By Bridget McCrea
In January, OSRAM made an announcement that was enough to send shivers down any electrical distributor’s spine. One of the world’s largest lighting manufacturers, it seems, was planning to “carve out” its general lighting lamps business and rebrand the new entity as “LEDVANCE.” The new firm would handle traditional lighting, modern LED lamps, standardized over-the-counter (OTC) luminaires, and connected and intelligent lighting solutions for smart homes and buildings.
Based in Munich, OSRAM is a global lighting manufacturer with a history dating back more than 100 years. Its portfolio ranges from high-tech applications based on semiconductor technology, such as infrared or laser lighting, to smart and connected lighting solutions in buildings and cities. Headquartered in Wilmington, Mass., LEDVANCE, LLC, will continue to use the OSRAM and SYLVANIA brands, but it is now effectively positioned as an independent company that has “leaner structures and more freedom.”
LEDVANCE officially put its plans into action this year, with the organizational separation of the lamps business taking place in April and the legal separation occurring in July. And while the move to carve out OSRAM’s existing lighting business into an independent business may have seemed abrupt to the outsider, Matt McCarron, VP of LEDVANCE’s Industrial Commercial Channel, says the idea was actually in the works for some time. In fact, he says OSRAM put much thought and care into exactly why it needed to happen, how to go about doing it, and how to incorporate the manufacturer’s distributor base into the process. “These things don’t just happen overnight,” he says.
A key driver behind the move involved OSRAM’s two-pronged go-to-market strategy, which was focused on both volume markets (e.g., general lighting and bulbs for trade and retail) and on a technology line (i.e., auto lighting, full head lamp assembly systems, and chip making). “What we decided to do was separate the operations so that the lamp side/volume market with its access to trade and retail could be more nimble, faster to market, and able to respond to dynamic market forces,” says McCarron, “specifically in LED.”
What All of This Means for Distributors
When a supplier makes a major change to its corporate structure, brand name, and/or go-to-market strategy, the implications for its distributor base can be significant. In most cases, these changes present both challenges and opportunities for the companies that are out on the front lines selling the manufacturer’s products on a daily basis. According to McCarron, LEDVANCE took this into consideration very early in the carve-out process and continues to work with its distribution base during the transition period.
“We have tremendous relationships with all of our trade partners and we don’t take those relationships lightly,” says McCarron, whose team began reaching out to electrical distributors in 2015 to discuss the upcoming changes and what those changes meant for the manufacturer’s distributors. “We didn’t have all of the answers, but we knew the basic directionality of the carve-out and what it was going to look like. We began talking to the distribution network about what they loved about our company and about how those components were going to remain intact after the conversion was completed.”
Mark Corcoran, LEDVANCE’s executive advisor, says the manufacturer has been “over-communicating” its plans for more than 18 months now, and that it continues to help its trading partners adjust to the changes and new directions. To help ensure the smoothest possible transition, the company formed a distributor advisory council in October 2015. “We brought six of our top distributors into our brand-new headquarters at that point in time,” says Corcoran, “and talked to them about the direction of our company.”
Getting Out on the Front Lines
Working with electrical distributors like North Coast Electric and The Hite Company, LEDVANCE was able to incorporate its business partners’ viewpoints, likes, and dislikes into its overall strategy. “Between that and the NAED, Affiliated Distributors, and IMARK shows, we met with about 250 distributors over a 6-month period,” Corcoran explains, “live, in person, and face-to-face.”
Through those conversations, the LEDVANCE team was able to convey its plans and let its strategic partners know that it was going to be a standalone entity, effectively carved off from OSRAM. Corcoran says those early efforts have paid off. “When it came time to sign the agreements and make the official announcements, it was no surprise to our distributors,” says Corcoran. “I think they’re pretty comfortable because we’ve been talking to them about it all along and also listening to the voices of our customers.”
Overcoming the Hurdles
With any major change comes questions and concerns about “how it will impact us.” Even with its lengthy educational period and the formation of a distributor advisory council, LEDVANCE had to answer a lot of pressing queries from its distributor base. “The immediate reaction was that either we were going out of business or that we would change our fundamental approach,” recalls Corcoran. “We had to overcome the perception that somehow our company was going to immediately ‘turn into something else.'”
To help assuage those and other fears, Corcoran says he talked to distributors about LEDVANCE’s strategic pillars and goals. By putting the customer (i.e., the distributor) firmly in the middle of these conversations, Corcoran says his team effectively painted a picture of an organization that was structurally sound and ready to move forward with a new and improved business strategy—and not ready to go out of business anytime soon.
Corcoran says distributors were also concerned about LEDVANCE’s future ownership structure. “When we first set out on this journey as an event, we knew that partnerships were going to be possible,” he says. “We didn’t exactly know what those partnerships were going to look like—maybe we would purchase another company or maybe someone would buy us.” In July, OSRAM agreed to sell LEDVANCE to Chinese consortium IDG Capital Partners and MLS Co., Ltd., for more than 400 million euros ($439 million).
The fact that LEDVANCE will now be owned by a Chinese consortium brought up more questions. “It’s important to know that even though it’s a Chinese consortium, they have left the customers’ needs at the center of LEDVANCE’s strategy,” says Corcoran. “How we access the trade channel, position people in the field, and staff our front and back office isn’t changing. We’re going to continue to focus on driving quality, administration, and support for our entire distribution channel.”
Finally, Corcoran says LEDVANCE worked with distributors to ensure that their customers understand the new opportunities that the carve-out presents, plus the fact that the service, support, and quality that they’ve become accustomed to isn’t going to change. “The message we wanted electrical contractors to come away with is that our brand isn’t going to change, even though we’re going through some of this disruption right now,” says McCarron. “We’ve put a lot of emphasis on making sure our distributors and final customers understand that. That’s the biggest message we sent out.”
Back to Business as Usual
With 18 months of distributor education, a successful distributor advisory council experience, and acquisition behind it, LEDVANCE is well on its way down the path to independence. Having officially carved out its portion of OSRAM in July, and then bringing its systems online just after July 4, the LEDVANCE team is pleased with the results of its conversion so far.
“We’re not finished yet, but as of now everything has gone pretty much according to plan,” says McCarron. “We had some small hiccups, but nothing earth-shattering. For the past three to four weeks it’s been a return back to ‘business as usual.'” McCarron says MLS’ intention and agreement to purchase LEDVANCE is another “big step forward” for the manufacturer. That agreement will be formally executed in early-2017, he adds.
“As far as where we are now in this evolution I would say we’re substantially through the conversion to [becoming] an independent general lighting organization,” says Corcoran, who credits LEDVANCE’s distributor base for the role it has played during the transition. “We appreciate our distributors’ patience over the last 18 months, particularly when things were up in the air about how the company was going to be carved out and the direction we were taking,” says Corcoran.
“We take our distributor relationships very seriously and want our trade partners to know that SYLVANIA is very much going to be a growing concern well into the future,” says McCarron, who sees the formation and carve-out of LEDVANCE as a two-piece puzzle. The first step is to create an organization that’s more nimble and able to handle the dynamic speed of the changing lighting market, while the second is the partnership with Chinese manufacturer MLS.
“When you put both pieces of the puzzle together, you wind up with a company that’s in pole position to be one of the strongest lamp manufacturers in the industry, once the total transformation is completed,” says McCarron. “There are a lot of large, bulky manufacturers in the space right now who are suffering the same [challenges], and I really think we’re ahead of the game at this point.”
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McCrea is a Florida-based writer who covers business, industrial, and educational topics for a variety of magazines and journals. You can reach her at bridgetmc@earthlink.net or visit her website at www.expertghostwriter.net.
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