Most Quebec subcontracting companies used to live off organic growth whatever the economic conditions. Now facing international and external competition, going through human resources renewal and experiencing the general trend in reducing the supply chain length, how will subcontracting companies adapt their business development and marketing to insure their survival and growth?
For context purpose, here is a recap of what is subcontracting.
Subcontracting is a contract by which a company asks another company – the subcontractor – to fulfill part of its production, parts of the work or supply components following precise specifications.
Subcontracting is common practice in many sectors such as aeronautics, transportation equipment manufacturing, industrial equipment, etc. A cascade of subcontractors that work with one another are organized in levels called “Tier 1”, “Tier 2” and so on.
A subcontractor differs from a generic supplier as it manufactures a product generally from the specific drawings and specs provided by the supplier for its exclusive usage and generally doesn’t have its name on it. It is common that manufacturers offer products to suppliers in a “white label” fashion.
If I had to explain subcontracting to my friends, I’d use the construction example where a general contractor would use many specialized workers (subcontractors) to build a house.
What to look for in subcontractors?
Clients generally look for the following in a subcontractor or outsourcing company:
- Capacity to produce products and services (this takes for granted having enough competent human resources to do so)
- High quality (technical expertise and state of the art equipment)
- Able to follow specifications (conformity and certifications)
- Timely production
Pricing is often the result of negotiations amongst this “partner” agreement as the complexity of the work and products to be delivered require risk sharing and collaboration. Clients are aware of this situation and must leave some flexibility to the subcontractor to do his job right.
Should price be top consideration and a major selection criteria, one would be in a situation where subcontractors have little differentiation. All would be more or less equal in terms of capacity, quality and delivery time. In a commodity market, price is king.
Due to the nature of the work and investment to get the relationship going, clients often consider their relationship with subcontractors strategic. The relationship therefore develops into long term agreements.
This represents a strong barrier for other subcontractors. What are the chances one would change subcontractor if satisfied with the work and considering the relationship as a strategic one? Why take a chance to change?
Tier 1, 2, 3
Recent discussions with subcontractors confirm that their business development context is changing. It’s more and more difficult to reach the clients. They also concentrate their efforts towards Tier 1 and ask them to take care of the rest of the subcontracting chain (Tier 2, Tier 3).
It’s quite easy to name a major supplier/buyer such as Bombardier. Do you know Autocar Prévost, Marmen, Voith, and Oshkosh? What do you know about their needs? How can your company serve them? Would you know how to approach them and who to reach?
Reaching the buyers
Personal contact and credibility demonstration is very important in the subcontracting cascade. That’s why companies naturally hire experienced and trade specific sales people. But in light of changing times, it will take more.
To capture new business contacts, do some networking, this happens in high moments of the year where buyers and suppliers meet by activity sectors. Those are the moment where people meet other people. Think of trade shows, specialized events, associations. Participating in such events will always have its value, if well prepared and executed.
In times of international and external competition, new work arrangements by the buyers and new workers taking the place of the old guard (contacts renewal), subcontractors have to upper the game of the business development and adapt.
Businesses that experience growth will have identified correctly the needs of the new buyers. Gone through the identification of new Tier 2, 3 and even 4 players. Commercial research will be useful in many cases.
Expressing clearly your value proposition and differentiators in your various sales tools such as your website, case studies, collaterals or other is key as the new generation is more and more “electronic”.
In the wake of the next high moments of your industry this year such the Buyer/Supplier Day organized by Sous-Traitance Industrielle Québec (STIQ), why not proactively invest in strategic planning and prepare accordingly. Call upon professionals to support you in your next growth phase and go forward!