Channel evolves in wake of Internet wave

Channel evolves in wake of Internet wave

The Asia-Pacific channel is less prepared to adopt the direct model pushed by many PC vendors despite the rapid use of the Internet as a growing distribution channel and supply chain.

For the PC industry, competition from direct manufacturers like Dell and Gateway 2000 is forcing indirect manufacturers such as Compaq, Hewlett-Packard and IBM to offer more direct sales programs. This is putting a squeeze on computer resellers, driving them to consolidate and to fight back with services such as desktop integration with back-end systems.

"Last year, only 1 per cent of PCs were bought through the direct channel in the Asia-Pacific," said Piyush Singh, vice president of consulting, International Data Corp Asia-Pacific. "Still, the number is expected to grow rapidly to 10 per cent in five years."

The primary benefit of buying direct is the avoidance of reseller markups, which can save customers between 5 and 10 per cent, according to market research company GartnerGroup. Other benefits include built-to-order products and faster delivery due to a more efficient supply chain. Vendors are also looking to establish closer relationships with customers.

"It is a question of cutting out the middlemen involved in the distribution, and vendors want to establish direct relationships, facilitating two-way communications, and one-to-one marketing. This is especially important with corporate customers, where there are opportunities for PC refresh cycles, where PCs are purchased every three years," Singh said.

Cultural differences will, however, continue to see retailers being important for the Asian market. "Asians prefer to touch and feel before they buy. Somehow, retailers are required for that low-end human element," said Fred Tan, managing director of CSA Distribution.

"The Americans, Australians and Europeans have gone for the direct model as they have little choice, as visiting shops could mean considerable travelling time," Tan said.

An example cited of the Asian preference for channels was the recent attempt by Dell, who tried the direct model in Thailand, but failed. "They have now reverted to indirect channels," according to a distributor who declined to be named.

Even in the Philippines, vendors have yet to implement built-to-order models popularly used by vendors like Dell and Compaq.

Aside from the Internet, the expected sharp adoption of outsourcing can also have a dramatic effect on channel strategies. "Not just companies, but worldwide multinational companies have outsourced, and they get the best pricing, because the outsourcer has access to the major vendors at the best price," said Tan.

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