How to become a full-cycle services company using the current crisis as an opportunity

???????????In previous articles, I described the history of the formation of the global semiconductor market and the main trends that influenced it. In this article, I want to look at what opportunities this opens up for IT market players. The material will be useful for those who are making decisions about the company's development strategy, investments in new areas.

????????????It is no secret that there aren't so many software and product companies in Ukraine, software outsourcing has always been more willingly accepted than hardware development, but will this be the case?

????????????The formation of new supply chains around regional leaders, as was said earlier by the example of the semiconductor market, has already begun. These changes in turn will lead to a revision of the usual suppliers and their set of criteria. The main trend is deglobalization. This means that regional leaders will seek to localize the supply chain necessary to produce a product as close to the consumer as possible. This applies to everything from food products to hardware solutions. It eliminates problems with the international supply chain, reduces the risk of failure of terms in the performance of complex projects, and minimizes losses due to force majeure. In turn, it opens up fundamentally new opportunities both for IT companies and industry.?

????????????For example, thanks to the EU "European Chips Act" directive, the growing demand and upcoming shortage of ASIC developers at the labor market is evident. Large amount of new electronic components manufacturing factories in EU is likely to form a pent-up demand for outsourcing complex embedded solutions, especially in those domains which cannot be outsourced to Asia due to security policies.?

????????????There are several options for IT companies that want to use the described trends. Let's consider a few of them this is:

• M&A;
• building a full-cycle services business model;
• developing our own hardware product.

????????????Example for M&A strategy.

One of our partners (an equipment distributor in Ukraine) closed an M&A transaction, buying a product company in it's segment, with its existing RnD department, hardware manufacturing, and client portfolio. In one easy movement, the company from a local equipment distributor turns into a product company, with a portfolio of customers in other countries, a catalog of produced equipment, a recognizable brand. For the customer, this is a great system solution that turns a company closed in the domestic market, into an exporter with its own product, RnD, production, great sales model.

Few examples, on the building a full-cycle services business model.

?????????? Not so long time ago we were approached by a local parcel locker manufacturer with the task of developing and establishing local production of electronics, completely replacing the Chinese and European suppliers. The reason is simple - the price of delivery from China, which almost doubled, and the lack of deliveries during the lockdowns, led to significant financial losses due to the failure of deadlines under the signed contracts, and because of the downtime of the assembly line in the factory. During the Discovery Phase, significant opportunities were found to customize the product to the needs of EU installers. This is a complex task, which implies both RnD and embedded maintenance, the solution of which gives the customer significant benefits in the form of extending the functionality of the current lineup, the rhythm of the output and cost savings.

????????????Example number two. The Company, a manufacturer of GPS systems for smart agriculture from Europe, addressed with a request to localize in Ukraine prototyping and manufacturing of new developments and all processes connected with it (delivery of components, manual testing, maintenance and support of embedded production, functional tests, etc.). Reason of the request was the refusal of the current service provider in northern Europe to completely satisfy all project requirements and the client's wish to optimize the costs, as RnD department was located in Ukraine.?

????????????Example number three. An engineering company from Europe, that dealt with the installation of electrical equipment for warehouses, requested to develop a device (NDA) under its brand with the capabilities of compatibility with different types of sensors, and to localize its production in Ukraine. Having worked through the possibility of installation in existing projects instead of the outdated solution. The reasons of the request, difficulties with service by the current manufacturer from Asia, a long delivery time from the moment of prepayment, the desire to get a solution and service from one source.

????????????What all three examples have in common is that customers want to get one-stop service closer to their market, to their customer. The solution provider in this case, can quickly grow a team with expertise in one or more domains, build an excellent market presence strategy.

????????????Own product, cross-selling, digital transformation.

????????????Business is always evolving, which sometimes leads to unexpected decisions and changes in a company's business model. The market changes, and so does the business.

For example, Amazon, having growing sales of online books, entered the market with its Amazon Kindle and greatly strengthened its position and sales. The results of this experiment and how the company's business model has changed are well known today. Recently, Steam repeated the success of this cross-selling approach by releasing its gaming console, Steam Deck. These are examples of how a company can expand it's range of products in related domains by knowing its customers. Whether it will be an in-house development or an outsourced service is already a tactical question.

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????????????These examples illustrate only a part of the changes in the global semiconductor market and the related development and hardware manufacturing, as well as the strategies of market players' reactions. The main message is that, in my opinion, it will be impossible to ignore changes of this scale. The question is?-?what strategy each market player will choose and what path of implementation they will choose, and there are plenty of opportunities ahead of us.