The upside of economic downturns
08 December 2008
It is hard to turn on the news without hearing a story on some new economic looming economic crisis. Homes are in foreclosure, lending is frozen, retail is depressed and unemployment has reached a 15 year high.
The reality is that, yes, the economic situation is dire in many sectors, but for individuals and companies who have been fiscally responsible, there are also many positive opportunities. In short, there are tremendously good deals out there if you have the financial wherewithal to take advantage of them.
What does that mean to electronics companies?
It is important to have a good technology roadmap. During economic downturns, equipment manufacturers are often willing to offer aggressive pricing discounts or more favourable financial lease terms simply to lower their inventories. Used equipment inventories grow and there are typically bargains in that realm. The better the internal understanding of likely capital expenditure needs, the easier it is to shop for the best bargains.
Increased unemployment means that good people with critical skills are looking for work. Having a good understanding of likely staff needs once again makes it easier to shop. Higher unemployment numbers also translate to less wage inflation and lower turnover. There may also be more opportunities to fill support gaps with part-time workers.
From an EMS standpoint, consultative support requirements are likely to grow. On the high volume end, OEMs are facing significant challenges. Deep discounting is lowering consumer price expectations, perhaps permanently. Inventories have grown. Rising costs in low cost labour markets such as China are driving re-analysis of best outsourcing strategies. Convergence is eliminating some product categories and there are a lot of new entrants in the product categories that are left. Industrial OEMs are also facing challenges as their private sector customers cut budgets and declining tax dollars force governments to push for cost reductions. EMS companies that carefully assess the needs of their OEM customer bases and offer service packages that address them will fare better than those who simply provide commodity services.
At a procurement level, there may be greater willingness for flexibility in lot sizes or pricing concessions for companies able to pay within terms.
From a merger and acquisition standpoint, companies with good strategic fit may be available at reasonable cost.
Things are bad and will probably get worse before they get better. However, for management teams with good strategic plans and financially healthy companies, it is a buyer’s market.
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