The Chip Hatchery
The Chip HatcheryTM blog covers trends and musings about semiconductor
marketing, business issues, startups and investing. The expert contributors to this blog
will come from the ranks of senior semiconductor industry thought leaders with
deep experience (at least 20+ years in the chip industry). One thing is
certain in the chip industry: executives often have to make decisions quickly
without having all the information available. One's batting average
improves with industry experience, i.e., the ability to make sound judgment
decisions. Call it informed intuition -- in the chip industry,
experience counts heavily as a determinant for success. The Chip HatcheryTM
Contributors:
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Displaying 1 thru 4 of 4 Found
Since InsideChips is based
in the Pacific Northwest, we though it would apropos to name the blog, The Chip HatcheryTM,
a take-off on fish hatchery. Both commercial fishing and starting chip companies
demand deep experience to avoid "sinking the ship," dealing with risks and uncertainties,
flexibility to change plans at the last minute, courage and daring, being able
to forecast periods of "bad weather," having a passionate zeal to succeed, hard
work with long hours, and some luck. If you would like to comment to any
post, please submit using our
contact form.
| Friday, May 16, 2008 |
| Resources Helpful When Entering Asian Markets |
| Posted By Glen Balzer |
For an American company planning to enter its first Asian market, the challenges can be enormous. A network of resources can make the task easier and can make the challenge less formidable. Trade associations and American chambers of commerce can help with the market entry process. Trade Associations There is a reason why all industries have trade associations. They serve a useful purpose. Trade associations always have two faces. There is a presence in America that has a headquarters operation and in many cases, an office near the emerging company's American headquarters. Many trade associations also have an Asian presence. Take care to become acquainted with staff of the association in both locations. Lessons offered and introductions available from the American site are different from those available at the Asian site. Be sure to take advantage of both. Some Asian offices of trade associations are huge and highly structured while others are tiny, and operate on an ad hoc basis. Staff in the trade association office in Asia is uniquely qualified to help American managers and executives get started in Asia. Quite often, the executive director of the Asian office of the trade association is a veteran with several years of experience in Asia. One example of an American trade association in Asia is the United States Information Technology Office in Beijing. USITO promotes trade and cooperation in the information technology industries of the United States and China. It is committed to increasing the market share of U.S. companies in China's burgeoning information technology sector. USITO is a consortium formed by: American Electronics Association, Technology CEO Council, Software & Information Industry Association, Semiconductor Industry Association, and Telecommunications Industry Association. USITO membership is open to U.S. corporations engaged in telecom, information, and high-technology industries. It represents and provides service to more than 6,000 U.S. high-tech companies. American Chambers of Commerce One valuable resource found in almost every country in Asia is an American chamber of commerce. Its membership is composed of expatriate and local management of the foreign subsidiaries of American companies. In small markets, the American chamber is merely a regularly scheduled monthly meeting of the membership. In major markets, the chamber is divided into several sectors with each sector being represented by a committee. The American Chamber of Commerce in Hong Kong is a treasure of 25 different committees. The American Chamber of commerce in Japan is composed of 60 committees and industry specific subcommittees. The American Chambers of Commerce in Taiwan and Thailand hold 20 committees each. Most committees are industry specific, but many chambers have committees organized around social and charitable activities too. Activities and cooperation among managers and executives in the American chambers of commerce offshore may surprise those who have never spent time abroad. While managers in competing companies might never consider helping an industry colleague in America, assisting a colleague in a competing company in Asia is quite common, particularly if it involves sharing lessons learned in Asia. Learning how to succeed in business in Asia is a long a tedious process and most managers and executives eagerly share lessons through forums organized by the chambers. Sharing of proprietary information between companies in Asia is no more likely than in America. However, managers and executives of member companies often share lessons of hiring and firing, banking practices, sales channels, advertising, local management customs, human resource issues, salary surveys, and sources of other matters under the shelter of the American chambers of commerce. Every expatriate manager sent abroad to manage an Asian sales and marketing operation divides his time there into three distinct periods: Arrival and learning how to run the business; running the ongoing operation; and preparing for return. Productivity is greatest during the middle period and poorest in the first period. Hasten that process with involvement in the local chamber. The newest members of the chamber learn from the seasoned members. After the rookie manager learns many of the aspects of running the business from the cadre of experienced Asian managers, the rookie is very likely to share his lessons learned with newer arriving managers and executives. The cycle repeats. Summary There are many challenges when entering a new market in Asia. Lighten the load by developing a bank of resources before moving into Asia. Take advantage of resources available at trade associations and American chambers of commerce. Banks, accountants, executive recruiters, and American embassies also offer resources to American executives and managers charged with opening a sales and marketing presence in Asia; topics perhaps for a future article. Glen Balzer is a marketing and sales consultant in California. Contact him through www.neweraconsulting.com. © 2008 Glen Balzer |
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Friday, May 16, 2008 09:08 |
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| Monday, Apr 07, 2008 |
| Networking Helps Create a Sales Presence in Asia |
| Posted By Glen Balzer |
Most companies focus on product before thinking about how they will market and sell that product. Perhaps a young company has managers with experience of creating a sales presence. If it doesn't have that experience, how does that company proceed? Networking can help a company develop a strategy and plan for creating a sales presence in Asia. All executives understand the value of creating a network. Not all executives do a good job of creating, nurturing and constantly expanding the network. When operating in Asia, ready access to a network of several disciplines is imperative. A truly functional network arguably is more important in Asia than in America. Energy applied toward networking is greatly rewarded. As a company develops a sales presence, the opportunity for business problems and scandals of all sorts is tremendous. A formal written book of systems, policies and procedures might prohibit fraud and malfeasance in a company with a single facility located in America. However, when operations spread around the globe, distance from headquarters and differences in cultural norms greatly expand a set of circumstances ripe for problems. No amount of systems and policies can prohibit problems. Success in foreign offices is not marked by the absence of problems, but by the speed with which the foreign office recognizes, comes to grips with, and resolves those problems. A company that has taken time to establish a large but informal network of friends and alliances within the industry and the multinational community can draw upon the expertise and experience of the network to help resolve almost any problem that arises.
Creation of a network allows the executive responsible for launching an Asian sales and marketing presence the opportunity to find answers to questions and problems as they arise. Issues that arise must be addressed quickly and a well-lubricated network facilitates speedy responses. When common start-up questions arise, it is much faster and easier for the executive to call upon someone from within the network. Many resources are available to a new sales and marketing manager in Asia. The majority of these resources are free of cost and require only time spent developing a network. American managers without experience in Asia are often surprised by how much assistance and advice is offered essentially free of cost. Seasoned Asian managers enjoy teaching less-experienced competitors and colleagues. Executives new to Asia seek good advice from a network, and are poorly equipped to differentiate between good and bad advice. For that reason, comparing advice from multiple sources can be very valuable. Distilling advice from multiple sources demands a broad network. Where does an executive look to build a network if he or she has no preexisting link with Asia? The most readily obvious places to look are the domestic and foreign offices of trade associations, American Chambers of Commerce, banks, legal services organizations, accounting firms, key customers, and various offices found at American embassies. In the weeks ahead, I will address where a manager assigned responsibility for selling and marketing in Asia might go to build a network. |
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| Monday, Mar 24, 2008 |
| Rep Contracts and Systems |
| Posted By Dave Guzeman |
| When Mindpik goes into a new client to tune-up their sales channel, one of the first things we ask to see are the rep contracts. There should be one for each rep firm and they should be located together in an obvious place… somewhere you can find them easily. Amazingly, many companies either don't have contracts for all the reps or can't find them. In some cases, we've had to go back to the reps and get copies from them -- unlike the companies they represent, the reps ALWAYS know where their contracts are.
These are typically four or five pages in length and have all the regular legalese. If you need a sample, contact the ERA (Electronic Reps Association). Basically the contract should address three specific issues. First, what is the commission rate and when is it paid? Traditionally, semiconductor companies have paid 5% of invoiced amounts, but large companies sometimes can drive rates as low as 3%. Unless you're an established company with a large backlog, I advise sticking with 5%. Normally it becomes payable 30 days after the goods are shipped, but sometimes companies will make the commissions payable AFTER the end customer pays the invoice.
Second, what is the sales territory and does it cover all customers or are some excluded? Covering the United States takes about five to eight reps, depending on how your customers are clustered. The territories should always be exclusive, meaning never have areas that two different rep firms cover. With a couple of exceptions, like California, a typical territory will cover three or four states. In fact, one of the things I look for when walking through a new client's marketing and sales area are maps stuck to the cubicle walls with the states colored to show which reps cover which states. California usually has two, one in Northern California and a different one in Southern California -- the dividing line is typically at San Luis Obispo. As we discussed in the last post, some customers may be specifically excluded from rep coverage -- these are termed "direct accounts" and must be spelled out by name in the contract.
Third, what happens when you fall out of love? The contract should spell out exactly what the process for termination is, and how commissions are paid after the "Dear John" letter has been sent. Reps feel, rightfully, that they've invested a lot of time bringing in customers and if they are terminated just before the big shipments occur, they don't want to be cut out of those commissions. So contracts spell out a transition period during which they'll be paid commissions, perhaps full commissions for a couple of months and then a partial commission for the next month or two. Keep in mind, that you have undoubtedly signed a new rep to replace the old so that you may be paying double commissions on some of your sales for some or part of the transition. Terminating a rep is very expensive for both parties, and you need to be very careful you've got the right firm before signing them up.
Besides the contract, you need a system for paying commissions. No need to go into detail here -- your accounting department will know how to do this. Just one thing, they probably don't realize. It's very important that payments spell out which shipments to which customers the payments represent. The reason is obvious when you think about it. Roughly half of the commission check goes to the individual rep sales person that drove that worked the customer. The other half goes to the firm to cover their expenses. That means that while sending a check to the rep firm is always appreciated, if it doesn't spell out the shipments (invoices) and customers, the firm has no way of paying the sales person their share! This is a mistake usually made by small companies, so it's relatively easy for the rep to sort it out, and by the time the number of shipments would make it a problem, the commission payment system has become more sophisticated and correctly lists the invoices and customers.
One last thing, and this is a big one. You're contractually obligated to pay commissions on all of the sales made in the territory, unless they were to specifically excluded customers. It doesn't matter if you don't think the rep earned it or was even involved -- you owe the commissions. If they were not involved in the sale, what the heck are you using them for? If you find a new customer -- they do sometimes contact the factory directly -- your job is to immediately notify the rep so they can start making sales calls and get the best deal for you. I've seen companies try to keep these customers secret so they won't have to pay commissions. What a disaster! The reps ALWAYS find out and when they do, they will share that information with all their friends. Who are their friends? Just all the other rep firms in the country! Your name will be mud within 30 days of trying to cut them out. But why bother? The rep wants to call on your customers, don't try to stop him… help him! |
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Monday, Mar 24, 2008 08:29 |
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| Saturday, Mar 15, 2008 |
| Leveraging Your Sales Channel |
| Posted By David Guzeman, Mindpik |
| I'm always amazed by how many calls I get from prospective clients that are wrapping up their new product development and now want me to help them develop a sales channel to sell that product. New companies invariably underestimate how long it will take to set up the channel and what it will cost. My rule of thumb is that it will take as long to set up the channel as it did to develop the product, and what's more, it will probably cost about as much.
Traditionally chip sales channels are hybrids, made up of a combination of direct sales people, reps and distributors. Simply put, direct people are on your payroll, reps are independent agents that never take title to the goods, and distributors are third party firms that DO take title to the goods and resell them. The reason that most chip companies use a hybrid channel instead of, say all direct, is just a matter of cost… they can't afford an all-direct sales force, and safe to say, neither can you. Rep firms can make sales calls at a far lower cost than direct sales people -- as much as TEN times lower. The reason is simple… they have as many as ten companies they're representing, so that they can amortize each sales call across all those companies. Your direct sales person, on the other hand, has to cover his expenses with just your company's product sales. When you figure out all those expenses, that may work out to as much as $20,000 of sales per call, and that's really hard to do. Effectively this means the direct sales person can only call on the very largest customers. Who calls on the others? The rep! In this model, some customers are treated as "direct" and called on by the direct sales people according to some cutoff, typically a couple of million dollars.
But even where the customer base is not split up between direct and rep, the direct sales people essentially recruit, organize, train and direct the reps. The sales channel works as a pyramid -- direct at the top, the reps in the middle, and the distributors at the bottom (we'll cover them in another post). Traditionally reps made 5% on shipments (not bookings) though that number has gone down and is now sometimes as low as 3%. Because reps do not have competing product lines, they're treated as family with pretty much the same access to information as the direct sales force. The thing to always keep in mind is that there are five to ten times as many rep sales people as direct. In general, the bulk of your daily sales activity is going to be from the reps, with direct people directing them. Your leverage is in making the reps more effective… you get ten times the mileage from efforts directed at the reps!
The tendency is to rely on the direct sales people to "feed" the reps information as needed, but I think this is missing a huge potential advantage. Rather than relying on direct people, you should be feeding product and market information simultaneously to both the direct and rep people eliminating the intermediate step of passing everything though the direct people. One of the reasons I love reps is simply that I can make the numbers easily work in my favor. While a typical rep firm may have ten companies it represents, it turns out that only about five of those are really actively engaged. That is, only five are regularly communicating with the rep and involving them in the sales process. Of those five, two or three are just going through the motions. If you bring a disciplined program of regular, frequent communications that are informative and useful, you'll get far more than just 10% share of their minds. Combine that with periodic training sessions at their offices and you'll get even more. And that sort of program is what you should be doing to drive the sales channel anyway. It's that old story of winning just by showing up. Almost.
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Saturday, Mar 15, 2008 08:30 |
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| Monday, Mar 03, 2008 |
| Map Out Your Standards Strategy |
| Posted By David Guzeman |
| Should you be chasing standards with your chips or playing the proprietary game? This question goes to the heart of your company business plan, and you need a well defined answer. It probably seems like the answer should always be to stay on the "standards" approved side of the chip design, but that has not always been the case. Traditionally, one company pioneered a new technology and got an early lead in the market. The late-to-the-party competitors immediately got together and formed a committee to draft a standard that negated the first-mover advantage of the pioneer. It was easy to separate competitors in those days… the winner was the one making all the money and the losers were on the committee.
Of course there are good and valid reasons for having standards, and with the complexity of things like multimedia formats, standards are now a practical necessity. Who can afford to create a chip with millions of gates hoping that the company can then drive the market by itself? Silicon Image created the HDMI interface for HighDef television, and then found it didn't have the marketing muscle to drive that interface into the market alone. Ultimately it was forced to open the HDMI spec to others in order to overcome the natural reluctance of the market to a completely proprietary interface. Their gamble, in this case, was that even after opening up the spec and making it an open standard, they could leverage the pioneering work they had done to maintain a technical lead. Only time will tell if they were right.
Some of these standards attempt very broad coverage that encompasses multiple levels of performance and feature sets. H.264, for instance, has a variety of "profiles" each targeting a different screen size and resolution. It is not enough for a chip to be H.264 compliant - it must also state which profiles it implements. Over time, some of those profiles will command major market shares and others will slip into obscurity. Examples like this prove that there are many opportunities for new chips that are both standards compliant but still assemble those standards and profiles in ways at will be attractive to the market.
So what is your strategy in this standards confusion? First, we should say there is nothing wrong with being the market leader and driving a de-facto standard into the market. If you can do it - if you have the market power - this can be a winning and highly profitable strategy. But even if you go the proprietary route and win, there will be a standards committee in your future as competitors get on board to endorse and expand your work. Regardless of whether you're the first mover that started the whole thing, or a later entry, if this is a key product/technology for you, you HAVE to be on that committee. If you're the technical originator, you have to be on the committee to keep from being victimized by your competitors. If you're a later entrant, you have to be on the committee to make sure it does not move in a direction that negates all your chip development you've already done. If you're new to the market, it's the place where you'll find out what your competitors are doing technically in this product direction, and by extension, if what you're doing is going to be a strong product offering or not. In short, you HAVE to be on that committee. In many cases, these standards committees are formed and driven by some sort of trade association or alliance. Companies interested in the technology band together to share information and push the technology by creating the standard. There is usually a fee - not insignificant - to join these alliances, but it's money well spent, and there is frequently some sort of lower-cost affiliate membership available as well. The key is that it is not just the chip companies in the alliance -- there will be some major potential customers there too. After all, it's in their interest to know and influence the direction of that technology as well as keep track of the players. By being part of the alliance, you have an opportunity to meet the major customers on a monthly or quarterly basis and demonstrate your knowledge and progress. When the early major deals go down, they will generally be between the customers and the chip providers in that alliance, so you definitely want to be part of it. As standards are developed and agreements reached, there will be press activity generated by the alliance and, as a member, you'll be included. This is an easy way to get recognition as a leader in the technology.
Organizationally, I usually drive this activity out of marketing, either the technical marketing or the strategic marketing groups. I find that typically my client companies will be in three or four of these alliance / standards committees, but even then it is not a full-time job. Still, it is important to recognize that the primary reason for your company to be a member is not technical but business. You're there to get competitive information, influence directions, and work early customer adopters. The lobbying that goes on in these groups can rival presidential electioneering, and you're going to need a pro at it. Many of the meetings are best characterized as babysitting -- just tracking activity rather than heavy technical discussions. So I have marketing act as the main contact point, and then make sure the company provides technical resources on an as-needed basis. |
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Monday, Mar 03, 2008 09:48 |
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