Electronics distributor PEI-Genesis hasn’t wasted time responding to the slowing electronics distribution market of the last few years. Devastating declines in its core military market have caused the company to seek new growth in commercial air, energy, and mass transit markets while also focusing on global expansion. The specialty distributor of high-mix, low-volume, high-reliability connectors will open a new facility in China later this year, with plans to begin shipping product throughout the region in January 2015, for instance.
Investments in training, new personnel, and product line expansion go hand-in-hand with all of these efforts, according to company President and COO Russ Dorwart, who sat down with Global Purchasing recently to discuss the company’s plans for dealing with the new, slow-growth economy. Dorwart discussed the challenges of refocusing the business for new growth and why PEI-Genesis’ family-based culture is an asset in today’s fast-paced business world. What follows are excerpts from our conversation.
Global Purchasing: As a highly specialized distributor, what are some of the greatest challenges PEI-Genesis is facing in today’s electronic components marketplace?
Russ Dorwart: 95% of our sales are in high reliability interconnect. Our biggest challenge has been the stubborn economy over the past couple of years. We had been growing consistently 15% to 20% per year, but the combination of the Great Recession, the Sequester, and the end of the war, has not only slowed the overall economy, it has shattered the growth in our core military market segments.
In the last two years we have made several changes to respond to this new slow-growth market environment. First, we have reorganized our field sales teams to bring more focus to our design-in activities, planting more seeds for the future. To support this change we did extensive sales training using an outside firm. Then we used our internal resources to wrap our CRM [customer relationship management] architecture around this new approach.
Secondly, we placed bets on new market segments. We targeted segments that use high-mix, low-volume, high-reliability connectors where we see long-term growth, specifically commercial air, energy, and rail mass-transit. To support this change we added business development managers in both Europe and North America to help point the way. After two years of hard work, these segments are now showing fantastic double- and triple-digit growth.
The last piece of the puzzle was to reshape our product offering to address the unique needs of these new segments. This is particularly challenging for us because we use a build-to-order model. Over 70% of what we ship out the door every day is built to order. This gives us a unique advantage because it allows us to build literally millions of different connectors from stock. In essence, we can give the customer precisely what they want, with a minimum order quantity of one piece and delivery tomorrow. As we wade deeper into these segments we are adding more and more value-added products that enable us to leverage our unique model.
Global Purchasing: PEI-Genesis is focused on expanding its business in the oil and gas market in the United States. What are some recent efforts the company has made in this direction, and what is your outlook for that market in 2014-2015?
Dorwart: Oil & Gas is a new segment for PEI. We see this as another fragmented, high-mix, low-volume market with long-term growth potential. We initially started selling to this segment in Europe, but now we have expanded into North America, and later this year, into China. Most of our business is upstream, in exploration and extraction. We have been focusing on building connectors for hazardous and high-temperature environments. The industry forecasts I have seen show a slowdown in upstream spending in 2015, but the market is still growing and we see significant share gains in the year ahead.
Global Purchasing: The company has built a strong business in Europe. How are market conditions there for the high-reliability, custom connector solutions you supply?
Dorwart: Europe has consistently been a bright spot for us. Our sales in North America declined during the Great Recession, but our European sales actually grew 10% during that period. This fiscal year PEI sales will be up again, about 7%.
The overall market in Europe is sluggish. The UK is seeing the largest GDP growth, about 1.8%, roughly on par with the U.S. So when you look at our numbers, our success in Europe has really been the result of our unique model and the fact that we started going after these new market segments earlier in Europe. That strategy started to pay dividends just as the economy tanked. Our continued success will be driven by our ability to outperform our competitors rather than any uplift in the connector market. I don’t see the market for our products growing more than 4% in the next year or so. That won’t work for us, so we will need to work hard to continue our growth rate.
GP: What other regions of the world are you targeting for expansion today?
Dorwart: We are in the process of setting up a factory and a sales organization in China. We plan to have this new facility shipping product by January 2015. This isn’t the normal China play, where you go to China to cut costs and ship products back to the U.S. and Europe. We are going to China to buy there, build there, and sell there—to be a Chinese company.
China is the fastest growing market in the world for our products. Our suppliers, and our customers, tell us that there is no one in China focused on high-mix, low-volume production. That is our strength, so we foresee a powerful partnership with our suppliers and nearly unlimited opportunity for growth in the years ahead. In fact, we see China as our single biggest growth opportunity in the next five years and we are investing accordingly.
We have already built all of the automation for the new facility and we are in the final stages of completing a deal on a new facility. We are hiring the executive team as we speak. Once we have that team in the family we will hire the remaining 30 people we need to get started. Only about 1% of our sales today are in China, but we don’t see any reason why China can’t be as big as Europe in the next eight to ten years.
GP: During an interview with Global Purchasing at the Electronics Distribution Show in May you said this about PEI-Genesis: “Family values really permeate the company. It gives you the space to make mistakes.” Why is this important and how does the company’s culture works as a differentiator in the electronics marketplace?
Dorwart: PEI was founded in 1946 by two best friends, Murray Fisher and Bernie Bernbaum. The company was actually created in a spirit of love and friendship, and those values have been passed down through our Chairman Steven Fisher, Murray’s son.
It may sound strange, but we begin every meeting with a review of the values summarized by the acronym I CARE: Integrity, Innovation, Continuous measurable improvement, A team approach, Respect for the individual, and Excellent service for our customers.
We believe that our culture gives us a tremendous competitive advantage. People long to be part of something larger than themselves. If you can create an atmosphere where people can be creative, where you take a long-term view of experiments and investments, and where you value your people above all else, things just seem to work out better.
We really believe that we can have it all—a warm culture where you feel surrounded by friends, and world-class performance. In truth, you can’t have one without the other and be what we would see as a truly successful company. When people feel safe and valued, they just do a better job, and the results follow like a shadow.
Russ Dorwart is president and COO of PEI-Genesis, a global specialty distributor of high-reliability interconnect solutions based in Philadelphia, www.peigenesis.com. PEI-Genesis ranked 14th in Global Purchasing’s 2014 Top 50 Distributors Report, which ranks the nation’s largest electronics distributors by sales volume.