In recent years Avnet Inc. has become the top electronics distributor by growing its component sales and by acquiring smaller distributors. In the future Avnet expects those two trends to continue, but globalization will play a more crucial role in its growth, says Roy Vallee, CEO and chairman of the board of Avnet.

In 2000 Avnet grew its sales to $8.4 billion to edge out Arrow as the top North American distributor. But its worldwide sales of $11.8 billion were second to Arrow's $12.9 global calendar year sales. Avnet's efforts globally, especially in Asia and Europe, will become more important to Avnet in the coming years, say Vallee.

"Whether the Japanese or Europeans like it or not, we are moving into a global economy," says Vallee. "Europe and Asia are critically important. After all, in the components business parts can be built anywhere, sold anywhere, and shipped anywhere in 48 hours," says Vallee. That makes it a global marketplace," he says.

Vallee notes that many electronic component manufacturers already are global companies. "Now our customers are more and more becoming global companies. What's happening is the best companies in America, Europe and Asia are becoming global. If you're not striving to be the best in the world, you're going to be in trouble," says Vallee.

As more companies become global, it poses a challenge to distributors. Not only do they have to provide components on a worldwide basis, but they have to provide supply chain services as well in a cost-effective manner. "In a global economy, business migrates to the most efficient provider," says Vallee. "That means products and services. We intend to be the highest-value provider."

In the coming years, Avnet will look to grow its sales in Europe and Asia by addressing the needs of customers and component manufacturers. "We are greedy capitalists so we are going to try to take as much of the market as we possibly can," says Vallee. "We have product segmentation strategies, customer segmentation strategies, services that we offer on top of the parts. We intend to use all of those things to try to increase the value that we offer to the marketplace."

Avnet will be battling Arrow to be the top distributor in Europe and Asia. He says it will be difficult for other distributors to challenge Avnet and Arrow in Europe, Asia or the U.S.

"What we have is a duopoly. With duopolies you have two big players and each one anticipates the moves of the other one," says Vallee. "You tend to end up in a highly competitive, but productive, environment in a duopoly. Will someone challenge us? I don't know. I don't think so. I think now there is a $10-billion gap between us and the next closest player." But he adds that it is possible for two or three distributors to form an alliance to challenge Avnet and Arrow's dominance.

However, Vallee thinks that Avnet may be more vulnerable to a distributor specialist than a broadline distributor. "What is happening is a bifurcation between the big broadline global distributors and the specialists who are just fantastic at, say, connectors in Cleveland," says Vallee. "They are going to be quick and nimble and able to beat us on connectors in Cleveland."

If smaller distributors concentrate on niches and execute well, they are going to be successful, says Vallee. "Business books will tell you not to be in the middle. That's dead man's gulch. One reason that we have been as aggressive as we have in acquisitions is to make sure Avnet is not a company in the middle," he says.

Specialization is probably one reason Avnet is acquiring Kent Electronics, a $1-billion interconnect, passives and electromechanical (IP&E) component distributor.

"We had viewed Kent for a period of time because they are good as an IP&E specialist," says Steve Church, president of Avnet Electronics Marketing. "Kent is profitable and well managed. We believe that culturally it would be a good fit. Kent has a good customer-service focus."

Church says Kent will merge Avnet's IP&E business with its own and create a $1.6-billion IP&E business. "For buyers who want products and support and want to buy from a specialist who understands the products, we are going to have a great model for them," says Church.

While Avnet could be vulnerable to other distributor specialization, Vallee says it is also important for Avnet to guard against a smug attitude that says, "we don't have to constantly challenge our business model and adapt."

"The fact is that other than the distribution channel, there are other ways to get materials. We have to continually challenge ourselves to provide value to our suppliers and customers," he says.

Vallee is optimistic about distribution's future as well as Avnet's. " DTAM (distributor total available market) will grow. Contract manufacturers are going to grow faster than anybody does and distributors will grow faster than the market.