Electronic Design

Change Is The Only Constant In Electronic Components

Electronic components (ECs) are so widely distributed that the EC industry feels every economic shift, twitch, and tremor. That's especially true for small to medium-sized EC companies. Whether it's a change in consumer spending habits, government budgets, or boom and bust cycles in different sectors, small companies always feel the effect first.

Three industry trends—supplier consolidation, vendor reduction, and China's emerging economic presence—provide a good case in point.

Supplier consolidation will continue. As the big get bigger, they will continue acquiring smaller companies while expanding their presence overseas. The negative impact on the overall EC marketplace is undeniable. Strains on supply/distribution chains will increase. There will be less innovation as players (especially small ones) are removed from the field. And, prices will rise for everyone, from small manufacturers to end users.

When big companies grow into goliaths, however, they tend to be less customer-friendly. This creates wonderful opportunities for smaller, more nimble EC companies to gain customers alienated by GoliathCo, despite the attendant economies of scale. Big is not always better, nor is value determined by price alone. This is when smaller companies should step forward confidently and do what they do best: provide service to their customers with a capital S.

Vendor reduction is a trend that keeps many electronic components professionals up at night. It's just a new name for the cost-cutting bandwagon that companies have jumped on (often recklessly) for over a decade. Yet as trends go, it has about run its course.

As with other industry fads, it has created many unexpected downsides while failing to live up to its early hype. Yes, maintaining relationships with numerous vendors is expensive. But haphazard or shortsighted vendor reduction is much more costly in the long run. For example, slashing one's ties with multiple vendors can potentially isolate a company from new technologies and innovative solutions, which often emerge in secondary, smaller companies first.

The opportunity here? Intelligent, strategic vendor reduction. An optimum vendor-customer relationship is one in which both parties realize they need each other, value their respective roles, and commit to achieving mutual goals.

Helping customers reach this optimum vendor balance is a value-add even the smallest EC distributor can provide. In fact, small and nimble are tremendous qualities.

China's entrance onto the world stage has been anything but nimble, profoundly and rapidly altering the global economic landscape.

But the business going there remains predominately high-volume and geared for mass-market consumer products. That's unlikely to dramatically change in the next few years.

While this is hurting larger U.S. EC companies, it has opened numerous new doors for enterprising, medium-sized domestic firms. Many are taking advantage of the talent pool created by massive staff reductions among the largest U.S. companies.

That may strike some as opportunistic, but it's not. It's just one element of a larger economic cycle in which periods of consolidation are followed by corresponding periods of decentralization. Thank goodness someone is around to pick up the pieces while it's happening.

Anyone who has experienced similar economic ups and downs knows that everything is cyclical. Trends come and go. History repeats itself, but never exactly the same way. A few decades ago, the burgeoning Japanese economy seemed poised to steamroll over the U.S. and end the American way of life as we know it. Then it was Taiwan. Then Korea. And yet the U.S. is still here, albeit changed certainly, but still a strong presence. Is China simply the next one? Time, of course, will tell.

Change is a given. Yet a company's attitude toward economic variations can mean the difference between success and failure. A positive, "solutions-centric" attitude alone won't cause unwanted economic realities to disappear in a puff of smoke. It can, however, profoundly alter one's reaction to them.

TAGS: Intel
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