SPECIAL REPORT: Should the channel be worried?

Inside the NHR office.

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The traditional Australian channel is facing a new challenger as a large second-hand goods provider, Network Hardware Resale (NHR), sets its sights on an aggressive expansion strategy that includes Australia.

In the next 12 to 18 months, NHR intends to reach into new markets by providing small to mid-sized enterprises with a range of second-hand products and networking alternatives – in turn providing cost savings of 50 to 90 per cent off original equipment manufacturer (OEM) list prices.

It’s not just pre-owned equipment, either. Some 30 per cent of its resale equipment is brand new as the company also buys new products from OEM channels, due to cancelled orders or bankruptcies.

NHR is a big company. It currently covers the Hong Kong, Taiwan, South-East Asian nations, India, Korea, Japan and A/NZ markets and sells directly through its online site.

Based in Santa Barbara, California, it is an independent reseller of pre-owned Cisco, Foundry and Juniper networking equipment and an authorised reseller of Force10 Networks and Riverbed Technologies’ equipment.

It currently provides global sales and technical support from its seven offices in Santa Barbara, Dallas, New York City, Amsterdam, London and Singapore. And, perhaps, in the near future, Australia.

"The option of opening an office in Australia is at the forefront of our minds," NHR Asia-Pacific regional sales director, Jason Ogden, said, speaking at its event in Singapore, “As we roll into the services side of the business, there will likely be a need to have equipment there, feet on the street and some partnerships.”

The company declared its intention to expand as it aims to provide cost-effective solutions that marry tight corporate budgets. It foresees that companies will have to find ways to cut costs and stay ahead of the curve during a looming double dip recession.

Much of the incumbent channel seems unconcerned with the threat at this stage, however, Synnex Australia head of commercial sales, Tony Ignatavicius, had a different take on the issue.

He said channel partners who have invested in a particular brand, resources, staff and expertise to become accredited and legitimate channel partners for vendors will be the most affected.

According to Ignatavicius, distributors such as Synnex have cause for concern as they have invested in supporting vendor partners and making sure that investment is protected and they achieve the right return. That could be eroded by what he calls ‘illegitimate channels’.

He said that these businesses will find that second hand products in the market will potentially displace their sales. “If their customers see that a similar product is out in the market at a reduced price, they may approach these channel partners and say ‘hey, can you get this for me?’ That puts them in a bit of a difficult situation – do they risk their accreditation by selling grey market products?” he said.

He said distributors should maintain close relationships with their vendors and communicate with them the value of the legitimate channel, the advantages and benefits they bring to customer interaction and solutions they can provide. Express Data CEO, David Gage, said that the opportunityfor NHR to enter the Australian market had arisen because of the exchange rate volatility but only for short-term play.

He said that product-focused resellers will be the most heavily impacted but, by contrast, a lot of resellers are transitioning their businesses to more heavily focus on services. Gage said that the entry of NHR will not impact Express Data’s relationship with its current resellers.

“Vendor support at a local level is important for long-term success, but clearly that sort of play isn’t going to get support from the local vendors,” he said.

Distribution Central managing director, Nick Verykios, agreed with Gage. He said if such a company was to set up base in Australia, it would have to establish itself as a legitimate reseller and be authorised to resell products.

Legitimate vendor partners must go through the necessary requirements of authorisation, particularly training, he said. As Distribution Central brings in and sells advanced and emerging technologies, Verykios said that a company like NHR establishing itself in Australia will have a minimal impact on the business.

He added that Distribution Central’s resellers are important in making technology integration possible, hence he doubts those partners will be touching any products from NHR.

Verykios predicted it would more likely impact end users that buy commodities that do not require integration support from resellers, eventually impacting those vendors and commodity channels that deal with selling basic equipment such as routers, switches and hubs.

“We will keep an eye on them to see whether they sell any of the products that we do. The onus falls on the vendor to make sure that they are kept at bay – and that would mean promotion to customers, to let those customers who are buying from NHR know that they may not be supported,” he said. But NHR rejects comparisons to secondary resellers as it has more stringent practices in place to detect black market or counterfeit products than most other OEMs or distributors.

Instead of selling goods as it is, NHR fully refurbishes the products to ensure that they are as close to its original condition and performance as possible. Along with the product, it offers product support, service support and vendor-neutral consulting.

Register now for the ARN Security Forum 2013 on June 4 at the Sydney Mint

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