High-Mix, Low Volume: Primed to Buy, Sell, Merge or Acquire?

It's not rocket science. North American electronics manufacturers are being knocked out of the ring by Asia, Eastern Europe, and countries that have low labor costs and "on par" manufacturing infrastructure.

Apparently, American manufacturers can no longer compete in high-volume electronics manufacturing. But forget the doom and gloom. Today's electronics manufacturing market is growing domestically and globally. According to Electronic Trend Publications (ETP), electronics manufacturing worldwide is a $923 billion market. Almost a quarter of that ($223 billion) is contract Electronic Manufacturing Suppliers (EMS). With the outsourcing trend and increasing product demand, the EMS market share is increasing to more than a third of all electronics and will top $442 billion by 2011, with a total electronics market size of $1.3 trillion, according to ETP.

These data points are solid reasons for optimism. Opportunities for growth, specialty and diversity exist. America can be competitive in the world of electronics manufacturing, but it requires electronics manufacturers to be poised, prepared and opportunistic. High-volume doesn't mean high profits. Companies must perfect the more profitable "high-mix, low-volume" manufacturing model to propel competitiveness and profitability. Executives must be ready to change, revise course—even reverse course—when necessary.

Analyze company's DNA
US electronics manufactures must re-shape the competitive landscape by refining and defining themselves. It starts with digging down into the DNA of their organizations, products and services, and operations. It means perfecting the agile high-mix, low-volume approach that offers niche specialties to niche markets.

How? It starts with the obvious. American electronics manufacturers avoid the "cold" markets—typically any high-volume electronics manufacturing such as consumer electronics with its lower margins. If it can be done elsewhere at substantially lower labor costs, it will be. Don't bet your business here. Instead, figure out your high-mix, low-volume strategy.

Identify an approach that makes your business—and its manufacturing capabilities—adaptable and flexible. This translates into having a dynamic mix of manufacturing expertise, with quick-turnarounds, small runs (volume) and an opportunistic eye focused on specialty markets.

For example, an electronics manufacturer based in the northeastern United States began as a high-volume manufacturer of electronic systems. During the last 10 years, it has evolved into a high-mix, low-volume provider specializing in three primary market niches: avionics, military and government. It's also geographically focused, with manufacturing services focused in a five-state area. It not only has survived as a domestic electronics manufacturer, but the company's business is very robust and has grown substantially.

As a result, it is a prime acquisition target, thanks to its focused market niche and ability to manufacture products quickly, with superior quality and in short runs.

Primed to buy, sell or merge?
Being primed to buy, sell or merge is critical. Getting the most value out of a M&A—as buyer or seller—requires you to ask the these Top 10 Questions:

1. Am I really intent on increased growth, market share?What are my business objectives in the long term?

2. Do I want to buy, sell, or merge? What are the pros/cons, strengths/weaknesses, and opportunities?

3. Should I buy, sell, or merge with a domestic vs. international manufacturing provider?Why and why not?

4. Have I created a differentiating and motivating Interest Profile for potential buyers?

5. As a company, am I focused on niche markets? If so, are they high-growth sectors such as medical, military, aerospace, or industrial?

6. How adaptable and flexible are my manufacturing services for short runs and customer changes?

7. Can I immediately offer prototyping to complement high-mix, low-volume manufacturing services?

8. Do I have a proven track record of manufacturing success, quality, and responsiveness from the customer's perspective?

9. How do I validate my quality statement and standards? Is there an ISO certification in place, or other proof of quality standards?

10. Do I have a diverse customer base vs. reliance on one or two major customers?

With the answers in hand, pursuing suitors, partners and/or acquisition targets are better defined and refined. You are more aware, prepared and ready to pursue a sale, merger, or acquisition that solidifies long-term compatibility and profitability.

Today's M&A market seems strong and steady, as the largest electronics manufacturers—particularly contract manufacturers—seek smaller manufacturing specialists with proven high-mix, low-volume track records. Generational reality—the fact that many manufacturing executives are Baby Boomers ready to retire or go on to "that next phase"—is increasing market supply. The supply/demand factor is working, full steam.

Optimism reigns. We're operating in a season of opportunity that allows us to continue American innovation and excellence. Mergers, acquisitions, consolidation, and specialization are the rewarding realities of a dynamic, worldwide, ever-surprising manufacturing economy.

Being primed to buy, sell, merge, adapt and respond requires your determination and due diligence. Being primed requires aggressive efforts to create automated approaches that lower labor costs. Being primed means fighting government taxes, penalties, and regulations. It means being adaptable and flexible. In essence, being primed exemplifies The American Way to overcome odds, identify opportunities, adapt, and pursue the best of all possibilities. It can be done. It is being done. How primed and prepared are you?

Electronic Business, a sister publication of EM Asia