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Marie Alexander

Jaime Coreano - President - Corven Electronics, LLC

“Top Reasons Why Asian manufacturers struggle in North America, 2024 Update”

I have encountered many foreign companies that struggle to succeed in the North American electronics components market. Many of these companies offer outstanding products at competitive pricing yet struggle to gain market share. The question is, why?

Reason 1: The Market is different

Many of these companies are very successful in Asia and Europe. They think the same approach will lead to success in North America. Nothing could be further from the truth...The North American market is completely different. Approaching the market the same way as other foreign markets does not guarantee success.

UPDATE: The N. America market has changed substantially post Covid. Reaching decision makers at customers is more complicated due to work from home trends that persist. Geopolitics also affects foreign companies’ access to customers given that some customers want to avoid using products that originate from certain countries. Local relationships are needed now more than ever. Representatives and distributors can provide access to customers even under the current difficult business climate.

Reason 2:  Lack of conviction/investment

This might as well be the primary reason for the lack of success. I have heard many times "once business starts to grow, we will invest more in the market". Well, guess what, if you are not serious about the market enough to invest in sales resources, trade shows and a website targeted at the North American audience, etc. your business will not grow. Period! Many companies waste 2, 3 or even 5 years before they realize that they will need to invest to get the business going. It would certainly be less expensive and quicker return on investment to invest in sales and other resources from day one.

UPDATE: I have seen a trend from manufacturers of offering representative contracts that are non-exclusive but rather by Account. In this arrangement, the representative must register an account in order to pursue business there. This means that it is possible that multiple rep companies are acting as agents for a manufacturer in the same territory. The manufacturer’s logic is that more people selling their product in the market is good for them. Unfortunately, this is not the case. Reps operate under exclusive agreements. If a manufacturer does not agree to exclusivity, it may signal to the rep that they lack conviction or commitment. Most reps will not agree to a non-exclusive arrangement and, even if they do, they will not commit significant resources to selling the product line. In other words, if the manufacturer is not committed to them then the rep is not committed either. The result is no sales!

Reason 3: Unrealistic Expectations

The North American market is an established and mature market. Design cycles are long and competition for design wins is fierce. Success takes time and commitment. It is very challenging for a company to enter the market, especially if they do not have a good strategy, proper infrastructure and investment. It is important that the strategy includes a short-term aggressive plan to get started but also a realistic long-term view of success. To expect the business to grow from zero to millions in 12 months is unrealistic in most cases.  A long-term approach and commitment are required for success.

UPDATE: Having the best price and/or product does not guarantee success. Especially if the customer is not familiar with your company. Building brand awareness through trade shows, rep/distributor engagements, advertising, etc. is very important to long term success. This effort can take years. After all, your competitors have been building their brand in N. America for decades.

Reason 4: Lack of understanding of the representative/distributor relationship

Many companies, domestic and foreign, fail to realize how to leverage the representative/distributor relationship. In other parts of the world, "stocking reps" are common. Basically, the rep and the distributor are the same company. I am often asked, "Why do we have to pay the rep commissions on business booked through distributors?" or "Why do we have to pay two people for the same business?". The answer is simple and complicated at the same time... In North America, the representatives are expected to perform demand creation and the distributor, with some exceptions, perform fulfillment. The best-case scenario for the manufacturer is for both entities to collaborate. Otherwise, the rep and distributor will end up competing, which in my opinion, is a disaster for any manufacturer. Furthermore, while it is true the manufacturer must pay rep commissions, they do not necessarily have to pay the distribution margin. The distributor's responsibility is to demonstrate their value to the customer. The customer, in turn, will pay a reasonable margin if they feel the distributor is adding value. There are scenarios where the manufacturer is expected to subsidize some of the margin where demand creation, registrations and other factors are involved. However, most of the margin contribution would still come from the customer in most cases.

UPDATE: Manufacturers have told me in the past that reps or distributors are not contributing to their success in one way or another. It is important to note that the manufacturer must support reps and distributors properly to help them become successful. One cannot blame the rep or distributor for lack of sales or activity without first looking at our own levels of support or commitment. In my experience, the manufacturers own actions or inactions contribute greatly to the success of the partnership.

 

Reason 5: Underestimating the need for local support

Many companies think that they can hire distributors and representatives in the market, provide them day to day support from overseas, travel to the market a few times per year and enjoy success. You may win some business over the long run with this approach. However, you would have wasted a lot of time and money in the process. Here is why. Both reps and distributors are dealing with challenging market conditions. Reps struggle to remain viable and profitable in a world of reduced commissions. They simply do not have the time nor desire to take on a line that has no revenue and no local support. Consider they have 15 or so other lines that are demanding their time and attention every day! Distributors, on the other hand, typically carry well over 100 lines. They must focus on fulfilling orders for their top product lines. For the most part, if the customer does not request a particular manufacturer by name the line simply will not be sold. Again, why should they focus their sales effort on a manufacturer that has no or little print position for which there is no local support? Remember, they must deal with different time zones, competition, language and cultural barriers to begin with. My question to the manufacturer is, if you do not have print position in North America and the representatives/distributors that are supposed to help you get it do not have the local support they need to be effective, how are you ever going to be successful?

UPDATE: Reps and distributors need local support as much as customers do. Reps and distributors will be reluctant to engage with companies that don’t support them locally. They want to be able to respond to customers’ inquiries on the same day. Quick responses to customers enhance their chances of winning. The companies that are quick to respond, offer competitive pricing, have local inventory and are easy to do business with will win.

Entering the North American market is certainly a big challenge. However, the market opportunities are great and certainly worth the time and investment. Finding the right local company or companies to partner with is the key to long term success in North America.