Distributors supply solutions, not just parts

Korea’s semiconductor and parts distribution industry has grown and has evolved immensely for the last 40 years along with the local electronics industry. Distributors have also gone through several recessions, but many have survived.

Since the mid-1990’s, significant changes have occurred in the distribution market as information has become easily accessible on the Web. Enterprises have introduced advanced e-commerce systems, while a variety of B2B companies have emerged. The trend of companies relying on doing business Online has greatly affected the distribution industry in a positive way.

In the past years we have also seen companies entering the Asian market, which has been accelerated by China’s rising economy. China has become a good alternative market for Korean companies to grow business, as some of the domestic electronic market segments are already saturated.

BREAKING INTO THE ASIAN MARKET

BSI Semiconductor, established in 1979, has grown along with the history of the semiconductor distribution industry in Korea. BSI is a well-established local semiconductor manufacturer. Since the mid-1990’s, BSI has successfully expanded in the Asian market.

According to Tae-am Jeon, CEO and president of BSI Semiconductor, the Korean market will soon reach its saturation state. “Since a new market cannot be expanded quickly to equal or replace the maturing market, surviving in this industry is difficult for both suppliers and distribution companies. BSI has prepared itself to enter the Asian market since the early 1990’s. We now have offices in China, Singapore, and Hong Kong,” said Jeon.

“There are several restrictions for Korean companies to break into the Asian market. They have to deal with a lot of issues and challenges such as language, price, and deadline, as well as competition with Taiwan companies that already have a strong presence in China,” Jeon added.

Despite many challenges, BSI Semiconductor is well on its way in establishing itself in the China and South East Asia markets. Its partners include STMicroelectronics, Atmel, Littlefuse, Recom, Wolfson, Numonyx, Philips, and NXP Semiconductor. The China market accounts for one third of the company’s overall revenue.

CHALLENGES AND WAYS TO MOVE FORWARD

The Korean distribution industry is currently facing several challenges such as low profit margins and the need to expand technical support and increase investments in system infrastructures to enable the new distribution infrastructure. Multinational companies still dominate the global distribution market, and local players cannot compete with them in terms of purchasing power.

As more and more complex functions are being integrated into a single product, customers are looking for engineering solutions – not just chips or components supply – from distributors. In many cases, core parts are being supplied with reference boards, which are nearly finished products.

“As the integration of parts is getting more complex, customers are demanding engineering solutions configured with boards or modules that can support actual product development. Resellers should have a technical support system that can meet the market needs. Aside from strengthening their sales activities, Korean distributors must offer extensive technical support systems and engineering resources,” said Jeon.

There are about 10 multinational and local distributors in the Korean market. Competition is stiff, and the market is unstable. Companies should shield themselves with the right sales force and technical support to weather new challenges and changing paradigms. For now, the most important thing to do is to quickly find out and supply the customer’s requirements.



Local companies and MNCs co-inhabit the Korean market

During the past few years, many multinational companies, including the top semiconductor distributors such as Arrow Electronics, Avnet Memec and Future Electronics, have setup businesses in Korea. They entered the Korean market by acquiring Korean companies. For example, JUNG KWANG SA, Daejin Korea Co., and Dongbaek transferred their equity to Avnet, WPI, and Serial Systems, respectively.

Asian distributors such as WinTech and WPI of Taiwan, and Serial Systems of Singapore have also set up businesses in the country.

Multinational companies have the advantage of bigger capital and purchasing power, a wider product portfolio, and an advanced supply chain management system. These advantages have affected local distributors in a negative way. But despite multinational distributors taking a big share of the Korean market, local companies continue to operate and grow. Companies such as BriteStone, UNIQUEST, BSI Semiconductor, and Seung Jun are the leading Korean distributors today. The status quo is not expected to change anytime soon.

COMPARISONS, TRENDS

Even if multinational distribution companies have bigger business infrastructures, this does not necessarily equate to competitiveness in the actual market. Koreans have a unique business culture based on emotional relationships. Also, support and services based on a client-subcontractor relationship are required. It takes a lot of time and effort for foreign companies to understand and deal with the trends of the local market. Moreover, it takes longer for multinational companies to make decisions than local companies.

However, due to acquisitions and mergers of foreign and local companies as mentioned earlier,

MNCs now have the best of both worlds: the experience and relationships built by local companies, and the support and expertise from their headquarters.

Going forward, a trend being seen that will affect the Korean semiconductor distribution sector is that many chip manufacturers are now selling their products directly. If their attempt to direct sales become successful, then the role of distributors will become less important. Under these circumstances, competition among distribution companies will become even fiercer.