Distributors Withstand the Effects of Offshoring, Part 2

The US distribution channel has so far not experienced a significant loss in US jobs as a direct result of offshore manufacturing. In Part 1 of this blog, we looked at the role distribution plays in fulfilling customer orders. In Part 2, we discuss the role the channel plays in design.

US distributors with foreign parents — such as Newark/element14, whose parent {complink 12895|Premier Farnell plc} is in the UK — are not seeing a loss of US jobs as a result of offshore manufacturing. “This is one of the topics we talk about constantly at Premier Farnell,” says Quintin Komaromy, senior vice president, marketing, Newark/element14:

    We are focused predominantly on what we describe as the high-service, low volume space in the early stages of the design process. As such, we are less impacted by offshoring…

    We see our shipments increasing, and we continue to invest in both our headcount and other resources. There's no negativity around our resources in regard to Asia/Pacific. In fact, we see greater opportunity in the US as we invest in e-commerce and technical support. We've added around 25 percent to our headcount year-over-year in e-commerce; and 15 percent year-over-year in technical support.

In addition to fulfilling component orders, distributors play in a role in product design. The channel provides component information, engineering services, reference designs, design tools, software, and a variety of related services to customers. The bulk of electronics products are still designed in the Americas, although Asia/Pacific is catching up. (See: Is Design Dominance Good Enough?)

Market research firm IHS iSuppli estimates in 2010, about 36.9 percent of the world's electronics products were designed in the Americas. Asia/Pacific was the second largest center of design activity in 2010, with 28.8 percent of electronics design taking place there; followed by Japan at 20 percent; and Europe, Middle East, and Africa (EMEA) at 14.3 percent. The data is based on the amount of semiconductors ordered and sold in the various regions.

iSuppli notes that the design activity shows a significant amount of disconnect from where semiconductors are ultimately shipped. Nearly 60 percent — 58.2 percent — of semiconductors shipped in 2010 were destined for the Asia/Pacific region. Only 15.50 percent of chips were shipped to the Americas, 13.8 percent to EMEA, and 12.5 percent to Japan. By spanning both design and fulfillment services, distributors are able to “capture” a customer from engineering through production, even if manufacturing moves offshore.

Engineering support in electronics distribution is not duplicating the IT outsourcing trend the computer industry experienced some years ago. Tech support out of the US is still growing. At Newark/element14, the Knode, a centralized portal for engineering support ranging from component selection to PCB prototyping, was developed in the US.

“Nobody else across all sets of manufacturing or technology has invested more resources and headcount, as well go-to-market skills, technical marketing, and engineering” than Premier Farnell/element14, says Komaromy. “We have hundreds of engineers working throughout the Premier Farnell organization.”

Companies such as {complink 453|Arrow Electronics Inc.} and {complink 577|Avnet Inc.}, which have expanded through acquisition, have added hundreds of employees overseas. Many of these employees provide local, face-to-face contact in their respective time zones. Yet distributor {complink 12799|Digi-Key Corp.}, which manages all of its operations out of a single facility in Thief River Falls, Minn., is regarded as a preferred distributor around the world. It's also one of the fastest growing. In only six years, Digi-Key has moved from 16th largest to 5th largest among the more than 300 electronic component distributors in North America, the company notes on its Website. Its compound annual growth rate has been 22 percent over the past 20 years without a single acquisition.

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3 comments on “Distributors Withstand the Effects of Offshoring, Part 2

  1. _hm
    February 10, 2012

    I love working with Digikey, Mouser, Newark and Element14. Digikey and Mouser are very good with parts in small quantity with very low shipping and Newark and Element14 are very good for tools and instruments.


  2. stochastic excursion
    February 11, 2012

    Globalization and off-shoring may have the differential in operating costs as its primary motivation.  It also has synergistic benefits though, as regions with varied corporate cultures are forced to deal with each other with a minimum of disincentives imposed by government trade policy. 

    I've never read Adam Smith, but his work is often pointed to as a foundation for free market thinking.  That the United States can hold its own in the electronics supply chain sector, even in an administrative capacity is good news–this expertise is hard to counterfeit!  Maybe the situation is optimum where design and manufacturing are located in regions where they are most cost-effective.

    Then again, operating costs have a way of equilibrating when multiple regions have a free exchange of goods and services.  I'm sure I'm not alone as an American in my hopes that the decline in the standard of living we've seen in this country is not the rule moving forward.

  3. Barbara Jorgensen
    February 13, 2012

    @se–Thanks for your comment. Except for the pharma industry and possibly a few others I am unaware of, the electronics distribution industry is really state of the art. Part of the reason is US distributors, at least, had to develop a lot of their own systems to do stuff is becuase out of the box systems could not. The channel had developed product-tracking software even before UPS and FedEx introduced theirs (for public use, anyway). Distributors did not get paid if they could not keep track of their orders. Good enough reason, I think 🙂

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