The Changing Global Marketplace:
Report from the
Europartners Electronic Forum
Don Lupfer — Lupfer & Associates
Not long ago, an OEM manufacturer would design, build and ship products from his factory to his/her customers and distributors -- a very simple process and it worked very well for years. In most cases the market served was local, regional or national in scope. Everybody in the system understood how it worked until customers started to move outside their traditional markets. Customers for these products wanted to go global and conquer new markets; growth was king. Stockholders loved it; workers got nervous but went along. The age of "globalization" was upon us. It was the early1980s and to all the OEMs — particularly in consumer electronics, computer and other commodity products — it seemed like the way to go. The cell phone is a great example for the 90s.
Many followed their customers to Europe, the next logical marketplace, and built a factory. As time went on, all the reasons why the simple model that had been so successful started to unravel. Customers kept moving; new ideas in channel management sprang up. Soon all of the proven, profitable methods were under the gun. Going offshore was the trend, and cheap labor, closely followed by automation, was the only way to make money. The next trend became the contract manufacturer or the board stuffer as they were called early on. As the customers moved east so did the OEMs, and by the mid 1990s contract manufacturers (CEM) and foundries set up by the semiconductor OEMs, i.e., Intel, Motorola and TI, were do'ing almost everything but designing the products.
The next three years:
I have just returned from the bi-annual Europartners Electronic Forum (Europartners Consultants) in Paris where I had a look into what's next, and listened to painful stories of the current business crunch in which we find the whole hi-tech world. Growth is a wonderful thing and estimates by some in the Electronics Manufacturing Services (EMS) [which is the new name for the contract manufacturers] are for CAGR of 29% over the next three years! This after the industry comes off two years of the worst performance ever. I wonder what these EMS people are having for lunch?
The return to a logical growth cycle needs to take place, inventory controls must come back to 4-5 turns and book-to-bill ratios which were out of control during most of 1999-2000 must be kept in check. The no holds barred growth of the industry in 1999/2000 with little attention paid to the rules of the road is what caused the disaster we have been in for the last two years.
Let's face it: the industry lost control of itself and I am concerned that they don't get it yet. Look at the OEMs, the original equipment manufacturers; they design and build the stuff. Sure they can offload certain pieces to subs, but these CEMs are thinking about doing it all! What then does the OEM do? Who needs a distributor if the CEM or UPS and FedEx take on the distribution function? What is going to happen as the industry goes even further east, which it is doing as I type this article?
Let me give you my view. Get your seat belt on because it's going to get crazier then it is now. If you think inventory control, human resources, channel management, design integrity and business ethics are a concern today, just wait till Asia is the prime source for all this material. The American and European manufacturers will soon learn what I mean if they relinquish too much control to these CEMs. Common sense says the "tail should not wag the dog."
Don is a channel management consultant with many years experience in hi/lo tech distribution. Lupfer & Associates has a relationship with Europartners in several countries within Europe as the USA Partner .
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Revised: August 27, 2002 TAF
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