Value Chain
"Foxconn Technology Group: Acquiring Sharp to Move Up the Value Chain" Harvard business case study is written by Wiboon Kittilaksanawong, Teeta Erikate. It deals with the challenges in the field of Strategy. The case study is 12 page(s) long and it was first published on : Jun 14, 2019
At Fern Fort University, we recommend that Foxconn Technology Group (FTG) proceed with the acquisition of Sharp, but with a strategic focus on leveraging the deal for vertical integration, product differentiation, and global expansion. This strategy should be underpinned by a commitment to innovation, digital transformation, and sustainable business practices.
2. Background
Foxconn Technology Group, a Taiwanese electronics manufacturing giant, faced a critical juncture in its growth trajectory. While their dominance in contract manufacturing for global tech giants like Apple and Samsung had secured a leading position in the electronics value chain, the company sought to move beyond its role as a mere assembler. Sharp, a Japanese electronics company known for its display technology, presented an opportunity to acquire key assets and move up the value chain.
3. Analysis of the Case Study
Porter's Five Forces Analysis:
- Threat of New Entrants: High - The electronics industry is characterized by rapid technological advancements and low barriers to entry, especially in emerging markets.
- Bargaining Power of Buyers: High - Large tech companies like Apple and Samsung have significant bargaining power due to their volume and the ability to switch suppliers.
- Bargaining Power of Suppliers: Moderate - While some components are specialized, the supply chain is generally competitive.
- Threat of Substitute Products: High - The rapid pace of technological innovation leads to the emergence of substitutes, requiring constant adaptation and innovation.
- Competitive Rivalry: High - The electronics industry is intensely competitive, with players vying for market share and technological leadership.
SWOT Analysis:
Strengths:
- Manufacturing Scale and Efficiency: FTG possesses a global manufacturing footprint and unmatched production capabilities.
- Strong Relationships with Key Clients: FTG has established long-term relationships with major tech companies.
- Financial Strength: FTG has a strong financial position, allowing for strategic acquisitions and investments.
Weaknesses:
- Limited Brand Recognition: FTG lacks a strong consumer brand, hindering its ability to compete in the retail market.
- Dependence on Contract Manufacturing: FTG's reliance on contract manufacturing leaves it vulnerable to fluctuations in demand and pricing pressure.
- Limited R&D Capabilities: FTG's core competency lies in manufacturing, not in product design and innovation.
Opportunities:
- Vertical Integration: Acquiring Sharp provides access to key technologies like display panels, enabling FTG to control more of the value chain.
- Product Differentiation: FTG can leverage Sharp's brand and technology to develop and market its own consumer electronics products.
- Global Expansion: The acquisition expands FTG's reach into new markets, particularly in Japan and other Asian countries.
Threats:
- Technological Disruption: The rapid pace of technological innovation presents a constant threat to FTG's core competencies.
- Competition from Emerging Players: Chinese and other Asian companies are rapidly gaining ground in the electronics industry.
- Economic Downturn: Global economic fluctuations can impact demand for consumer electronics, affecting FTG's revenue.
Value Chain Analysis:
FTG's acquisition of Sharp enables them to move up the value chain, integrating upstream activities like display panel manufacturing, design, and R&D. This vertical integration allows FTG to control key components, reduce reliance on external suppliers, and potentially improve profit margins.
Business Model Innovation:
FTG can leverage the acquisition to explore new business models, such as:
- Direct-to-Consumer Sales: Utilizing Sharp's brand and distribution channels to sell FTG-branded products directly to consumers.
- Subscription-based Services: Offering subscription services for products like smart TVs or IoT devices.
- Partnerships with Software Developers: Collaborating with software developers to create unique applications and services for FTG's products.
Strategic Planning:
FTG must develop a comprehensive strategic plan to integrate Sharp effectively and achieve its long-term objectives. This plan should include:
- Integration Strategy: Defining the process for merging Sharp's operations and technology with FTG's existing infrastructure.
- Product Development Strategy: Developing a clear roadmap for new product launches, leveraging Sharp's technology and brand.
- Marketing and Branding Strategy: Creating a unified brand identity and marketing strategy for FTG's products.
- Global Expansion Strategy: Identifying new markets and developing strategies for entering and competing in these markets.
4. Recommendations
- Vertical Integration: FTG should prioritize vertical integration, leveraging Sharp's display technology to become a leading manufacturer of panels for its own products and for other clients. This will reduce reliance on external suppliers, enhance cost control, and provide a competitive advantage in the market.
- Product Differentiation: FTG should invest in product development and design, leveraging Sharp's technology and brand to create differentiated consumer electronics products. This will enable FTG to compete in the retail market and build a stronger brand identity.
- Global Expansion: FTG should leverage the acquisition to expand its global reach, particularly in Japan and other Asian markets. This will diversify revenue streams and reduce dependence on the US and European markets.
- Digital Transformation: FTG should embrace digital transformation, leveraging data analytics, AI, and IoT to optimize manufacturing processes, enhance product development, and improve customer experience. This will enable FTG to stay ahead of the technological curve and maintain a competitive edge.
- Sustainable Business Practices: FTG should prioritize environmental sustainability and corporate social responsibility, aligning with global trends and consumer expectations. This will enhance brand reputation and attract talent, contributing to long-term growth and sustainability.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core Competencies and Consistency with Mission: The acquisition aligns with FTG's core competency in manufacturing and its mission to become a leading player in the electronics industry. Vertical integration and product differentiation will enhance FTG's capabilities and competitive position.
- External Customers and Internal Clients: The acquisition will provide FTG with access to new markets and customers, while also enhancing its ability to serve existing clients with differentiated products and services.
- Competitors: The acquisition allows FTG to compete more effectively with rivals like Samsung and LG, leveraging Sharp's technology and brand to gain market share.
- Attractiveness: The acquisition is financially attractive, with the potential for significant returns on investment through increased market share, improved margins, and new revenue streams.
6. Conclusion
The acquisition of Sharp presents a significant opportunity for FTG to move up the value chain, diversify its business, and achieve sustainable growth. By focusing on vertical integration, product differentiation, global expansion, digital transformation, and sustainable business practices, FTG can leverage the acquisition to solidify its position as a leading player in the global electronics industry.
7. Discussion
Alternatives:
- Joint Venture: Instead of full acquisition, FTG could have pursued a joint venture with Sharp, sharing resources and expertise. This would have reduced financial risk but also limited control and potential for strategic alignment.
- Strategic Alliance: FTG could have formed a strategic alliance with Sharp, focusing on specific areas like technology development or joint product launches. This would have been less disruptive but also less impactful in terms of vertical integration and brand building.
Risks:
- Integration Challenges: Integrating Sharp's operations and culture into FTG's existing infrastructure could pose significant challenges.
- Technological Disruption: Rapid technological advancements could render Sharp's technology obsolete, requiring FTG to invest heavily in R&D to stay ahead.
- Economic Uncertainty: Global economic downturns could impact consumer demand for electronics, affecting FTG's revenue and profitability.
Key Assumptions:
- Successful Integration: FTG will be able to successfully integrate Sharp's operations and technology into its existing infrastructure.
- Continued Innovation: FTG will be able to maintain its focus on innovation and adapt to rapid technological changes.
- Strong Market Demand: Consumer demand for electronics will remain robust, allowing FTG to capitalize on its expanded market reach.
8. Next Steps
FTG should implement the following steps to ensure the success of the acquisition:
- Develop a Comprehensive Integration Plan: This plan should outline the process for merging Sharp's operations and technology with FTG's existing infrastructure, including timelines, resources, and key stakeholders.
- Establish a Joint Product Development Team: This team should be responsible for developing new products leveraging Sharp's technology and FTG's manufacturing expertise.
- Launch a Unified Branding Campaign: This campaign should create a consistent brand identity for FTG's products, leveraging Sharp's brand recognition and FTG's global reach.
- Invest in Digital Transformation Initiatives: FTG should invest in data analytics, AI, and IoT to optimize manufacturing processes, enhance product development, and improve customer experience.
- Implement Sustainable Business Practices: FTG should adopt environmentally friendly practices and prioritize corporate social responsibility throughout its operations.
By taking these steps, FTG can ensure that the acquisition of Sharp is a strategic success, enabling the company to achieve its long-term growth objectives and solidify its position as a global leader in the electronics industry.
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Case Description
In August 2016, Foxconn Technology Group (Foxconn) acquired a majority stake for US$3.8 billion in Sharp Corporation (Sharp), which was on the verge of bankruptcy. In addition to gaining more liquid crystal display (LCD) capacity, Foxconn was combining Sharp's advanced technology and marketing resources with its own to expand and move up the value chain in both research and development and brand building. However, the post-acquisition integration to realize such value-creation potentials faced several challenges, including the probability that Sharp's Japanese style of management might not assimilate well within Foxconn's organization. Now in 2018, what should Foxconn do to seamlessly integrate the two entities? How could Foxconn achieve its efficiency, cost, and innovation goals while moving toward becoming the technology leader and successfully creating its own global brand?
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