Electronics distributors face stiff competition in Asia
New growing electronics markets attract both North American and indigenous distributors.
By James Carbone -- Purchasing, 1/15/2009 7:00:00 AM
It's no secret that many North American electronics distributors are focusing more efforts in Asia to grow sales as manufacturing has transferred to China and other low-cost countries.
Many distributors are finding competition against other North American-based distributors as well as indigenous Asian distributors. Some of the indigenous distributors emulate the North American electronics distribution model, carrying many product lines and offering design and supply chain management services. However, many Asian distributors are small and offer limited lines. Some may have front-end design services, but no value-added or supply chain management services.
Most Asian distributors have close relationships with a very limited number of customers. Many of their customers are high-volume original design manufacturers (ODMs) and electronics manufacturing services (EMS) providers.
Many of the Asian distributors are competitive in the low-margin ODM/EMS business because they offer low prices. They are also competitive because they have "very deep relationships with customers and suppliers due to the fact they have been in the market a long time," says Harley Feldberg, president of Avnet Electronics Marketing in Phoenix, Ariz. However, as competitors to North American distributors, they have weaknesses.
"They are vulnerable to severe downturns or even upturns because they are under-capitalized," he says.
Bill Mitchell, CEO and chairman of Arrow Electronics, based in Melville, N.Y. says the business model of many Asian-based distributors is quite different than most North American distributors. "We characterized it as a narrow line model. Ours is a broad line model," he says. "They have only a few lines. It may be only 10. We have about 700."
He says Arrow and other North American distributors also have a broad variety of customers, but narrow line Asian distributors also have a narrow band of customers.
"They will target very specific end applications. They may target a specific set of products of a specific ODM or EMS provider that builds a line of cell phones or MP3 players or a flat panel display," Mitchell says.
"Because Arrow has a broad customer base, we often don't see them at all. Where we go head-to-head with them is in the ODM/EMS space and they are tough competitors because they do well in the low-margin business," he says.
Mitchell says Arrow pursues small and medium-size OEM customers that buy a variety of products instead of large-volume, low-mix ODM business.
"With small and medium-size customers we can bring value-added services, a broad product line and do more in terms of demand creation around a set of products," he says. "That is our sweet spot."
Narrow line distributors are often used by Taiwanese ODMs. "They will line up a whole series of distributors side by side," says Mitchell. Most are narrow line card distributors but there are also some broad line distributors like Arrow, Avnet and Future.
He says narrow line distributors offer front-end design services to customers. "The design services are similar to ours on very specific applications that they focus on. They have quite good design engineers, but they don't have the breadth of design engineers that Arrow has," says Mitchell. However, Asian distributor often don't offer supply chain services that Arrow and other distributors provide.
"The narrow line distributors are dealing with very large companies that typically don't need those services because they have sophisticated supply chain management organizations," says Mitchell.
Feldberg of Avnet says there are a handful of Asian distributors that have a similar business model as North American distributors. They have an extensive line card and offer similar value-added, supply chain management and design services that North American distributors do. Such distributors include World Peace Group and Yosun, both of Taiwan, he says.
"Those companies look like Avnet and Arrow from a size and depth of line card," says Feldberg. In fact World Peace Group, while based in Asia, is pursuing business in North America. It recently acquired the components business of Jaco Electronics of Melville, N.Y.
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