Distributors must “globalize or die”

Nobody needs reminding that the structure of the electronics industry has changed dramatically over the last decade, but there are misunderstandings over the nature of the change. It is not simply a question of products being designed in the West and manufactured in the Far East, notably China. The picture is more complex. We see design moving too, and it will become more portable than manufacturing over the next few years. After all, it’s much easier to ship intellectual property (IP) around the planet than it is to move components or manufactured goods.



The nature of design is changing too. It’s now commonplace for a complex design to be segmented to achieve best efficiency and lowest cost. Different elements of a design are created in different parts of the world. There is increasing reliance on high-level platform and semiconductor companies are putting more resources into providing reference designs to help their customers get to market faster as product life cycles, particularly in consumer electronics, continue to shrink.

PATENT PROTECTION

Some observers see protection of design IP as a critical issue for original equipment manufacturers (OEMs). It is certainly a factor to be taken into account, but we are not finding that’s it’s a barrier to design portability. OEMs don’t feel under threat from the hardware perspective and hardware engineering is growing rapidly in China, India and Eastern Europe. Patents provide some protection and segmentation of software engineering means that only a few people have access to complete design data for a given product.



There’s a further factor driving the change in design methodologies. Electronics manufacturing services (EMS) companies have long offered services that address design from a cost reduction point of view – design for manufacturing, if you like. But more are now becoming original design and manufacturing (ODM) service organisations, aiming to provide OEMs with a service that encompasses design, manufacturing and logistics. Like the OEMs themselves, the larger EMS and ODM companies demonstrate great flexibility in moving both design and manufacturing services around the globe – sometimes to be closer to their customers, at other times simply to cut costs.



SELL AND SUPPORT

To understand what all this means for the distribution business, we have to look at the role of distribution today. For mainstream distribution, by which I mean distributors that don’t simply sell from a catalog, design support for customers has been growing in importance for nearly two decades. Some have wholeheartedly embraced this while others have taken it on reluctantly to secure franchises. Most have simply seen this as a matter of providing local design support, with the distributors’ various offices around the world communicating rarely, if at all.



At some of the world’s largest distributors, which have grown largely through acquisitions aimed at driving revenue growth, technical, commercial and cultural barriers have limited effective communications between their various offices. With multiple infrastructures to support, multiple IT systems and multiple cultures, resources that should be focused on providing global technical support and customer training, have been directed towards resolving internal communications issues.



Local independent distributors face an even greater challenge. Without global reach, they will be relegated to serving relatively small, local customers. They will not be able to attract the world’s leading franchises, and will not be able to support the growing mobility of both design and manufacturing in our fast-changing world. For these distributors, it’s a case of globalize or die.



To offer effective design support to large OEM, EMS and ODM companies today, a distributor must have global reach, common IT and logistics systems, a common culture and an overriding commitment to technical training, both for its own staff and for its customers. Nu Horizons’ strategy has been to grow organically wherever possible and only to acquire companies that already have a similar philosophy. In this way, any acquisitions, of which there have only been three in the company’s history, add to our technical resources, and don’t simply boost short-term revenues.



When we acquired DT Electronics in the UK last year, we completed IT integration within eight weeks. The company, now known as Nu Horizons Electronics UK, offers its customers all of the local expert support they enjoyed in the past with the added benefits of access to global inventory and greater product choice, the latter through new franchises such as Xilinx. Customers now also get technical, commercial and logistics support throughout Europe, the US and Asia.



It is a common generalization that large, global distributors are focused on order fulfilment while local specialists provide the most effective technical and design-in support. If this were ever true, it is no longer. The era of the global technical distributor has arrived – our customers and suppliers tell us so.