Distributors Assist Brands as They Enter Foreign Markets

“Some potential barriers for companies seeking to enter the Southeast Asia market include a lack of understanding of the needs of the region, which may differ from country to country; intense competition in standard products, both globally and locally; cultural difficulties in localizing services, support and product delivery; and possibly challenging logistics – both Indonesia and the Philippines comprise thousands of islands, for example,” said James Loh, regional marcom manager, Asia Pacific South, for Molex.

“The varying governmental policies and taxation schemes, from country to country, also pose challenges,” said Andreas Mangler, director of strategic marketing at Rutronik. He explains that “the political stability of certain countries breed uncertainty when companies attempt to expand into the ASEAN market.”

This is where distributors (or local channel partners) come into play.  “Undoubtedly, Southeast Asia is a diverse region characterized with many cultures," Mangler said. "The key is in understanding these diverse cultures, with a focus on human resources when expanding into the different Southeast Asian countries."

Global distributors such as Rutronik, Mouser, Avnet and Arrow navigate these cultural challenges by offering design and component-advisory services. As technological advancements are driving demand for electronic solutions and devices, applications proliferate at increasing levels of complexity. The result is a growing need for support throughout the product design and development process – and that need is primarily met by the industry's distributors.

The role of the distributor

"All of our revenue goes through our distributors worldwide, this is something we do a little different than our competition," said Wendell Boyd, director of sales and marketing, APAC, for Nordic. "One of our distributors, Avnet, has a strong design center in Singapore called ADS and they have been working with us for many years."

Due to their long-established relationship, Avnet is highly competent in Nordic products. Roughly 70 percent to 80 percent of Nordic's customers are supported by Avnet directly. Avnet operates as Nordic’s sole design distributor in Southeast Asia. Nordic prefers to focus on a single distributor, Boyd said, "as it gives them the confidence to sell our products and we get more market share from the distributor. It also means that services such as ADS will be more efficient at selling Nordic products."

Bourns Inc. has long had a presence in Singapore.  "With an early presence in these countries, even before they caught the eyes of major investors, we've [gained attention] through the support of local distributors, said CH Goh, director of global EMS sales at Bourns Asia. "The culture of Southeast Asia encompasses the collective and diverse customs and traditions of doing business," he added. “It is always a challenge to close a deal without the local representatives’ involvement."

So far, most of Bourns’ business goes through distributors in foreign markets -- such as Southeast Asia -- because most have offices in countries such as Vietnam, Thailand, Malaysia, Philippines and Indonesia.

As an early mover to Southeast Asia in the 1990s, Mean Well, a Taiwan-based switching power supply manufacturer, has been cooperating with local channel partners for more than 25 years. Through its channel partners, Mean Well has seen the successful expansion of its brand into Singapore, Malaysia, Indonesia and the Philippines.

The barriers to entry into foreign markets can be overcome by developing long-term cooperation and mutual trust with local channel partners, according to Leo Wu, regional sales manager at Mean Well.

Wu believes that the successful expansion of a brand depends on partnership with a local distributor that can take products to the next level. “We choose the right local partners instead just going for the biggest one," he said. The right distributors already have an existing local customer base which they can quickly tap into, he added. They know their local market well and are a low-cost source of market information. They can also assist in product pricing and positioning strategies, customize local marketing and manage any local requirements.

Partnership or acquisition?

Perhaps this is one of the reasons Chroma ATE, a Taiwan-based test and measurement equipment provider, acquired Quantel. The Singapore-based distributor was founded in 1989, with 13 offices around Southeast Asia, and has been promoting Chroma’s products since 1995.

Since acquiring Quantel, Chroma has decided to continue operating under the Quantel name due to brand recognition in Southeast Asia. Quantel currently act as Chroma’s gateway to Southeast Asia, according to Eric Yip, marketing director at Quantel.

As foreign markets and components become more complex, customers require more advice from distributors.  The proportion of 'design-in' products in stock at Rutronik has now risen to 70 percent, according to Mangler.

In addition to their classic broadline distribution business, a global distributor or a local channel partner is also a consultant and, in this role, works within a complete ecosystem of proven development partners and assemblers.

From the perspective of Rutronik, corporations can benefit more from having a relationship with a global distributor, rather than staying with a domestic distributor.

Daphne Tien, vice president of marketing and business development, APAC, for Mouser Electronics, agrees. One of the key benefits of a relationship with a global distributer is that they can also ensure the authenticity of the product, she added.

With the fake semiconductor market reaching $75 billion according to Industry Week, Tien claims that global distributors are the best way to ensure authenticity.

"A lot of people are now buying online, but you never know where those products came from. Mouser will only purchase directly from the manufacturers," she said. Counterfeiters have gained a back door into the industry as component shortages have forced electronic manufacturers and contract manufacturers to look for new sources. Traceability remains one of the only sure-fire ways to fight against the fake semiconductor market.

Most suppliers are dependent on their distribution networks, but they are not always perfect. "One of the challenges of working with distributors is to get the right person," Goh said. "They tend to have a very unstable workforce and employees keep changing their jobs.”

“Our local partners may not have the capacity to accommodate a whole market segment, with more and more new markets emerging,” said Wu. Mean Well has made the decision to try direct sales in some emerging markets, as it's aware of the limitations of distributors when targeting new foreign markets.

This article was first published in EET Asia, a sister publication of EPSNews.