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.
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 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.
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 specially, 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 it is unrealistic in most cases. A long term approach and commitment is required for success.
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. So 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 has to 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.
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 actually 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 have to 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 have to 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?
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.