The New Zealand IT distribution industry is floundering as every level of the supply chain attempts to get to grips with the legalisation of parallel importing which was brought down as part of the country's Budget this month.
Distributors are rethinking their market strategies and agency arrangements. Resellers are upping demands for international pricing parity. And vendors are threatening to withhold support for any unauthorised imports.
Company managers initially seemed dazed and confused by the suddenness with which fundamental ground rules were altered in the unexpected Budget announcement. Some refused to comment; others simply couldn't comment, saying they didn't understand it.
Staff at Auckland-based distributor Renaissance -- probably one of the companies most affected by the changes -- were ordered not to talk to the press. Managing director Mal Thompson and other managers did not return calls.
All eyes are on what happens to the long-protected Apple Computer side of Renaissance's business. Before silence descended at Renaissance, Apple New Zealand division boss Paul Johnson's only comment was that it was "too early to say" what impact the Budget move would have and "full details on the legislation will need to be studied".
The consensus from quick thinkers in the industry is that international vendors will have to ensure consistent pricing parity between local and international markets to protect their "authorised" distributors and resellers from opportunists. Those that don't face damaging the channel for their products. Established resellers and retailers say they want to stay committed to the authorised channel because of the extra value it provides but some international bargains may simply be too hard to resist.
Harvey Norman NZ computer store manager Richard Clark says any product they make above average profit on is now under threat.
"We have no choice but to remain loyal to our current partners in the hope they are able to pull any pricing disparities they have into line with the rest of the world," Clark says.
"Hopefully our suppliers will still be able to maintain a presence in New Zealand. But unless they can protect themselves from what will initially be a flood of possibly pirated, dirt cheap products, they might be forced from the market."
"There is no doubt pressure will be brought to bear on distributors to beat offshore distributors," says Rob Foreman, NZ general manager of Dick Smith Electronics.
"We could well get a rash of opportunities from offshore but we would have to look carefully. We have strong relationships with distributors and we don't want to damage those. Support issues are important."
Foreman points to advertising support, instore merchandising, telephone support, sale or return/sale or exchange stock, the classification of games and the confidence that consumers will get the back-up they deserve.
But he said: "If an agent was to bring in brand name software and offer it to us at a much lower price, we would have to consider it. At the end of the day we are here to maximise the sums invested in the company for the benefit of its shareholders."
Soft Solution spokesperson Chris Fitzgerald, who operates a one-stop shop for resellers, says parallel importing has been going on anyway, but for mainstream products local pricing is often more than competitive with overseas pricing. Nevertheless he notes one case where he received better pricing and support from an Australian distributor.
Symantec Australasia general manager Michelle Amery says the idea that prices are inflated in exclusive agencies doesn't take into account the additional support costs in remote locations, economies of scale in small markets and the need to protect against currency fluctuations.
She said Symantec's recent move to local currency billing will help with pricing parity here, and that Australasian pricing is the same or lower than US pricing. Yet she says some dealers will still be tempted to buy from the US even though it will cost them more.
"The effect on us is that the region loses revenue and our ability to offer both sales and marketing support is reduced."
The architect of the changes, Minister of Commerce John Luxton, dismissed such suggestions. "In countries that have no ban on parallel importing you find that most copyright holders still provide backup services and guarantees for their products."
Luxton says vendors will make arrangements to support their products locally no matter where they are sourced because it is good business to do so.
"The franchise holder will still hold the dominant place in the market but there will be pressure to fund the warranty and service differently - either user pays or funded by the international copyright owner," he says. "There will be a whole range of responses. There will be no diminution of warranty and service; it will just be funded differently."
Luxton's view, however, runs counter to the immediate responses of many major vendors and exclusive distributors. Microsoft business systems marketing manager Guy Haycock says Microsoft continues to only support products that have been bought and registered in New Zealand, and have a bundled support component. Intel's response in similar. "The NZ Intel office provides sales and marketing support to the authorised channel," says New Zealand manager Scott Gilmour. "Those are the value-added items we provide and people who do grey marketing don't qualify for those services."
Other players see opportunities from the Government's move. Auckland-based Sealcorp general manager Steve Hassell says the erosion of exclusive distribution arrangements has been apparent to the company for some time but he was expecting it to be driven by the Internet delivery of software.
Hassell says his first reaction was that products shouldn't be supported that they don't sell, but now he's considering how Sealcorp can work with the new rules and offer support where it is not offered by the product manufacturer. "We need to start splitting the product and support perspectives," he says. "That will be a difficult pricing situation."
Hassell says Kiwi distributors are not in a position to influence the law, or international vendors pricing policies, so have to face the situation and develop suitable strategies. Vendors which don't have parity pricing will be a problem for distributors, he says. "Some niche products subsidise the North American market with their worldwide pricing," he says. "We can't influence them because we're only 1 per cent of their market."