America and Europe: The future’s bright

Here at America II we hold quarterly addresses with our US team, examining the health of our business and the condition of the wider distribution market. For a number of quarters, a fairly bleak, uniform picture of the market has been painted: demand has been down, lead times have been short, and the inventories of customers and components manufacturers are up. How ever any distributor was doing financially, everyone experienced a slightly more lacklustre market than they would have liked.

Since the beginning of the year, however, we have finally seen a gradual trend in the opposite direction, with demand rising, inventories beginning to shrink and lead times growing. And importantly, scheduled orders from customers are finally extending beyond product lead times, something that has not been the case for at least the last twelve to eighteen months.

What is important here is that this upswing has not been confined to the US market alone; the same trends are also visible in the Asian region.

Importantly, however, we have not seen the same trend in Europe. When we have shared our quarterly addresses with our European offices, many of our colleagues have been surprised to hear that there are such high levels of optimism in other regions.

Back here in the US, all the reasons behind the resurgence in the market can be traced back to consumer confidence finally returning to the market. For starters, the economy in general is starting to look more stable, even if we’re not entirely out of the woods yet. The US entered the recession earlier than anywhere else, so it is logical that it is also one of the first places that has managed to recover. Taking real estate as an example, Florida was particularly hit by the subprime lending collapse, so it’s positive to see prices beginning to creep up and new construction projects appearing.

This is significant for a B2B distribution business because consumer spending trickles down to OEMs, with more money and stability encouraging them to schedule orders that go beyond the lead times of the devices alone; a factor that America II puts particular stock in as an indicator of market health.

As a result of this, OEMs are increasingly having the confidence to move their businesses to Latin America, from the Asian region. This is the result of many factors, not least the fact that the Latin American economies are experiencing a surge, whilst offering the attractive characteristics of a developing market that Asia is simultaneously leaving behind; the geographical distance between the Asian and US markets is no longer balanced against sufficiently reduced labour costs in the eyes of many OEMs. This of course is offering further support to our US operations; lowering costs and easing the logistics of maintaining a relationship with these suppliers.

However, this doesn’t explain why America II specifically is experiencing such an upswing. Instead we attribute this to orientating our business much more heavily towards what we call our ‘Blended Distribution’ approach.

If we think back, ten or twenty years ago there were hundreds of franchise distributors, particularly in North America, however the ever increasing expectations of their customer bases meant that they could not be the single, all-in-one solution that the market wanted, therefore many collapsed. This was then echoed in the independent sector when the economy collapsed, creating a ‘survival of the fittest’ environment that has seen some degree of industry consolidation occur.

By putting emphasis on making the most of our Blended Distribution approach, we have been able to quote far more devices to customers than ever before. When combined with a concerted effort to diversify our commodities, we have sufficiently protected ourselves against the pitfalls of the old franchise distributors, managing to remain the all-in-one solution to the needs of our customers whilst the industry struggles.

Having spoken to executives at other independent distributors, we feel this strategy has been vindicated, placing us slightly ahead of the curve in feeling the benefit of the current upswing. This compares to pure franchise distributors, whose need to answer to Wall Street means many are yet to return to stability.

So it’s thanks to this optimism and increasingly positive outlook that we can report our business has seen tangible growth in areas. In the last twelve months alone, we have put significant investment in to the number of salespeople we have making contact with customers, increasing our salesforce by 33% to roughly 200 people. This has also extended to the Latin American market, with investment in both ‘feet on the ground’ in the region and remote support here in the Tampa Bay area. We’ve also been able to invest in improving our computer systems, software and home-grown technology over the past 18 months, encouraging further growth thanks to faster turnaround times, better sourcing and improved inventory positions.

Which leaves Europe: In our experience, the German market remains strong and the UK market is increasingly becoming more stable. But the overall economy in the EU still trails the US and Asia in terms of recovery. This isn’t a particular surprise: As I noted earlier, the US market was one of the first to feel the effects of the recession, so it follows that the EU will experience some lag in catching up.

When discussing Europe with colleagues and industry executives — all of whom are based in the US, but are involved in some level of international operation — they concurred that they too shared this perception of the EU market. Therefore it is for this reason, as well as our investment in the US, that we have begun investing more heavily in our European operation. In fact, we’re encountering a challenge of our own; we’re running out of desks for sales people!

From a personal perspective, I visited the UK four months ago and from broadcasts on television and radio, as well as speaking to people within the UK distribution industry, I did not get the same sense of doom and gloom that was present in the UK during recent quarters. When presented with what we have seen in the US market of late, it seems many industry members in Europe are surprisingly unaware that there has been some sort of upswing outside of their region.

What was comforting, however, was to see that this insight inspired clear, if cautious, optimism for the future of the global distribution market.