Successful, Long-Term Growth at Prime Technological Services

Estimated reading time: 19 minutes

Chesnutt: People figure out pretty quickly if it's just talk, and so you have to try to live it every day and we can always be better, but I really feel like we make a sustainable and concerted effort to do that.

Matties: When you went in and you started looking at capabilities, did that modify the markets that you went after, or did you stay in the core markets that they were already focused on?

Chesnutt: We were fortunate in that the business was fairly diverse in terms of vertical markets, but also in terms of what I think of as our mix. I sort of think of our customer mix as three tranches. We do a lot of work on the NPI side. We have also grown from the NPI business into what I call our middle tranche, which I refer to as category killers. These are companies that have significant depth of expertise in a technology or a specific vertical. And then the third are our Tier 1 OEMs.

We were fortunate in that we had a diversified business across verticals, but we also had a diversified business within that customer portfolio within those verticals. We just sought to continue to build on that. We picked a couple of markets we felt like were regionally important or that could be very important. Energy and energy management systems are very important to us in the Southeast. There's a concentration of companies in everything from grid automation to smart metering technology that's a thriving ecosystem in the Southeast. Lighting and lighting controls is also business that's very important to us. About 65 percent of the North American lighting market, at least in the commercial investment side, is headquartered within a three-hour drive of our facility.

Matties: Proximity really makes a difference, doesn't it?

Chesnutt: It really does.

Matties: And it makes a difference to customer service too. It's a lot easier for both parties.

Chesnutt: Time and space can become friction points for prospective customers, particularly in early stage enterprises and particularly in NPI work, where speed is paramount. Rapid exchange of information and speed of execution are very important. Sometimes that work can be best done on a one-to-one basis when you’re kind of going eyeball to eyeball. So, I like to think at our facility, obviously with the exception of some access controls and some security protocols that we have, that we really try to treat our facility like an extension of our customer’s facility. Our customers are in the facility a lot working with us and working with our engineers, because we're trying to help them accelerate the commercialization of their products.

Matties: Do you see an on-shoring or re-shoring trend coming?

Chesnutt: It's interesting. There was a lot of conversation about it two to three years ago, and we saw some. Clearly, as the developing economies mature, and we're never going to get towage parity in our lifetime, but the gap is beginning to narrow in terms of not just wages, but total delivered cost for our product from some of the developing economies­—particularly when you lay on top of that ongoing trends in manufacturing automation. Quite frankly, a statistic I saw yesterday is that direct labor accounts for about 7 percent of the cost structure of a product in this industry. So, you're working with a fairly thin slice of the overall cost structure.

We've seen a little bit of it; who knows what's driving it. I think market movement and the need for speed is what's driving it more than anything. Most of our customers are talking to me today about shortening the supply chain. They don't want it elongated. They want it shorter. It's easier to manage. There's less complexity, and in any products business today, inventory is kind of dirty word. You want it when you need it, but when you don't want it, you don't want a lot of it hanging around because asset velocity is very important to everyone in business.

That's driven a little bit of it as well. As to what the next card that's going to be dealt off that deck is going to be with everything going on today, who knows, but we have benefited from it. One thing we're seeing right now with some of that uncertainty, particularly for North American OEMs who have a substantial portion of their strategic sources down in Mexico, is we are starting to hear conversations about supply chain diversification and maybe hedging some bets.

Matties: Trump is certainly a big factor in some re-shoring. Have you seen an impact at all yet?

Chesnutt: Just conversationally. I can't say it's shown up in terms of opportunities.

Matties: Attitudes have certainly shifted to a more positive outlook, I think, as well.

Chesnutt: Agreed. I was talking to someone about it earlier. Any time, and this is an apolitical comment, because we have to prosper in our business regardless of what's going on in Washington, but any time you have a change of leadership, a shift in the governing party, there's just sort of a natural excitement that comes along with that.

Matties: I think there's a natural excitement, but I see this more as a redefinition of American values, and ultimately that influences global values.

Chesnutt: Yes. We talked about some of them yesterday in the EMS Management Council meeting, but clearly there are some ideas being discussed around restoring the global competitiveness of our manufacturing economy. Nobody likes paying taxes, but the US tax code, has put us at a competitive disadvantage globally with other OECD nations. If you have less capital to work with that's internally generated by your company, it's going to eventually affect your investment posture.

Matties: Especially if you can't write off a piece of equipment the same year you bought it. Now if that comes to pass, do you see your company jumping on and investing heavier in equipment?

Chesnutt: We will. Our investment won't be solely tax driven. It'll obviously be about opportunistic need in our business, but tax policy can definitely create a very attractive environment to do it. I guess the answer to your question is yes. You might accelerate some things, perhaps a bit earlier in your investment cycle than you would have. So yes, it definitely can have an impact.

Matties: The point being is when we see Intel, Foxconn and all these other companies coming in, if it comes to fruition I see a huge increase in the manufacturing sector, particularly in areas like yours.

Chesnutt: Absolutely. We've got a pretty robust manufacturing ecosystem down in the Southeast. We’ve benefited greatly, and the automotive industry has been a big driver of that over the last 10 years. But really across industries, our region of the country and within the overall context of what's going on in Washington, has tried to be very accommodating to attracting and building the manufacturing base. It's just nice to see that trend emerging as a broader priority for the entire country. It's important to be good at building things. You know, it really is.

Matties: I think there’s a swell of patriotism and pride in manufacturing that’s coming across the American population. You won’t realize that by watching the news, but when you go and talk to the people that are actually living the lives of manufacturing, I see it.

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