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Ed Lee has been around EDA since before it was called EDA. He cut his teeth doing Public Relations with Valid, Cadence, Mentor, ECAD, VLSI, AMI and a host of others. And he has introduced more than three dozen EDA startups, ranging from the first commercial IP company to the latest statistical … More »
Selling EDA in Japan? Jim Girand tells us what’s happening and what’s changed.
January 24th, 2011 by Ed Lee
I recently had a chance to talk with EDA veteran Jim Girand about what the Japanese market looked like for EDA and IP companies, especially startups. Jim has been in EDA since its inception. He’s been a sales executive with various EDA firms including SDA and Cadence, an angel investor, and continues to set up sales distribution channels in Japan for startups and mid-sized companies.
Ed: Jim, let me throw out an observation that may be totally off base. I say that a lot of the startups in our area bypass the Japanese market, preferring to get into the Chinese (mainland but also Taiwan) and Indian market first.
Jim: Well, Ed, I’m going to disagree with you there. It seems to me that there is a lot of potential upside to pursuing the Japanese market. The large electronic product companies do demand a lot from their design tool vendors but they also reward their vendors with loyalty and purchase orders. Of course the other Asian markets are potentially lucrative and will surely grab a larger percentage of the Asian TAM (total available market) over time. But the structure of Japanese sales has changed. It seems to me that there is a lot of potential upside to pursuing the Japanese market and Japan still has the largest EDA market overall among the Asia Pacific countries. The latest EDAC numbers show for Q3 2010, Japan alone was 18% of worldwide sales and all the rest of Asia Pacific combined excluding Japan was 21%.
Ed: Interesting. The distributors I knew of all seem to be gone except for Marubeni, Innotech and some smaller organizations. So let me ask: How has the Japan distribution channel structure changed in the past twenty years?
Ed: What’s the role of a trading organization?
Jim: So, the trading organization –– or distributor –– bought the EDA tools at a discount, marked up and resold them with a sizable margin. The margin covered currency translation, local sales and applications support, cost of collection and other costs such as marketing and administration. Often, the trading company would make a ‘pre-purchase’ to encourage the supplier to give good support to Japan and designate a part time applications engineer who would be trained to conduct demonstrations and evaluations. Further, these trading entities often had excellent reputations and high level relationships that helped the small EDA company get an introduction at the large customers. As the supplier matured and grew, he had a choice of getting the trading company to invest in more infrastructure or start a K.K, that could assume all or share sales and support responsibility.
Ed: I do remember that the distributors like SC Hytech and that group of smaller firms had great reputations for service and support.
Jim: So over time, users pushed harder for prices that were comparable to those in the U.S. They began to implicitly – if not explicitly – separate the services offered and assume responsibility for some or just do without. Sophisticated IDMs and systems companies concluded they could buy in U.S. dollars, and get early technical support from the headquarters, especially with advancing information technology that made it possible. In this high pressure environment that squeezed margins, some full service trading companies left the business and at the same time smaller, more flexible organizations and entrepreneurs took their place. Also, organizations such as those offering design services and local design automation tools added small U.S. suppliers to their suite of products.
Simply stated, competitive pressure starting from the end users has driven the Japan distribution channel, today, to be heterogeneous and have a wide variety of selling organizations. Also, not to be forgotten, EDA suppliers are designing their products so mere mortal circuit designers can use them – quickly. And technical support is oriented more toward the most sophisticated applications.
The end result of this evolution in the Japan distribution channel is all good. The end users will always demand and get superior EDA tools and support. Full service trading companies will have to demonstrate their infrastructure, long term high level relationships, local technical support and administration are efficient, a better local value than the end user getting these services piece meal.
Ed: And what of the sales rep?
Jim: Likewise, the independent sales representative must bring a persuasive contribution through the services he offers, beyond a good price, that will cause the end user to exert the extra effort to buy from him. And, going forward, we can be sure of one fact. The pressure on margins, the cost of sales, will only get stronger and felt from the local representative to deep into the supplier, driving all parties to be more efficient.
Ed: So what’s the effect of these changes for the small EDA vendor?
Jim: Now, from the perspective of the small EDA supplier seeking a distribution partner in Japan these changes in the channel structure can have profound effects. Namely, with a traditional trading company the sales development resources are ‘in country.’ You should have a designated sales manager who is responsible for the local infrastructure and getting your products introduced to the ‘A’ level end users. You will need to establish quotas, sales plans and be responsive when more advanced resources are requested.
At the other end of the spectrum, an individual sales representative will need much more guidance and particularly, technical support to help establish and successfully conduct evaluations. The supplier should plan on traveling to Japan often, perhaps once/quarter, make joint sales calls, conduct seminars and establish a corporate as well as technological identity with the end users. A much more active sales management role by the supplier is required here. At this time, there is no evidence whether the traditional trading company model is more effective than smaller organizations. More important, the supplier should think about the above considerations and choose an organization that will be compatible with his emerging culture.
Ed: Interesting, Jim. So there is no one formula on how to decide which works best for each type of company?
Jim: Not really. It depends on the considerations I mentioned earlier, plus the rapport established during the interview process, convergence of each organization’s interests, complementary product lines and existing relationships with prospective end users.
Ed: For those reader with questions, can they get hold of you?
Jim: Sure! I’d welcome their questions.
Ed: Jim, thanks for taking time to update us all on what’s going on in the Japanese distribution side of the EDA business.
James F. ‘Jim’ Girand
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