Going global
As manufacturers set up shop around the world, they are asking their distributors to go with them
By John R. Johnson -- Industrial Distribution, 2/1/2000
Many industry experts were taken by surprise when Vallen Corp. announced in December that it was being sold. However, the identity of the buyer for Vallen -- Netherlands-based Hagemeyer N.V. -- should have come as no surprise. Vallen, which generates more than 25 percent of its revenue from international business, is a natural fit for a foreign competitor."I'm sure it was one of the main considerations," Jim Thompson, Vallen's president, said of the marriage between his firm and Hagemeyer. "With the Hagemeyer acquisition of Vallen, we'll continue on and we'll be looking to expand our global opportunities."
Vallen Corp. has made big strides in the foreign marketplace over the last few years, with solid operations in Mexico and Canada. However, its international efforts extend into Chile, Great Britain, and the Pacific Rim. Vallen also has its own office in Taiwan. Now, as a member of the Hagemeyer organization, Vallen has even more resources overseas. Hagemeyer N.V. is an international marketing and distribution company with operations in Europe, North America and the Asia-Pacific region. Hagemeyer operates in over 60 countries and has approximately 22,000 employees. Suddenly, those 60 countries become fair game for Vallen.
"This is going to be a great thing for us, and we're excited about the future opportunities with Hagemeyer," said Thompson. "They already have an expertise in those countries, so they will be very useful in helping us work with different distributors and in acquiring distributors around the globe.
"The future is going to be the multi-national distributor. The giants will be going to all of these countries where there is industrial growth and development, where the manufacturing process is done at a lower rate than we're doing. Certainly, Mexico has some advantages there, as do some of the Latin American countries. I think you're going to see a necessity for the distribution network to cross borders. Certainly, the tariffs coming down in 1992 helped, and the Euro will help. We have at least five or six customers that have said, we need you here at our [foreign] plants."
Indeed, the trend of following customers around the globe is something that is catching on more and more, especially as technology gains make doing business abroad easier.
Philadelphia, Pa.-based Pembroke Consulting did a recent study on distributors going global. The firm found that while the electronics industry is far ahead in the trend, it is starting to happen in the industrial market and will continue to gain steam.
"We found that customer pull is a strong reason for distributors to globalize," says Danielle Morello, a senior analyst at Pembroke Consulting. "The electronics industry is a great example. If you look at the larger component distributors, they followed their customers abroad. With manufacturers like Motorola and others establishing plants in lesser developed countries, the advantages of a U.S. distributor with technical expertise, in addition to value added services, far outweigh any benefits a local distributor can provide."
As manufacturers continue to streamline purchasing procedures, it's a lot easier to have one or two global suppliers, instead of upwards of 50. This provides further incentive for U.S. distributors to look abroad. However, Thompson suggests that distributors be aware of both currency devaluation and the cultural differences that can arise when dealing with foreign businesses.
"Currency devaluation would be the second most important issue, but most important would be people," said Thompson. "If you set up a business, the chemistry of the people you work with is the first thing to be aware of. With a great chemistry you can accomplish great things, as long as the people issue is addressed appropriately. That's been our success in Mexico, and anywhere we've gone; making sure the people issues are dealt with early so we have a highly motivated workforce. When you're far away, it can be hard to make the process work."
Jay Bernhardt, president of JGB Enterprises, Inc., suggests that distributors also need a product that is unique and fits a special niche in the country they are targeting, like a customized hose product, for example. Without that, your global venture may not prove profitable. Bernhardt found that out recently when he realized that his firm wasn't going to benefit from the global economy as he originally anticipated.
"The emphasis now has shifted where it's back to more of a focus on domestic sales," says Bernhardt. "We really had a push [overseas a couple years ago], but now the emphasis is on domestic sales.
"The opportunity for exporting hoses is not turning out to be what we thought it would be. We thought we were going to grow overseas, but it's hard to compete when you are importing hoses and you turn around and export them back overseas. In many instances, with freight concerns and there being a lot of hose manufacturers overseas, it's just not practical.
"The bottom line," Bernhardt says, "is unless you have niche products and you can overcome the freight and added expense of getting it over there ... the competition overseas is keen. You really need a product that's unique and different than what they can find over there."
Indeed, selling internationally isn't for everyone, although JGB still maintains some international accounts and derives just under 10 percent of its revenues from business abroad. But as the world continues to shrink, the popularity of global distribution will rise.
"Industrial distribution, especially MRO, has not yet globalized, but it's a likely candidate as customers continue to establish plants abroad," says Morello.
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