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Heeere's Roy...

'Value Add' has become such an over used phrase that the mere mention of it brings a groan from most weary managers. Unfortunately the western world's (France excepted) obsession with the bottom line means that we are not likely to see the phrase disappear any time soon. An examination of any business therefore leads to the questions 'what is it that this company is good at?' and 'how does what we do add value to/for the customer?'. Which leads me to the topic of this piece. In the semiconductor and PC component industries, companies arise as a result of engineers and venture capitalists forming new businesses. Generally speaking, these operations are excellent at design and with luck also good at choosing where and how to have their products made. Important skills for success, but these factors do not guarantee strong sales. Strong sales need strong salesmen. Yet the very attributes that make a good engineer do not necessarily make for a good salesman (there are rare exceptions). In America this has been accepted for some time, in Europe it has not. In Europe, hiring expensive sales people is a risky business –- especially in France and Germany with their exorbitant social costs. The average European sales manager can now command $100,000+ basic salary, plus pension, plus private medical care, plus bonus, plus share options, plus BMW. If he then turns out to be lazy (like most of them are trained to be, as result of company politics, easy life and multinational contracts) then firing him is not easy either. For this reason we'll see more and more firms subcontract out their sales operations to independent rep firms. Companies made up of experienced and skilled sales men and women who, if they do not sell, do not eat. Companies that the ability to market and promote new brands in the most cost effective way. After all, being an expert at designing and making chips does not make you an expert at selling -- and few can doubt that selling is now a skill in its own right. When I first formed Blue Micro in 1995 to act as the rep for IBM Microelectronics the only reps in existence were what are known as 'disti-reps'. Distributors that act as reps when they cannot make enough margin. We discovered that customers, especially the tier one guys, universally disliked this. The modern rep firm, as found in the US in hundreds, acts quite simply, as an employee of the company for which he is selling. His contract will be tighter and more restrictive than that for an employee and if he is unsuccessful he can be easily fired. But he will be an expert on the products he sells and he/she will be a highly motivated and professional salesman or women. Where the contracts are large enough the rep may be entirely dedicated to a single manufacturer. So where is the value add in a rep? For the manufacturer, it's fairly obvious. Low cost, cost effective, motivated and professional sales team with excellent local relationships and knowledge. Easy to fire and cheap to terminate! But what about the customer? The benefits may not be immediately obvious. In the UK and in some accounts in Germany there is a feeling that the customer would rather deal with an employee. But this is usually based on emotional prejudice (it’s the wannabes that are normally in this category) rather than a rational look at what's best for the customers' business. First of all the customer gets a whole team supporting his account locally rather than just a single account manager. Any good rep will: expedite the customer's shipment (even if sold free on board(FOB)); help select, track and monitor the freight forwarder's performance; help with customs; help with duty issues; advise on hubs, bonded warehouses and so on. The rep will also forecast for the customer, advise on product selection, set up meetings with the senior management at the manufacturer on the customer's behalf, get him samples, data, early access programs, etc. I could go on but this isn’t an advert for reps, merely an article on their existence and their role in replacing some inhouse sales functions. The key point is that customers should not fear reps, or resent them, but see them as a cost-effective tool to give them the best possible service. Furthermore, reps know they are likely to be thrown out if the customer complains. This is motivation for service. Customers sometimes worry about the reps' commission – but in every case I have ever known the entire sum of commission earnt is

always

less then the cost of employing and running a local sales office. So, in theory, if manufacturers fired their sales teams and employed reps instead they could close down the local sales office and reduce the cost of the components to the customer – now there's a suggestion!®

Roy Taylor is joint managing director of Vanguard

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