Recently, a good friend of mine, an owner of a PCB shop in the U.S. ,asked for my thoughts on what the North American Market would look like in five years. Good question isn’t it? With everything going on in the world , it is a good time so stop, and take stock. So, after some considerable pondering, this is what I came up with. And, never one to pass up a chance to share, I thought I would share it with you.
Consolidation: Big shops eating little shops: The Pacman syndrome
- Some of our more prominent companies are on buying sprees right now. At least three American companies are buying everything they can get their hands on, with an end game of a big payout in the next few years. These companies have three things in common. One, they have an aging management team looking for that last payout. Two, they have venture capital money behind them, and three, they are more interested in the top line than the bottom-line, don’t get me wrong the bottom-line is still important since a company’s selling price is determined by a multiple of their EBITA. But that all important top line is what attracts buyers, and their investors. So, watch these companies keep buying and growing. They are the ones I am talking about. This means that there will be fewer and fewer shops as the small ones get “vacuumed” up or as I prefer to call it, “TTM’ed”
The buyers: Who will be these companies
- So, who is going to buy these companies? Who is going to spend those big bucks on these American-based companies. Well, think for a minute…what country in the world has big bucks? Ummm, let me think. Yes, that’s right China. The Chinese are coming, and they are coming with their millions and billions of Yuans, and their global ambition. Some of the big Chinese companies have already bought companies in Europe, and they are now setting their sights on North America. This is a not a prediction, this is a fact. In the next twelve months you are going to see a Chinese company swoop in and buy an American PCB company. It will not be a large acquisition at first, more what I would call a “store-front acquisition”, this will only be the first step, but it will be the beginning of a trend.
Losing more shops
- Sadly, we will continue to lose North American shops. Those who refuse to change will choke on their own immobility. They will go down, and the last thing we will hear from them will be the dying words. “but I never had to do any sales or marketing in the 70’s and had all the business I needed” It will be too bad for sure, but it is inevitable as these companies hold on to the past and refuse to adapt to the times.
North American market will grow
- The North American market will continue to grow. Right now, the North American market is rising to over eleven billion dollars and growing every day. At this time barely three billion dollars-worth of PCBs are being built in this country while over eleven billion are purchased, obviously that means that eight billion dollars are built offshore. That will change with global acquisitions on the horizon, a larger percentage will come back to be built here in North American…but by foreign owned (fully or partially) companies.
Mexico is more of a factor
- Mexico will start to be a factor as the Mexican demand for PCBs increases at a steady rate. This will also contribute to the growth of North American PCB fabrication.
Finally combining these trends, this is what the North American PCB industry will look like in five years. First, we will be part of the global PCB market place as the world gets flatter. Our companies will be larger and multinational. The number of shops will diminish but the capabilities and capacities of the American shops will grow. The North American fabricators will be part of multinational companies with locations all over the world.
Take the automotive market for example, the prototypes and pre-production phases of a part number will be fabricated in the U.S. and then the production will go to Asia. But the difference being that the part number will remain in the hands of the same company for the life of that part number. The same will apply to other markets as well.
We will become more global
That the North American market will go in this direction is inevitable. As the great economist Thomas Friedman continues to advise us, commerce dictates the flow of the world economy and there is really nothing that governments and particularly politicians can do about it. Commerce like water always rises to its own level. And yes, as will be demonstrated by what happens here to our own PCB industry, the world is indeed getting flatter.
In short, the US market will grow but it will have fewer shops and many will be multi-national companies, it’s only common sense.