VERTICAL INTEGRATION: Cell phone testing at Flextronics, Doumen, China.

DOUMEN (CHINA): Flextronics, which announced the setting up of an industrial park near Chennai in October last, will complete the building and occupy 56,000 sq. metres of manufacturing space by August for its printed circuit board assembly operations as part its Phase I operations. Complete product roll-out will begin by October when the mechanical (plastics moulding and metal stamping) operations are also up and running. The Chennai facility will manufacture mobile phones, set-top boxes for direct-to-home television, and telecom equipment.

The company, which has around 680 employees in its India manufacturing operations at present, expects to have around 1,500 employees by the end of 2006.

The capacity of the new facility will be to make around two million handsets a month by the end of the year, compared to five lakh units at its Pondicherry plant at present. Its Bangalore plant focuses on telecom equipment.

The Chennai facility will be modelled on its Doumen park in China. The Doumen park has over 3.1 million sq. ft. of manufacturing space in about 150 acres. It employs more than 26,000 people, and about 10,000 have been given on-campus housing and the rest live around the park, turning a village into a town.

Service concept

Flextronics plans to bring its vertically integrated services concept to its Chennai park. And literally, too!

The ground floor of the Doumen park handles painting and printing of casing and keys for mobile handsets; the first floor does the PCB assembly where components are soldered onto the circuit-board to make the heart of the phone and the upper floor completes the product by assembling all the parts together inside the case and packages it for shipping.

Emphasis on logistics

Another dimension of vertically integrated services — the company's design, build, and ship philosophy — means that there is heavy emphasis on logistics. In Doumen, the company undertakes just-in-time manufacturing through a bonded-warehouse. The suppliers send materials to the company's warehouse on demand, and they are credited with a sale as and when their products are taken out of the warehouse for consumption.

In Chennai, the company plans to co-locate suppliers inside the park itself in phase II. Tim Dinwiddie, Senior Vice-President, South China operations, Flextronics, said the Indian operations would typically follow the company's Mexican model where Flextronics played landlord to suppliers and helped them set up units. "In China, an ecosystem already existed when we came and we faced no difficulty when we wanted to source raw materials.'' A. Gururaj, General Manager and Director, Flextronics India, said that 20 to 25 of its suppliers were discussing the co-location of operations in the Chennai park but plans were not yet finalised.

The Doumen park is only about 150 acres, compared to 250 acres that it plans for Chennai. The key is not only the difference in area, but also the company's philosophy on space: No space is wasted. For example, the area above the porch in one of the buildings was converted into a terrace garden with space for taking a break, and there are now plans to convert all porches.

Says Tim Dinwiddie, Senior Vice-President, South China Operations, while welcoming the Indian press contingent into a rather large boardroom: "We are frugal with our resources. If we had not acquired this building but had built it up ourselves, this room would have been two-thirds the size or maybe even smaller.'' .

When the question of growth of the company in different markets came up, Mr Dinwiddie clarified that in no single place did the company plan for indefinite growth. "We are 26,000 strong now and might saturate at some level, say, 40,000.''

On China versus India in the context of trained manpower and manpower costs, the company's stance was spelt out by Mr. Gururaj: "For us, it is not China versus India — it is China and India.''

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