PEI-Genesis Evolves While Maintaining its Niche

By Barbara Jorgensen | January 13, 2014 | EPS – ElectronicsPurchasingStrategies.com

Philadelphia-based PEI-Genesis has a highly-focused business model that the company is taking global. The specialty distributor provides custom connector and related assemblies with a two-day turnaround. After venturing into the EU in 2001, PEI-Genesis has set its sights on the Asia-Pacific region. (See: It’s Never Too Late For China and PEI-Genesis Prepares for Expansion Into China.) CEO Steven Fisher recently spoke with EPS Managing Editor Barbara Jorgensen about the company’s past and its plans for the future.

EPS: You and the company were recently featured at the ECIA Executive Conference. Can you give us a brief history?

Fisher: My dad Murray and his partner Bernie Bernbaum started in the surplus tubes and test equipment business after the [Second World] war. Philly was a port city and there was a lot of postwar demand for those products. It was the equivalent of New York City’s Cortland Street. The company grew through the 1940s and 50s and in 1961 we bought a company called Philadelphia Electrical Inc. (PEI) and added three or four stores and by the late 1960s had become a multiple location endeavor.

The company eventually added resistors and capacitors and switches and relays to its tube offerings. In the 1970s there was the rise of the semiconductor and the decline of CRTs, and my father felt strongly that PEI-Genesis was more of a niche company and stayed away from active components. The ITT Cannon line did business with us and had a lot of qualities that I liked – the products were durable and in every industry. We began building products to order for our customers. We went from $3 million [in the 1970s] to $50 million and began to expand through North America. When we went abroad to Europe that [BTO] model was not yet developed and we had tremendous success starting in about 2001. Now about 86 percent of our orders have some form of value-added.

EPS: How did you decide to move into the EU?

Fisher: The EU wasn’t really pan-European and there was still a lot of identity country by country. No EU distributor had made a commitment to make all the products that needed to be made in our unprecedented cycle time. Plus, we had an established office in the major European countries, which allowed us access to products we hadn’t had before. So eventually we built a facility in the EU.

EPS: How did PEI-Genesis evolve its model to the highly-specialized company it is today?

Fisher: There were a lot of bumps until we could see the data that reinforced that we were on the right track. Beyond that, there was always the challenge that you have to focus on the customer and become ever more knowledgeable about the parts; you have to have more services if you are going to be a trusted partner and you have to have deep design ability. You have to become more involved with the customer’s engineering department – more so than is now traditional. We had to convince people that we were on the right road and could offer a diverse group of products economically.

EPS: How has the company managed to maintain reasonable profit margins on its core products?

Fisher: The value- add IPE model is not as attractive to public companies as the semiconductors and I think people have underestimated how hard it is to not to focus on [chips.] But because so many people aren’t [doing what we do], we can do it competitively. We have gotten a lot out of our capital investments.

Of course there have been downturns—when it rains everyone gets wet. Our model of high-value has helped; and focusing on small to midsized customers that are attracted to our value has helped. If you are a big commodity player you will get wetter [when it rains]. High mix/low volume takes a lot of discipline and you should be able to make good margins regardless of what the [rest of] the sector is doing.

EPS: How has the company managed its global expansion?

Fisher: The lesson we learned is wherever you want to go, you have to be local. For some it is OK to establish a local salesforce; for us it was local and a value-added center. We aren’t just perceived as local; we could deliver as well as anyone in any country. It helps to have a local lawyer and account onsite. There’s setting up the infrastructure, the logistics are different [overseas] and you shouldn’t assume anything. Once you lay your plan out and as long as you can express your value proposition — and there is indeed a value proposition — customers will see that regardless of where they are.

EPS: How has that strategy differed from other distributors? You have expanded through greenfielding rather than through acquisition, correct?

Fisher: In regard to greenfielding…maybe we don’t know any better. We’ve had no experience in acquiring other companies, but if we have a secret weapon it is the culture. If you do greenfield you have a culture and your culture must be consistent across multiple geographies. Then you don’t also have to teach people to unlearn bad habits. We have found that [strategy] to be successful. It took longer, but it has been extremely successful in the EU.

As for strategy…I would probably been fired had I worked for a public company. At a public company there are short-term needs that have to be met and private companies are different. At public companies sometimes the story of growth overwhelms the economic strategy. Not all growth is equal. I think what you don’t do as a niche distributor is as important as what you do. We say ‘no’ to a lot of products that don’t fit our economic model and we’d say no to acquisitions [that don’t allow us] to grow strategically.

PEI-Genesis has production facilities in South Bend, IN; Bensalem, PA; and Southampton, UK; as well as 27 sales offices in eight countries. In the second part of the article, Fisher will discuss the company’s planned expansion into Asia-Pacific and how the Internet has impacted PEI-Genesis’ business model.