New frontiers on way to 21st Century

Electronic News, Dec 2, 1996 by Bernard Levine

What directions are distributors taking toward that much-discussed bridge to the 21st century?

Increased globalization is on virtually everyone's roadmap, with industry leaders Arrow and Avnet leading the way to new frontiers, including China. A quick look at our Distribution Trends 1997 Top 25 list of franchised industrials shows some foreign firms and U.S.-offshore combinations that weren't present just a year ago, and more such collaborations are likely.

Yet this past year also proved that tremendous controversy still rages over whether U.S. and Asian semiconductor lines should intermingle on distributor shelves. Some thought National Semiconductor's termination of Bell Industries was related to Bell's signing of Samsung, although National said it was done for other reasons. Elsewhere this year, Marshall Industries and Wyle Electronics established a value-added joint venture, Accord Contract Services, to support their component kitting and auto-replenishment systems. Accord will be able to draw on the component lines of its parents, including the mostly American IC lines at Wyle, and Marshall's heavily Japanese linecard. Marshall and Wyle remain competitors outside the value-added arena. A somewhat similar marketing arrangement two years ago between Avnet and Reptron lasted less than a week, but Accord has been going forward since its launch over the summer. Some sources have suggested that if the going continues smooth, similar deals might surface soon.

There is little controversy about the growing importance of EDI, JIT, kitting and other value-added services, which provided distributors a much-needed boost to an otherwise sluggish 1996 (see story, Page 4). Just how big a role the Internet will play in distribution's future is a little less certain. While most top 25 distributors have begun experimenting with the World Wide Web and some have already launched major efforts, top-ranked Arrow remains conspicuously absent from cyberspace (See story, page 10).

The international expansions in recent years of Arrow and Avnet have pushed them into their own tier of distribution, together garnering almost as much sales as the next 23 distributors on the top 25 list combined. Arrow, which surpassed long-time number one Avnet several years ago, has opened up a billion dollar-plus lead on its arch-rival. Arrow's estimated '96 distribution sales are $6.5 billion, compared to $5.1 billion for Avnet. The third ranked firm, Premier Farnell, is at $1.7 billion.

Avnet's "aggressive acquisition strategy" has seen it make "18 acquisitions in 5 continents over the past four and a half years," according to chairman/CEO Leon Machiz.

A move into China may be next, according to vice chairman/president Roy Vallee, who has scheduled a reconnoitering mission to Asia for January with Avnet's senior VP and president, Avnet Electronic Marketing Group International, Keith Williams. A major goal is to develop a strategy for future operations in China, with setting up Avnet's own offices, rather than partnering, the current expectation. Avnet today has offices in Hong Kong and Taiwan. "Our vision is for Avnet to be a global leader," said Mr. Vallee. "We will continue to expand."

Mr. Williams noted China's import duties pose barriers for foreign distributors but "our suppliers want us there."

He expects Avnet's current total Asia-Pacific sales of $200 million to reach $1 billion by the year 2000.

The moves offshore often require moves in management at many distributors. At Arrow, president/CEO Stephen Kaufman said the firm "is committed to broadening and strengthening the management team to address most effectively the changes that have accompanied our significant growth in recent years and the increased complexity of our business, some 30 percent of which is now outside the traditional North American base."

This past year saw growing internationalization of the entire distribution business, with Premier of the U.S. merging with Farnell Electronics plc of England to form Premier Farnell. Also, Germany's Raab Karcher continued to expand, adding Seymour Electronics to its U.S. ties, which also include Axis Components and Insight Electronics.

Shelf sharing controversy grabbed many of the distribution headlines in 1996. When Bell Industries signed Korea's Samsung and was soon dropped by National Semiconductor, Bell claimed National had a stated policy against sharing the shelf with Far East firms. Bell's president, Bruce Jaffe, in a strongly worded statement, said "National has a stated policy that they will not share shelf space with Asian semiconductor manufacturers; i.e., if you have an Asian line, you cannot have ours. One can draw his own conclusion regarding National's decision." Mr. Jaffe added: I strongly disagree with National's policy. It is archaic, inappropriate for a 21st century company and hypocritical in light of their ongoing relationships with Asian businesses. It is also not the way business should be conducted in the United States."