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Watch your back

Watch your back

Acquisitions and consolidation have long been part of the channel's make-up, but if you're not careful it will creep up on your company too.

CSC's bid to acquire the IT division of GECITS demonstrates how a little company like Ferntree, initially acquired by GECITS, can eventually be swallowed up by a corporate outsourcing giant.

The jury is out on what the impact of CSC's integration business ambitions will have on the channel, but the industry appears to view it as a logical move.

The most interesting trend I have observed is that size doesn't matter. The channel's leading integration companies have long assured themselves they can stand alone because of their sheer size and market presence.

Healthy annual revenues, loyal customers, a talented pool of staff and the ability to leverage superior buying power also help allay any senior management concerns.

Back in June 1998 when ARN spoke with GECITS Australia's Mike Shove, GM alliances, marketing and operations, he was brimming with confidence.

The company was IBM reseller of the year after nearly quadrupling its big blue sales between 1996 and 1997, it claimed to be Compaq's number one reseller and was Microsoft's largest licensing partner.

But even then, Shove said: "There is a strong drift towards rationalisation in the channel, as multinationals assert their dominance amongst corporate buyers."

Last week's acquisition of Prion by Siltek is just the latest in a string of acquisitions in the channel this year.

Siltek Asia Pacific itself represents the combined might of Agate Technology Australia and New Zealand, voice distributor Siltek Communications Australia, printer specialist CIE Pacific, Advance Pacific Peripherals, ACT Networks and Prion.

The list of other companies to follow the consolidation trend recently includes: Hypertec, which was acquired by Danish PC memory outfit Memory Card Technology, Avnet Corporation's Integrand Solutions buyout, and CHS' purchase of CHA (which is proving to be a headache for CHA given CHS' woeful finances).

We have also seen Datatec acquire networking distributor Westcon and Anite Pacific, which was folded into the Logical group.

And all this is not to mention the impact the channel feels from massive vendor acquisitions such as Compaq/Digital, and the fallout from Cisco's never-ending buying spree. So after all that, if you thought we've got most of the industry consolidation out of our system, think again.

According to IDC, 2000 will be a watershed year for the channel with consolidation taking centre stage.

IDC analyst Graham Penn told ARN's sister publication Information Age that the biggest changes to take place in the industry next year will be in the channel as vendors seek to take more costs out of the supply chain. "Even if you maintain margins, lower prices mean that profits are falling," he said.

While there might not be too many integrators left to buy, the Siltek example illustrates the point that distributors realise they face a tough slog in the long term and need to streamline their businesses accordingly.

It is a good time to take serious stock of what unique values your company brings to the table. If past examples are any indication, the strong will be acquired and the weak will wither away unless they refocus as a niche solutions provider.

Mark Jones is editor of Australian Reseller News. Reach him at mark_jones@idg.com.au


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