UK distribution company, Electrocomponents Plc, known for its mammoth RS Components catalogues has been expanding fast in Europe and is now planning an ambitious break into the Japanese market. This might not seem the best time to expand in Asia but they are already well-established in Hong Kong, which provides support for a build-up in China, and have a regional hub in Singapore. By March next year, they will be ready for the big move into Japan. This is, by any standards, a bold undertaking. The company has built up a 25-strong Japanese team to prepare for the opening and will have spent 1.8m pounds before the doors are open. Nor is this a quick money-spinner. The company expects to burn 30m pounds over five years – taking 4m pounds out of this year’s income – before the Japanese operation breaks even. In fact, the company reckons that the problems afflicting the Asian economies will work to its advantage as companies look at new ways to cut costs. Electrocomponents is unusual in that it is prepared to invest heavily for long-term gains. Heavy investment, including 2.5m pounds on an internet trading site, squeezed operating profit margins this year from 17.9% to 17%. It may seem strange that Electrocomponents is prepared to spend so much money in Asia when the vast US market remains untouched. The reason is that there are already similar companies in the US so to start up from scratch would be a risky proposition. Buying a US company is, however, the obvious way in. All Electrocomponents will say is that it is keeping a watching brief.
