The key to growth at Thief River Falls' Digi-Key

Digi-Key Corp., a wholesaler of electronic components that's based in Thief River Falls, Minn., announced last week that its European sales are up 26 percent through the first nine months of the year.

The private company doesn't release its profits, but overall sales are expected to be $1.7 billion in 2014, and all the parts for smartphones, electric cars, LED lights and medical devices ship out of Thief River Falls. Headcount at the company has grown from 2,600 to 3,200 in the past 18 months.

We caught Chris Beeson, a Digi-Key executive vice president, by phone before he headed to Munich for the Electronica trade show, where he will be giving away a Tesla.

Q: When did you start doing business in Europe?

A: We've been processing orders in Europe, although on a very limited scale, since up to 10 years ago. We started some catalog initiatives, primarily in the larger markets, England and Germany. The Web was the disrupting factor and through the course of time it's really gone more to an e-commerce orientation.

Q: So you were sending catalogs in French to France or German to Germany?

A: We were. We really tried to accommodate, early on, local language and local currency as much as possible. The whole point is, how can you appear as local as possible, even though the foundation of what you're doing is a virtual site out of northern Minnesota? Those were very early days. It was a proof of concept. We were interested to see, would someone literally send a fax, send an e-mail, or drive an Internet transaction to someone back in North America? For the most part our focus was on an engineering quantity of electronic components.

A: Exactly. The crux of what we do is cater to the actual design of innovation. For the past 42 years, our targeted community has been the engineer.

Q: The engineer is still the target customer?

A: Yes, but we entertain a hybrid model where we serve a high-mix, low-volume production orientation.

Q: What does that mean?

A: The engineer would buy two and five and nine from us and create the design. The early stage of the design was completed, maybe tested, and then ready to move into a little production. They would take the component list and give it to the buyer, and the buyer would call the traditional distributor. And then the distributor wouldn't have it in stock, or they would only need 200 pieces and it comes on a reel of 5,000, so the buyer would just get frustrated. The engineer would say, 'I don't know, I just called Digi-Key, I had it all the next day. Why don't you just call Digi-Key?' When that started to occur, that's when, about 10 years ago, we started to alter our model for this high-mix, low-volume. Therefore we could be a little stickier with the customer.

A: We put a customer service center in the Netherlands. We put a sales office in both Munich and Tel Aviv. The sales offices are 18 months old.

Q: You guys just announced 42 percent of sales come from outside of the U.S. How fast is that share growing?

A: Within two years, three years, we'll be 50/50 in terms of business outside the United States. That's with nice growth in the U.S. as well. This year, we'll be just north of $300 million in Europe, the Middle East and Africa. We ship all of that out of Thief River Falls. The customer base is not concerned with the point of shipment. If they can receive product in 48 hours from Digi-Key, that works for them.

Q: How are start-ups driving demand for your products?

A: There are a lot of start-ups in the metropolitan area, in the Minneapolis area. That's a different clientele than what was around 10 years ago. A traditional outside sales team is really challenged reaching that community. They're hard to find. A lot of the companies that are now creating Internet of Things components or products didn't exist five months ago. We find that because we're virtual but our coverage is global we can get into that community. We get to see a lot of innovation early because of the orientation of our model. That's not much different in Munich than it is in Minneapolis.

A: Yes, we find that to be encouraging, because there are two public companies that are the predominant players in the electronic component industry. One is Arrow Electronics and the other is Avnet. They just released their growth and for the most part, it's flat to 1 percent. Our positioning appears to be favorable.

Q: How are your competitors positioned differently?

A: If you're more into the fulfillment aspect of the industry, you would find greater growth in Asia Pacific than in North America. Where high-volume production used to happen in North America, now there's more of a low-cost country orientation. And so businesses have had to shift resources to other regions. Since that's not part of our business model, our model didn't really need to be altered. And the demands for high-mix, low-volume are sizable.