Eastern Europe's Emerging Marketplace; Over China? Proximity to European customers!

Case study: Arrow Electronics

“…an up and coming center of high–tech, low cost manufacturing with a well–educated workforce.”

EASTERN EUROPE …”It’s also where more and more of the world’s most prestigious companies are sending an increasing portion of their manufacturing business. No, it’s not China – or anywhere in Asia Pacific. It is, in fact, Eastern Europe – where Arrow sees tremendous growth opportunities and is taking advantage of those opportunities with a solid business presence and strategy.”

“In 2011, Arrow ranked as number 140 on the Fortune 500 list (based on 2010 sales of $18.7 billion). Arrow Electronics was founded in 1935. Arrow serves Eastern Europe with more than 10 local offices and represents more than 130 franchised product lines.”

“Though much of Eastern Europe may be considered “emerging,” Arrow’s participation there is not new. Arrow opened offices in Tallinn, Estonia in 1993, Prague in 1994, and Budapest and Warsaw in 1996. In 2004, Arrow established a sales staff in Moscow, and in 2005, Arrow established its first offices in Latvia and Lithuania. Later that same year, Arrow Enterprise Computing Solutions (ECS) acquired Munich-based DNSint.com AG, providing the computer business with a strong foothold in Central and Eastern Europe in the server and storage business and in solutions for security, networking and infrastructure management. In 2006, Arrow founded a legal entity in Kiev to serve the Ukraine and Belarus.”

“Wolfgang Maas, sales director, Emerging Countries for Arrow Spoerle, in Dreieich, Germany, discusses the many factors that make Eastern Europe attractive to customers and a big opportunity for Arrow. “Eastern Europe is attractive to Arrow because it is attractive to customers. Increasingly, business is being transferred from the west – from North America and Western Europe – to the east. How far east, depends on what customers are looking for. Arrow Spoerle’s Wolfgang Maas, sales director, Emerging Countries, in Dreieich, Germany, says, “China and Eastern Europe are both low cost areas, but cost is not the only factor.”

“For low cost/high volume manufacturing, China is usually the first choice. But, where more technical capability is needed and medium size quantities are involved, it is better for these customers to send business to Eastern Europe, which is what they’re doing.” This is particularly evident in the Baltic countries where there is a growing need for technical support and design–in resources. To respond to this need, Arrow has deployed additional field application engineers (FAEs) throughout the Baltic region.”

“Another factor favoring Eastern Europe over China is proximity to customers, especially in the automotive industry. Maas says, “If you want quick, easy access to support for automotive products and lower transportation costs, it makes little sense to go far away for electronic production. Plus, with China and Asia Pacific, you have significant time differences, and cultural as well as language differences. All these factors make Eastern Europe attractive to our customers and a big opportunity for us.” Hermann Reiter, sales director, Emerging Countries for Arrow Sasco Holz, in Munich, Germany, discusses the competitive advantage of Arrow’s prominent local presence.

“The Eastern European market is growing substantially, although pinpointing the actual size of the market is somewhat difficult. Hermann Reiter, sales director, Emerging Countries, for Arrow Sasco Holz, in Munich, Germany, says, “Depending on the analysts you talk to, total market numbers range from several hundred million euros to over a billion. What we do know is that the DTAM (distribution total available market) represented by Eastern Europe countries is expected to double during the next three to four years. And that’s one of the main reasons we’re so active in that market.” Another growth factor for the Baltic region is the entry of Latvia, Lithuania and Estonia into the European Union (EU) in 2004, resulting in increased foreign investment in companies there now as well as substantial local organic growth.”

“Doing business in Eastern Europe is not without challenges. There are complex export license laws as well as differences in economic development. The challenges vary depending on the country. For example, in total, 11 Eastern European countries joined the EU. As a result, there are fewer customs or clearance issues, so it’s faster, easier and less costly to ship goods to and from EU member countries. Not so with Eastern European countries that are not part of the EU. In addition, some of these new EU member countries from Eastern Europe may eventually lose their low cost edge. Maas says, “They will become more mature markets in the next five years or so, which means they won’t remain emerging low cost manufacturing areas. This is similar to what happened with Japan, which was once a low cost country and now is a mature market with higher costs. The effect on Arrow and our Western European customers will be to look to the non–EU members in Eastern Europe, such as Romania and Ukraine, for low cost production capabilities and opportunities.”

“Whatever the challenges, Arrow is seizing the significant opportunities that exist in this region. One competitive advantage is Arrow’s prominent local presence in each country. Reiter says, “We don’t service customers from afar. We’re right there. Our employees are local people. They speak the local language. And, we deal in local currencies. These are things our competitors do not typically do.”

“Arrow also goes to market with a great deal of engineering expertise to support original equipment manufacturers (OEMs) or contract manufacturers in need of technical assistance. Maas says, “We stage numerous seminars and workshops to train our customers’ engineers and build a relationship to some of these international suppliers, where we have a franchise, that binds them to us and helps us keep the business.”

source: Arrow Electronics and other sources