Markets, not savings, drive globalization trend

MANHASSET, N.Y. — Despite globalization's business-changing import, managers at small and midsize U.S. electronics companies are ill-equipped to exploit it, tending to be fearful, cheap and misguided in their efforts to open overseas operations. Their laid-back practices clash with changing overseas markets that require ever higher levels of involvement.

Those are the findings of a study to be released this week by EE Times, prepared by the New York-based research and consulting firm KWR International Inc. for CMP Media LLC.

"The uncertainty of a payoff, difficulty making contacts and operating in a foreign environment, and large amount of time and resources required make it hard for most firms to make international expansion an immediate priority — even though many recognize it is in their long-term interest to do so," said Keith W. Rabin, KWR International's president and author of the report.

Another key finding is that overseas expansion has shifted from a supply- to a demand-driven strategy. China, India and other destinations once seen as wellsprings of cheap labor and low-cost manufacturing are now thriving markets in their own right, exceeding the growth rates and, in some cases, the size of the U.S. market. Companies must alter their approach to capitalize on these markets, the KWR report says.

Based on a survey of EE Times' and Electronics Supply & Manufacturing's executive and management readers, the study states that decision makers must do more than make a few phone calls or a handful of trips overseas to grow their international sales.

Small and medium-size companies have an easier time recognizing the need to expand internationally than they do in developing the understanding, commitment and consensus needed to succeed in the long run, the study concludes. International business development requires a company's attention as long as it maintains a presence — the job is never done. "It is a lot of work," said the CEO for a small, internationally focused telecom component manufacturer. "I am out on the road 80 to 90 percent of my time and also spend a lot of time on phone, fax and e-mail."

Another respondent said his company has operated manufacturing plants in China and Malaysia since the 1990s and wants to expand further, but is nervous about doing so. "You need to watch out what you are acquiring," the technology vice president said. "We acquired a Chinese factory in 1999. It was a very difficult process to bring them up to U.S. standards and took three years. In the end it was successful, but [it was] a long and difficult process."

The demands of creating an international presence can be especially challenging for smaller enterprises. Creating a credible international presence with a sales representative, for example, involves weeding out reps who are not ready or prepared to commit themselves. "It is better to get that done up front, as otherwise there is a lot of disappointment and wasted time on both sides," an independent international sales rep said.

Language and training can be problems, and lots of information about competitors is needed to make a successful plan. "Without it you are flying blind," said a product specialist for a $10 million-plus company. "You can throw out money for ads and see what you get — but that is not well-thought-out."

Paradigm shift

The demand-driven paradigm of international expansion requires a more-complex, active and ongoing commitment than a supply-driven initiative, according to the KWR report. Demand-driven growth is rooted in rising living standards and a consumerism emphasis in Asia and other emerging markets, the report says. This thrust is helping to create growth overseas that will be greater than rates in the more-mature U.S. market.