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What’s left for the specialist semiconductor manufacturers?

As small and medium sized distributors disappear into the homogenous mass that is the global distributor, the opportunity for share of mind disappears in an instant.

The recent announcement that Nu Horizons is to be purchased by Arrow serves to reinforce the dilemma now being faced by those semiconductor and related manufacturers that need high levels of specialism within their distribution channels. Where do these suppliers now turn to get the levels of expertise, the design-in capabilities and perhaps more importantly the drive and enthusiasm that they need to succeed in the market?

The answer is a relatively simple one, but it takes a brave channel manager to implement it: Niche distributors. Niche distributors continue to prosper in the UK albeit there are less of them than 10 years ago. So what is it that causes the niche distributor to be successful when they have only a fraction of the personnel that the globals can offer?

Examining the process of amalgamation offers some insights. At the first hint that a merger or takeover is taking place the manufacturer is told that everything will be done to maintain the look and feel of the soon to be consumed smaller distributor, and indeed there is no reason to question the sincerity of those presenting the message. However the reality is that only those top 15 or so manufacturers, the National Semiconductors, the ON Semis of this world truly get the attention of the broadliner. The reason is obvious, for many of the smaller manufacturers where they may once have held a prominent financial position they rapidly find that they have just become a rounding error. As the takeover progresses the reality begins to dawn. What broadliner can truly afford to dedicate applications personnel to a line that will only generate $1Million or less of revenues? Conversely, the benefit brought about by the niche distributor for whom the $1Million revenue is very significant, is clear. The ratio of technical staff to sales staff in the niche distributors often exceeds 1 to 1, niche distributors live or die by their ability to design in and sub-Million Dollar lines are very important.

Smaller niche distributors like Solid State Supplies ltd are able to maintain a focused line card without the inherent overlap that the broadliners necessarily have to deal with. There are no political games to be played determining who gets market share and who doesn't. In short the niche distributor only succeeds when all of their Principals are succeeding, they are totally focused on the lines they carry without the distraction of competing lines. Imagine the dilemma now faced by a company that has for some time held a strong position in their niche, that now find themselves sharing a sales force with a giant such as National Semiconductor, a company that because of its size, may even carry competing product lines.

The real issue for the manufacturer being drawn into the jaws of the global distributor is whether to jump, or stay and try to ride the wave. Will the promises of the Global footprint and the larger sales force have the positive impact that they are sold as providing, or will the lack of focus result in them falling to the bottom of the ocean? It's a brave channel manager that makes the decision to leave the big guys and strike out to a niche distributor but ultimately you can't expect a tanker to change direction on a sixpence just because you choose to call it a speedboat. It's still a tanker and it's still difficult to change direction. Contrast this with the ability of the channel manager to talk directly with the managing director of the niche distributor, now the channel manager can genuinely influence the direction, the speed and the focus of the vessel carrying them.

And what about the customer - what happens to those SMEs that relied on the focus they were given by the smaller organisation? The SMEs still need that focus, they are innovative and agile and they need distributors servicing them that can go the extra mile in helping to get the product to market. Niche distributors have those relationships and have the drive to make it happen.

The ultimate goal of any niche distributor is to be number 1 in the network for the franchises that they carry. This kind of dedication creates a culture in which the Principal is a key element of the distributor's business, a partner and not a commodity. It ensures that every customer, no matter how small, is important. Becoming number 1 is the driving force of the niche distributor and it ensures that manufacturers reach their target customers whilst growing their business.

Author
John Macmichael, managing director, Solid State Supplies

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