Riding the recession: fortune will favour the brave

How deep the recession will be is difficult enough for financial experts to predict – what hope then for the humble connector manufacturer or distributor? Binder Connectors predicts that increased investment and a more flexible approach to distribution are what’s required and it has established a UK subsidiary to meet this demand. Managing director of newly formed Binder UK, David Phillips, explains This is undoubtedly a critical time for connector manufacturers and distributors alike. Decisions made now in managing the downturn will determine how successful a company will be when the recovery begins. Those who keep their heads by taking careful and thoughtful action in coping with current hardships while simultaneously keeping a close eye on the future, will be best placed to react to growth when it returns.

How long and how deep the recession will be is difficult enough for experts in the world of finance and government to predict – what hope then for the humble connector manufacturer or distributor? While statistics and surveys portray a gloomy outlook and the headlines are full of closures, redundancies and cut-backs, it is not all doom and gloom within the connector industry and I detect some anecdotal signs that we may have already hit the bottom.

Riding the storm

Given this confusing picture, what course of action should the connector manufacturer take? With falling order books, it is vital that costs are controlled and output restricted. This is extremely difficult for manufacturers reliant on the hardest hit sectors such as the automotive and white goods industries and some companies have already been forced to take drastic action to protect their futures by contracting operations.

On the other hand, companies in a similar situation to Binder that have a more diverse customer base or operate in more resilient industries like defence and aerospace, although undoubtedly still affected, are likely to be better placed to ride out the worst effects of the recession.

The position of connector distributors is extremely difficult. With OEMs and sub-contractors, determined to reduce stock levels, delivery requests are being pushed back and purchasing decisions delayed. The result is pressure on the distributor to offer shorter lead-times, but with manufacturers reducing output to protect their own cash position, this will inevitably require increased inventory to be held by stocking distributors.

Of course, the weakness of the pound compounds the difficulties of the connector distributor. The vast majority of connectors supplied to the UK are traded in Euros or US dollars with the result that the pound prices have increased by as much as 30 per cent over the past 12 months.

This is impossible for the market to swallow and many old orders are being supplied with little or no profit, while new orders are often gained with much reduced margins.

Conversely, the weakness of the pound will eventually result in increased exports thus helping to pull manufacturing out of recession.

Adapt and add value

The successful distributors will be those who adapt to the changing needs of their customers. The exact nature of the adaptation will vary depending upon the profile of the distributor and their customer base, but is likely to include more flexible stock and pricing packages, a reduction in lead times, carrying a wider range of products and offering an increase in added value services. Not an easy package to manage in stringent times but essential none the less.

Having been the first into recession, some commentators are forecasting that the UK manufacturing sector may be the first to show signs of recovery ahead of our European neighbours. This is a possibility not missed by companies such as Binder who recognise and still have faith in the potential of the UK market.

Although the UK is second only to Germany as Binders largest EU market it returns only a twentieth of the sales achieved in Germany, which is a similarly sized and performing marketplace.

Opportunity for growth

Thus the opportunity for growth certainly exists in the UK connector market and this is the rationale behind Binder investing in the UK by establishing a subsidiary company at the start of 2009. This is an extension of the recent strategy adopted at Binder to complement its distribution channels by getting closer to major customers.

Improved sales have resulted from increasing direct sales activity by setting up subsidiary companies in markets identified to have growth potential such as the USA, China and France. Despite the economic downturn we are confident that the UK connector market is strong enough to warrant a similar investment.

I believe that to be successful over the coming months, years or however long it takes, both distributors and manufacturers must retain their confidence and, where possible, maintain their investment in the market and go that extra mile to work with their customers to help them through these difficult times.