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It’s Only Common Sense: Where Will We Be in Five Years?

Recently, a good friend and U.S. PCB shop owner asked me what the North American market would look like in five years. It’s a good question, isn’t it? With everything going on in the world, it is a good time to stop and take stock. After some considerable pondering, this is what I came up with. Since I never pass up a chance to share, I thought I would pass the the following on to you.

Consolidation and Big Shops Eating Little Shops: The Pacman Syndrome

Some of the 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. 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.”

Who Will Buy These Companies?

Who is going to spend big bucks on these American-based companies? Well, think for a minute; what country in the world has big bucks? Yes, that’s right—China. The Chinese are coming with millions and billions of yuan and 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, but a fact. In the next 12 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—but this will only be the first step and the beginning of a trend.

North America Will Continue to Lose PCB Shops

Sad, but true. 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 ‘70s, and had all the business I needed.” It will be too bad for sure, but it is inevitable as companies hold on to the past and refuse to adapt to the times.

The North American Market Will Continue to Grow 

Right now, the North American market is rising to over $11 billion, and growing every day. At this time, barely $3 billion worth of PCBs are being built in this country, while over 11 billion are purchased, that means 8 billion are being 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 fully or partially foreign-owned companies.

Mexico Will Become 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.

We Will Become More Global

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 marketplace 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. The difference will be 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.

Conclusion

The fact 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 nothing that governments—particularly politicians—can do about it. Like water, commerce always rises to its own level. And yes, as will be demonstrated by what happens to the PCB industry, the world is indeed getting flatter.

In short, the U.S. market will grow, but it will have fewer shops, and many will be multinational companies.

It’s only common sense.

Dan Beaulieu is president of D.B. Management Group.