Having a consistent channel strategy is top of mind for Toshiba information systems division general manager, Mark Whittard. In the first of a four-part interview with ARN's NADIA CAMERON, he talks about the changing integration market and how Toshiba is working with partners locally.

What do you see as Toshiba's current strengths?

Mark Whittard, Toshiba (MW): If we look specifically in the PC market, Toshiba's high-level strength is that we're a specialist in mobile computing. We started this business 21 years ago and have been in it since day one and we're not distracted by trends in servers, desktops or other platforms.

Another big strength is we're an engineering company. We invest a huge amount in research and development - 6-7 per cent of our global turnover. Toshiba has always been there with technology firsts - we were the world's first commercial notebook, DVD, nickel metal hydride battery, lithium iron battery, lithium iron polymer battery, colour TFT screen, and the list goes on. This year it's the world's first HD DVD drive and burners in notebooks.

Locally, I think channel strategy is a point of difference for us. We're probably the only vendor that's 100 per cent channel-centric. Many of the others have a hybrid model, where they transact a lot of business directly with some through the channel. We've been quite consistent and stayed channel focused, rather than reacting from the hip like a lot of American companies did when Dell started to take a bit of share. And there are chinks in Dell's armour worldwide now. Once you get to a critical mass, having a direct sales force is a huge P&L expense. Dell's fixed costs have gone up dramatically, and as the margins have come down, it's put a lot of pressure on their cost lines and infrastructure.

How has Toshiba's approach to the channel changed over the years?

MW: We're divided into three parts covering different parts of the market. There's the named mass merchants and retailers, such as Harvey Norman and Dick Smith, and we have 18 partners in that area. That business has grown enormously over the last few years. It's been an eight-year plan for us - we started with Harvey Norman and we slowly added partners as the market grew. Retail has been an important investment mainly for market share. You don't make a lot of money in it because of the cost of doing business with retailers. We're now tick-tacking with HP as number one or two in that segment and consistently hitting number one with most leading retailers. There's been a lot of change in our organisation to support retailers because they're different to the traditional business channel. For example, they don't have a lot of time to pull people in for training, so the way you approach training is different compared to a business reseller. Most retailers carry 5-8 brands and they have the customer for a minute before they start to lose them. They also tend to be pimple-faced younger staff out of university, so it's a different approach getting into their heads.

The second division is B2B, which is the SOHO and small business market moving into medium business. Traditionally, most of that business was transacted through larger, tier-one resellers. That's changed quite dramatically over the last few years through mass consolidation and rationalisation of those types of resellers. The original owners have either retired and sold up, or have been acquired or merged with other companies. As prices have come down and margins are squeezed in the overall PC space, these organisations have had to totally change their business model and go after services and consulting. And they've tended to gravitate to the higher end of town because there's an opportunity to sell more value-adds.

So traditional resellers have rationalised and headed to the big end of town, leaving the B2B customer isolated. Some have gone to the retailers, but aren't getting the advice they need, so they've looked to this second tier that's emerged and grown quite significantly. The two fastest growing segments for us over the last few years have been the home and SMB markets: we're seeing a lot more business being transacted through wholesale distribution to the smaller resellers. Usually they're regional or state-based and smaller in size, which means they're more nimble, agile and have a lower cost structure. Some of them specialise in certain areas.

There are a couple of exceptions, one being Harris Technology. They are like a retailer in that they have a shop-front and open outside of business hours, but the shops are located in business CBDs, not shopping malls, and they drive traffic to their shop via a catalogue. And there are a few smaller scaled versions of those. For them, it's about personal relationships. The third piece is the high-end B2B, which some vendors have elected to take directly. But what's happened is the engagement model has changed significantly - the vendor is far more active in the user account, and in some cases, the channel is just brought in for fulfillment. We still partner with the channel and see it as a team effort.

I think we will end up with half a dozen big, national systems integrators/resellers with large products and services portfolios like Commander, Datacom, Data#3 and Leading Solutions. We've seen some big acquisitions in the last few years and that will continue. Commander for example, bought five state-based organisations [who were all Toshiba resellers], then they purchased Volante, which was a huge investment.

With PC hardware margins shrinking, how will these resellers operate going forward?

MW: They'll get bigger, but the market's not really growing. A lot of it is replacement business as far as PC hardware is concerned, so it's about everything else they're selling and the services that go with it. But for us, notebooks still have a ways to go before they are the dominant PC hardware platform. A reseller might see an existing customer that bought PCs three years ago now buying notebooks, and they've just retained an account. But for us, we're picking up those customer accounts because they're migrated to notebooks.