In this month’s virtual panel discussion we focussed on the electronic components supply industry. Industry experts were invited to share their views on grey imports, market segmentation, DTI support for the components and electronic manufacturing industry; and other burning and topical questions.
The response was somewhat short of the number of companies we expected would particpate. Was it the question about grey imports that was sensitive for some suppliers that informed their decision not to participate? We can but only guess. Thanks to the companies that did share their views with us and our readers. It is much appreciated.
Arnold Perumal, Avnet Kopp; Saro Murabito, EBV Elektronik; Rodney Farrow,
Texas Instruments and Brian Andrew, RS Components.
The first question we asked participants to comment on was “Is importation of grey components an issue?”
“Yes”, said Arnold Perumal, technical director, Avnet Kopp. “It is becoming a more serious problem for the industry on a daily basis. Counterfeit components affect all parts of the supply chain, beginning from the suppliers to the distributors, to the contract manufactures, and the end customers. Credibility is lost in all links of the chain and revenue is lost due to lack of recourse and liability issues. Grey importation penalises authorised distributors. More education on the risks associated with grey imports should publicly be introduced to make customers aware of the major issues and risks.”
Saro Murabito, regional sales manager, EBV Elektronik agrees and said that grey importation is a big issue to the end user, or final product owner, due to the risks associated with grey imports. “Purchasers of “grey product” run the risk of receiving fake parts, under-spec parts, or rebranded parts.The costs associated with a product recall are very high. Apart from potential damage to a company or brand associated with product failures that can occur, recalls and reworks can also be costly.”
Rodney Farrow, regional manager, Texas Instruments responded on a broader plane. “Using grey market stock is a problem because with no way to guarantee the supply source, there is no surety that the parts purchased are genuine and traceable Texas Instruments (TI) devices. This means that the handling and storage of these grey market products has not been executed in accordance with any TI quality standards and as a result customers do not get the warranty. In addition, grey market offers no access to authorised distributor technical support. So, should a customer encounter problems with grey market stock, we will not follow up on any QA investigation or offer any assistance.”
Comment by features editor, EngineerIT
At Electra Mining recently held at NASREC, retailers of consumer electronics were offered the opportunity to expand their product range and increase margins by importing directly from Asia-based manufacturers at the fifth annual China Sourcing Fair. The promoters of the show stated that suppliers from China are able to produce quality products at lower costs and therefore offer feasible solutions to importers. It is true that there are manufacturers in China and other Eastern countries that deliver high quality components and finished electronic products, but the challenge remains for South African companies to check that these products are not inferior copies of other branded components and products.
Do you believe the Department of Trade and Industry (DTI) could do more to support industry growth? What action would you expect from the DTI?
Rodney Farrow: “Yes, I do feel that more can be done. The Department of Trade and Industry (DTI) need to develop, offer and support incentive programmes that encourage locals to manufacture here at home instead of with manufacturing companies offshore. Associations like the South African Electronics Industry Federation (SAEIF) and the Association of Distributors and Manufactures of Electronic Components (ADEC) need to apply more pressure on the DTI and government to place larger levies on completed goods entering the country, to curb cheap imports. Furthermore, regulations should be put in place to ensure that more tender processes insist on local content and manufacturing, which will provide more employment. This growth can be maximised with greater investment from the DTI to provide local electronic training facilities to encourage school level interest in order to develop more engineers, stimulating not only the electronic development market but also the country’s economy as a whole.”
Arnold Perumal: The DTI needs to have measurable actions and plans in place to support the growth of the sector in electronics. Some topics have been exhausted at the many meetings with DTI, namely import control tariffs, technology skills transfer, and expanding contract manufacture. The electronics industry needs bigger momentum and better representation to become a force to be recognised.”
Saro Murabito believes that the DTI should definitely rally around growing industry in South Africa. “At government level, the DTI should be focussing on the capabilities within our country, and ensuring that where key competences exist, like in the electronic design and manufacturing industries, they promote supply of local content in these areas to regional and government level. Having assessed these capabilities they should help promote South Africa as an ideal destination to have design and manufacturing done.”
The South African Electronics Industry Federation (SAEIF) was formed with the objective to formulate strategies, revisions to import duty tariffs, new specifications, and other matters which would encourage the growth of the electronics manufacturing industry in South Africa. In your opinion has the SAEIF benefitted the component supply industry? If not, what would you expect the SAEIF to do?
Arnold Perumal: “Some tariffs have been imposed but only on certain products in certain market segments, e.g. lighting. I believe a mature association such as ADEC can leverage its direct members who are implicitly involved in electronics and gain better traction with the growing of electronics and fostering of it.”
Roger Farrow says the industry needs to talk more. “This is a great initiative, however I feel they have not yet achieved their objectives and believe they should cultivate a greater relationship between the government, DTI and the electronics industry through the implementation of quarterly collaborative industry forums, which would provide greater insight to achieve their goals.”
Saro Murabito is more sceptical: “I am not aware of anything that the SAEIF has achieved to improve the electronics industry in South Africa. The SAEIF was supposed to work with the DTI to represent the industry at government level. A great initiative would have been to help promote the use of South African designed and manufactured products. I don’t believe they succeeded in this. Reduction on tariffs of imported building elements like all electronic “components” is an important aspect, to ensure that local manufacturing is competitively positioned.”
Should companies support industry organisations – in this instance ADEC?
Joining the discussion at this point, Brian Andrew of RS Components believes that “it is important that all players in the market support the industry organisations so that a combined and collective voice can engage with the relevant authorities to promote and grow the industry. In that vein the change of ADEC to ‘arei’, to include other markets in the electronics industry I believe is a positive initiative.”
Saro Murabito has a somewhat different view on the subject. He says that modern technology has made the traditional functions of many industry organisations redundant. “However, there can be benefits that industry organisations can provide.”
Arnold Perumal supports Brian Andrew in his view that affiliation to an organisation is important. “If we as electronics suppliers want to be represented adequately and have our concerns addressed, I believe that the electronics industry, which is composed of many facets, should be part of such an affiliation. This should include contract manufacturers too.”
What distribution challenges does your company face?
Rodney Farrow: “Compared to the global market, the South African market is relatively small; here we have a large number of electronic component distributors all competing for the same limited market. In addition, TI’s authorised distributors are subject to volatile exchange rates as well as high interest rates creating a challenging environment.”
Arnold Perumal: “Lead times are always a challenge to any distributor of electronic components. The main obstacle is accurate forecasting from customers who are not always in a position to do this as market conditions dictate how they react to business. Avnet has leveraged itself uniquely with our POURS system that caters for customer stock holding. ASPs (average selling prices) are eroding as suppliers reduce costs of components together with competing with on line stores are a host of challenges we face daily.”
Brian Andrew: “With regards to warehousing, we use a combined approach of local versus overseas stockholding, which allows us to hold the fast movers in local stock for customers, while having accessibility to a far more extensive range in our global warehouses. If we see demand for an item increasing we will stock it locally. With a range of 500000 SKU’s, it would not be viable to stock everything locally; conversely not stocking locally would adversely affect our ability to give our customers the service they expect. The benefit of the dual approach is faster turnaround times, while reducing our overall stock costs.”
Which is better: local stock holding and/or supply from a central (overseas) warehouse?
Saro Murabito: “Without a doubt, there is benefit in both models. The business model of the distributor will dictate what is best for their client base and product portfolio. We live in the 21st century, where stock can reach just about any part of the world within 24 hours”
Arnold Perumal: “Both have their merits. For Avnet the advantage of a central overseas warehouse is the amount of inventory we can access. The buying power is much greater which shows itself in competitive pricing and strong inventory.”
Rodney Farrow: “From TI’s perspective both have advantages and disadvantages. On the one hand, local stock holding provides quick supply of components but generally doesn’t allow for as broader stock portfolio as the overseas central warehouse, which conversely, has got a very large stock holding on hand however, delivery times can increase by a few days.”
How does new technology such as embedded components affect the industry?
Rodney Farrow: “Embedded components technology can condense the size of the board assembly, which in turn can potentially reduce the manufacturing cost of complex products; however this could have an adverse effect on the contract manufacturer who may need to upgrade his equipment to be able to deliver this service.”
Arnold Perumal: “Very positively. Embedded segment is in its infancy still and the main attractiveness is time to market being much quicker.”
Saro Murabito: “Dedicated technology has a role to play. As parts become more integrated, we can accelerate technological progress and development. There are cost benefits to this, and faster development cycles and faster time to market.”
Has or will the industry benefit from digital migration?
Rodney Farrow: “My optimistic view is that digital migration will create additional sales for local suppliers and distribution as well as employment creation in the country due to the large number of boxes that need to be manufactured. However, the government has dragged its feet and may end up importing boxes in kit form to be assembled locally or worst case scenario, will import the completed set-top boxes with no manufacturing or assembly required. This will have little or no benefit for local suppliers, distribution and manufacturing. What is frustrating is that we have several South African key players, who have the expertise and experience to develop and manufacture the required set-top boxes 100% locally, who may never have the opportunity to do so.”
Saro Murabito: “The need for digital migration is obvious. Whether it will benefit the industry depends on what level of local content is used to produce any digital to analogue set top boxes. Hopefully there will be a focus on as much local content as possible for the full rollout. Sadly we have in the past seen projects implemented where technology that could be produced locally is fully imported.”
And the future of the industry..?
Arnold Perumal: “I believe all stakeholders in the electronics industry can gain by uniting with all links of the supply chain to leverage growth in South Africa. The country is still a great market for investment and new products. Working together we can leverage institutions, industry, and associated organisations for the greater good of the electronics community.”
Brian Andrew: ” I am concerned about the industry due to the broader challenges we face due to recent strikes, unreasonable wage demands and the overall impact on the economy which is performing well below that of the rest of the SADC region. Furthermore the quality of our education and that we are not producing enough engineers in the country, does not bode well. That being said there are some great initiatives at universities for example the University of Johannesburg through Resolution Circle are addressing some of these issues by providing work as a learning experience to turn out students who are industry ready.”
Saro Murabito: “We are fortunate to have a wealth of technical knowledge and expertise. If we can stimulate the new generation to choose a career in electronic engineering we can grow in leaps and bounds. The next big challenge is a county-wide problem rather than an Industry specific one, and that is to make sure we retain the talent.”
Rodney Farrow: “Each year the industry continues to experience minor growth. To improve these circumstances in the future, a focus on training programmes, industry forums and the encouragement of local content wherever possible, will be required.
Some additional comments:
Brian Andrew: “I think it is important that as a business we need to get more involved in developing the industry, and to that end RS Components has its RS University Programme that offers educator’s access to free PCB and mechanical design software, as well as training and training material that can be used in the curriculum with regards to PCB design.”
Rodney Farrow: “In the next few years we are going to see several other African economies grow significantly into key players on the African continent. This growth will also occur within the electronics arena. The SA government and DTI should be assisting local companies to be the priority suppliers to these growing economies, which will create huge stimulation within the local electronic component supply industry.”
I found these views interesting. I trust that you did too. Tell us what your opinion is. Write to me at hans.vandegroenendaal.co.za. As always, thank you to our contributors
