Recovery raises distribution spirits -

Recovery raises distribution spirits


LONDON — Last year was a good year for electronic component distribution companies according to the latest Europartners Consultants Distribution Report which is based of market figures for 2006. After 2005 when the European market had shown no growth, and with low growth in the American market, 2006 was a year of strong growth in all regions of the world.

“Although in 2006 the level of merger and acquisition activity decreased, the effects of the major changes that happened in 2005 were making themselves apparent. Many European distributors picking up the business that had been held by Eurodis and with many changes in the semiconductor franchises – 2006 was the first opportunity to see the real results,” said, Aubrey Dunford who masterminds the team of over 20 that compile the information.

The report is organized into geographical groupings of countries (the basic level at which information is gathered) and summarized into a world level. Each country report is written by locals who have detailed knowledge of the electronic component distribution industry. These reports analyze the market split into semiconductors, passives and electromechanical components and component assemblies.

“Major distributors and manufacturers are increasingly developing world wide franchise partnerships and the biggest are getting bigger and taking an increased amount of the market,” said Dunford. This is most noticeable in Europe where their share of the total market available to distributors (DTAM) has grown from 43 percent in 2004 to 45 percent to 2006 and the share of the top ten has grown from 58.7 to 61.3 in the same time frame. At the same time the distribution share of the total market has also risen and thus the share of the top ten distributors in Europe of the total available market (TAM) has risen from 14.1 percent to 15.8 percent emphasizing the growing importance of distribution in the whole supply chain.

Click here for a larger version of this image.

Being the seventeenth year of publication the Europartners report is able to provide good perspective and shows that in three years from 2001 to 2003 the huge growth in sales in 2000 were wiped out. “However in 2004 we saw a change in direction which has accelerated throughout 2005 and 2006. In 2006 the market levels in North America returned to above its 2001 level at $20 billion but not yet anyway near to the 2000 peak of $28 billion,” said Dunford.

The company also looks at emerging markets and its research has highlighted that the distribution market in Mexico is developing rapidly with more business being transacted by distributors within the country and a decline in the free shipment of products from the U.S. “We have therefore revised our view of the Americas market as a whole which we estimate to be approaching $21 billion in 2006.”

Slower rate of evolution

Europartners believes that the electronic component distribution industry will continue to evolve although perhaps at a slower rate as the industry matures. The big players are likely to continue to grow their share on a world wide basis either through an increased number of franchise relationships, organic growth in new territories or further acquisition activities. “Productivity per head has increased tremendously over the past decade particularly with the increased use of all forms of electronic communication,” said Dunford.

“Going forward we will see further increases in productivity per head as the drive to increase efficiency and reduce costs continues. Major manu-facturers and distributors are beginning to look at collaborative forecasting to further optimize production planning. This will involve distributors electronically sharing their open order book with their suppliers to give them greater visibility of future requirements, ahead of when a distributor may normally place purchase order cover.”

In Europe, Europartners believe the share of the market supported through distribution is likely to continue to increase with the on going reduction of major volume production in the region.

The world will continue to shrink in terms of communications and thus the trends seen over the past few years will continue. Customers will be increasingly able to source product quickly and price competitively from around the world creating opportunities for all, franchised and non franchise, to extend their geographical market coverage. There will be increased electronic transactions either via the web or through various e-commerce systems.

The larger distributors and suppliers will continue to improve their global operations and world wide negotiations and possibly global purchasing will become more commonplace especially on commodity parts.“Thus the bigger will get bigger and continue to increase their share of the DTAM. However there is no evidence to date of plans from the major Far Eastern distribution groups such as WPG to proactively move into the European or U.S. markets,” says Dunford.

Smaller distributors will continue to explore niche markets, focusing on specific market segments or product groupings where they can develop a specialist reputation and a profitable model. “Competing head on with the large distribution groups especially in commodity products will become increasingly difficult,” he said.

Dunford believes the next few years are likely to see market evolution rather than revolution. “The industry needs, across all products, to develop a mechanism that adequately protects and rewards those distributors investing the most on behalf of their suppliers particularly in relation to technical resource.”

The Europartners 2007 Worldwide Report which covers 2006 data consists of over 900 pages while individual country reports are also available – see the Europartners website.

  • This story appeared in the EE Times Europe print edition covering September 3 to 16. European residents who wish to receive regular copies of EE Times Europe, subscribe here.

    See other stories from this issue here.

  • Leave a Reply

    This site uses Akismet to reduce spam. Learn how your comment data is processed.