Digi-Key Electronics, one of the giants in the distribution of electronics components, recently opened a distribution centre in Bengaluru. Yashasvini Razdan from Electronics For You had a free-wheeling discussion with Ramesh Babu, Chief Information Officer, Digi-Key, and got to know about the plans for this centre. Here are the key excerpts.
Q. Digi-Key had been planning a setup in India for quite some time, but some legal issues were acting as a deterrent. What has changed for you to take the leap now?
A. Digi-Key has been in India for a long time, irrespective of whether we physically had a building or not. This year alone, we directly sold around $70 million worth of products from India through the US website. We do have offices (already) in India. For example, in Delhi and Gurgaon we have an order entry support team. So, I see the new centre as an extension of what we already have.
Q. What are the key drivers that prompted Digi-Key to set up a larger presence in India?
A. First, our sales have grown in India (even) with limited marketing efforts at our end. We had been thinking about how to support the growth, and it reached a point where we needed to have a local presence. We have also seen a shift in our supply chain. Some of our product suppliers are shifting their manufacturing from China to India. The most famous example is that of Apple shifting some of their production to India. There is a whole ecosystem around Apple and other electronics players where they are covering customers. So, we are looking at a very explosive growth and we cannot afford not to have boots on the ground to support as well as fuel the growth and have the infrastructure available readily to support our current customer growth. So those are some of the tipping points for us—sales growth and future potential.
Q. Can you shed some light on the new centre that Digi-Key is setting up in India? Will it be a global support centre?
A. We are purposely calling it the Global Capability Centre. I hate using the word support because it’s what other people use India for—that is, just support. Our centre in India will be an extension of Digi-Key Inc. We’ll have sales roles, IT roles, design-engineering-support roles, and all of the supply-chain roles. Almost every role you can imagine will be there. So, we don’t think of this as a support function at all. And that is because maybe other companies do not have sales in India, but we do have sales, that too explosive sales. So, it’s not without reason why we are doing it. We have customers, we source products from India, and we write code from India; so it’s real. This is the best time for us to bring it all together into one global capability centre.
Q. How will your customers benefit from your local presence and what are the prospects that we can see concerning delivery, billing in the rupee, the GST input, etc?
A. Yeah, I think you already are touching on it. So, sometimes, when we don’t have a legal entity in India, some of the logistics become hard for our customers. So, currently, the customers are importers on record today, but by having a legal entity we will become the importers on record, remove the customs pain for our customers, and have a unified tax structure, instead of just buying in the US dollar, and be able to write whatever code we need to seamlessly on the invoices. In addition to the sales and the logistic improvement experience angle, we are reaching out to universities in India. We are hiring university ambassadors, and we are catching engineers at the source in the engineering colleges. We are planning to provide content, such as how to do a particular design along with reference designs. We are also thinking of providing new product samples. These are the latest and greatest semiconductor designs that are coming into the market. To fuel these designs for new products, we are reaching out to universities. The HoDs of these universities are super interested because we aren’t just giving out products, we are giving them designs for the products so that students can use them to learn, and our relationship with our customers starts right there. We don’t monetize the books, but they will come to know of Digi-Key and the resources we have so that when they go to the job market and start working for companies, we are a prospective destination for them. So those are some of the key advantages of being here and having boots on the ground.
Q. Any change expected in the way you deliver products, or will it continue to happen directly from the US?
A. Yes, right now our delivery will continue from the US. That is more efficient because our warehouse and our logistics connection points are in the US. We are based out of Thief River Falls, a small town in Minnesota. The airport takes about ten planes of UPS and FedEx delivery boxes every day, lands in Thief River Falls and it takes minutes for them to take off a full load of Digi-Key products. Due to our exclusive nature there, we are better connected than we’d be in any big city where we’d have to compete with the IRS to get our shipments into the planes, taking us more days to ship the products. Currently, for Europe, it is two days and for Asia, it is three days. Ninety-nine per cent of the time we are able to meet those SLAs.
Q. Can you shed some details about the legal entity of your India setup?
A. It’s a partnership with SMC Squared that has a timeline, which is very unique. The legal entity work in India takes a long time, so we didn’t want to wait for all the paperwork to be done before we could start. They call it the build-operate-transfer model; contractually it gets transferred. So as soon as SMC Squared is shoulder-to-shoulder with us, we will build the legal entity, finish the paperwork, and get all of our infrastructure in place. Our goal is to complete the transfer within three years. Then SMC quietly drops off from the partnership while Digi-Key operates the whole facility on its own. SMC Squared has done that with other companies. So, they have a leg up in terms of teaching us how to do that. Even as simple as pulling leads to networking with all the other facilities, they’ve done all that for other clients. They’ve been an amazing partner to give us the speed and runway time as we set up our legal entity here.
Q. With respect to India, are there any interesting trends that you can share based on web metrics? Where do we rank with respect to traffic?
A. In a month, globally, we get 11 million unique visitors on our website and out of that India ranks among the top ten when it comes to web traffic. So that means the traffic from India is high. We have also discovered that the engineering population in India accesses our content a lot. A lot of them are not converted into sales, but it is really interesting. For example, on our digikey.com website, we have resources like calculator pages, which have engineering calculators, that allow them to perform calculations such as converting resistance into kilo-ohms. Such content is one of the most visited pages from India. It is number one in India. So that tells me that the engineering population we have in India is very education and learning oriented. They come and access the free content available almost like no other country.
Q. How has the trend for sales been for the past two years from India?
A. Through the years it was explosive. I think we recorded double-digit growth in India almost every year. Obviously, the pandemic drove some of that. I don’t know whether that will continue next year. Everybody is talking about a slowdown. We are seeing some slowdown but my personal take based on some of the early data is that growth in India may not go down; it may stay stable. As I mentioned earlier, some of the manufacturing is shifting to India and that is just starting to create an ecosystem of demand for us. So, I’m hopeful it will stay, but we’ve witnessed huge growth in the last two years.
Q. Since we are talking about sales, do you plan to enrol any channel partners to expand sales in India to serve many of the un-penetrated regions in India?
A. Honestly, the answer is no, not right now. We are channel partners for our suppliers. We have to figure out a way to penetrate every place as opposed to somebody reaching out to us. We find that engineers complain about having multiple layers of partners before they get their product. The price increases and it takes time. We have proven that we are good in both of those areas. So, our plan is to reach every nook and corner on our own. We have plans for that, and we are not planning to have another layer between us and the customer.
Q. When will the India office be ready and functional?
A. Oh look! I’m sitting in the office that is already up and running. We have about 50 people in this office today. Our offices in Gurgaon and Delhi have also been up and running. It’s just the paperwork, I don’t know when that will complete; I can’t even give you a date. I wish the government moves faster on us, but our office is ready to go.
Q. Have you finalised any leaders to help these local operations?
A. Yes, we have Arun Arasu, who is our Managing Director for India. He’s been in the role for about five months now. He’s still learning, but he’s operational.
Q. How do you see the overall trend for e-commerce for electronics components and equipment across the globe? And then specifically with respect to India?
A. Almost everyone in the name of digital transformation is investing in electronics—whether it is IoT or creating digital twins in an automated warehouse, to digitise what is physically present. This is a tiny example of what we have done. We see the trend of electronification. Even during the recession, people wanted to go digital to cut costs so that they could manage the recession. We are in a good industry, where we see growth—no matter what—because of electronics. Coming to the e-commerce question, a lot of people in the electronics industry are still very traditional. We have the manufacturers of electronic products, then people like us who are in the middle and are e-commerce distributors, and then we have the customer. Everybody wants to cut the middleman, but the unique thing about electronics is that you can go to Amazon to buy a finished product. That is why we are in the maker industry. So, the electronics e-commerce distributors and e-commerce websites are here to stay because we give the whole bill of material to the engineers to build. We provide them with small quantities that big manufacturers cannot afford as they have a minimum order quantity, which is in millions sometimes. We sell even one part that is worth only 40 cents. We spend $20 to ship it to you, but you can still buy 40 cents worth of parts from us without any hassle. So, I think e-commerce for electronics is here to stay and we do add value for the customers, be it by giving small quantities of materials or by taking care of different countries’ logistics, or providing reference design libraries. Coming to the last part of the question, India is a broad market for us. In the UK people are curious because we always say our customers are makers, our customers are innovators, and we find a lot of them. I think our educational system is allowing engineers to be produced in mass and that is leading to be a very innovative thing as I can now see people are making products in India. So, all these factors are helping a company such as Digi-Key to be here. It is the perfect timing for growth and innovation. I am so thrilled to see that. I feel proud to be from this country where I am literally seeing transformation in everything, not just in electronics, and that is something to be proud of.
