What is the main reason for your visit?
Greg Spierkel (GS): I'm on a tour of China and Australia - two of the largest operations in the region for Ingram Micro. I haven't been out here since the [Tech Pacific] acquisition took place so this is a good opportunity to review the status of the business. I have been very actively travelling around - visiting more than a dozen countries in the past four weeks. That's all part of the communication and visibility.
What are your thoughts on the progress of integrating Tech Pac into the Ingram model in Australia and across Asia-Pacific?
GS: We are very pleased with the convergence of systems. All seven countries have finalised IT systems whether it's ours or Tech Pac's. That was imperative because it's very hard to get optimisation out of the inventory from two sets of warehouses. We have collapsed warehouses everywhere except Singapore in the past six or seven months. All of that work here [Australia] took place in March and April.
Everything is working as well as we could have expected it to. Our revenues and profitability are where we expect it to be in the region. There was some degree of overlap in finance, purchasing and warehousing but it hasn't been huge. The people here seem to be getting along very well and are focused on what they need to do. In all of the countries we ended up picking on one management team to be the leader. In this case it was Tech Pac, which was the same in five of the seven countries. It came down to who we thought were the strongest team rather than Ingram Micro saying 'you have to do everything our way'.
Ingram is currently running on the Tech Pac system in Australia. What is the timeframe for crossing to the Ingram system?
GS: We will, probably sometime in the middle of next year, but we are not in a hurry because the Tech Pac system is working very well here. Everywhere else except for New Zealand has seen us go for the Ingram system. New Zealand will move across in the fourth quarter of this year. There's a lot of functionality in our system to be ported over to accommodate what Tech Pac is doing with certain types of customers here. In order to program that in properly we decided to run Tech Pac's Adonis ERP system and once we understand all that we will code it into our Impulse system.
What additional functionality can resellers expect to see when that goes live?
GS: There are a lot of things we are doing around logistic services and fulfilment services that will be extremely useful to the customer base. We also have a lot of additional functionality around Web tools that we will be bringing into Australia. But the Tech Pac system isn't hurting us so we are not in a hurry.
Some resellers have gone away from Ingram during the Tech Pac integration period. What's your message to them in terms of what they can expect from Ingram in the next year?
GS: We have put together the biggest and second biggest company in this market during the past seven months but those teething problems are behind us. We finished everything in April so let's move on. As much as their might be some noise out there, frankly, we are doing a pretty good job right now.
Our emphasis will be, as it always has been, to provide the best service available so that we are indispensable to our customers. Sure resellers want choice, and so they should, but hopefully a big part of the customer base will look at Ingram as a primary partner with others as secondary and even tertiary suppliers.
We have some excellent technology and capabilities elsewhere in the company that we will bring to Australia during the next year. That will include some really interesting customer relationship management stuff that helps vendors better understand our customers so we can be more targeted with programs.
Can we expect to see any change of approach?
GS: Every country has its differences from customer base to vendor partners and the competitive nature of the market. Ingram as a whole doesn't drive a single approach to everybody - there is a huge amount of latitude at country level. Guy Freeland and his team will continue to drive the agenda here.
At a bigger level, Ingram is focusing on a few things that will ultimately, next year and the year after, have some impact here. We are putting a lot of emphasis on consumer electronics and have just acquired a company called Avad, which is doing very well in the custom installer space. It offers high-end consumer electronic solutions that are very much in the value-add space.
We are talking about high-end systems for people looking to spend between $30,000-$50,000. It's not the majority of the market, far from it, but it is a big market opportunity. Homes of $1 million or more are a dime a dozen in my opinion. In Sydney there are thousands of homes in that range.
This company [Avad] is growing at 35 per cent with very high margins and profit levels. It complements what we have been doing with taking consumer electronics vendors on board. This acquisition adds another 8000 customers in North America that have no overlap with our current customer base. It is a completely different set of retailers and systems integrators for high-end homes. It's a combination of everything from audio-visual to home security. Our expectation is that we will take that capability abroad over the next couple of years.
Would that mean looking for similar acquisitions here and elsewhere?
GS: It could but I don't want to signal anything there because we are not looking at anything. We will just digest this one and hopefully grow it organically. We will start by going to countries that are close to us, like Canada, because this operation is currently US-only. It will be a standalone division - Avad: a division of Ingram - focused on going beyond the US into next year.
What other technologies can we expect to see Ingram focusing on?
GS: Other areas that will bear on Australia and Asia over the next year or two include AIDC [automatic identification and data capture] and point-of-sale. We made another acquisition late last year, a company called Nimax, and are hiring in Asia already in order to provide services and support to specialist vendors such as Symbol, Zebra and all the RFID [radio frequency identification] players. They are anxious to work with us because they are direct oriented companies that really want to go through two-tier distribution in order to change their business model. It's a lot like Cisco did a few years ago when it decided it really wanted to reach the SMB market.
The other area we think has some real promise is signing up with the carriers. We have signed global contracts with Orange, T-Mobile and Vodafone during the past six months and are putting a combination of technologies together including servers, middleware, applications like GPS and navigation, tracking systems, data and voice carrying systems. We are providing those solutions and have started initiatives in the UK, Germany and the Netherlands. This is a voyage that's going to take years but I think it's an interesting new area for us.
There's still a lot of runway available in the component space. One of the things that we have been trying to do - and will continue to focus on during the next couple of years - is to take that business model and propagate it in North America as well as Asia. There is a huge components market in Asia as you can well imagine - 60-70 per cent of PCs and servers are generic or whitebox.
We have also put a lot of emphasis on opportunities based in Asia. As big as we are in China and India, we are getting exposure to a lot of new vendor opportunities. The new vendors of the future are clearly going to be based in those two countries. I think we are in a great position to see those guys early and help them get success as they try to grow into global companies. We have seen it with Lenovo recently and Huawei last year. We are the only multinational distributor with a real serious presence in China and India.
With regard to the competitive landscape, are you expecting Tech Data to enter this market?
GS: You would have to ask them that. At the end of the day we have a $5 billion plus business in Asia and Tech Data has zip. If you talk to people in Wall Street they will say Tech Data needs to think about coming out here but they haven't so far. I expect they will probably focus on getting things working stronger in Europe and then maybe look for acquisitions.
I heard they have been looking at companies but we look at companies all the time - there isn't a company in this industry for sale that I haven't looked at. We buy a couple of companies every year but you are looking at 10 or 15 for every one you go and do something serious with. If a company has total overlap with ours then it's not where we are going to go in terms of an investment.
Which companies in Australia would be targets for a distributor looking to enter the market?
GS: You know the companies - there are only about five or six and most of them are local. But distribution is a tough business so you are not going to spend just because you want to get into Australia. Frankly, this is not a strategic market. If you are going to spend money and go over the top you are going to do that in India or China.
A presence in Australia wouldn't work as a gateway into Asia?
GS: I don't see that. I just came out of Hong Kong last night and it was a nine-hour flight - that's not a gateway. And that's not even mainland China; you have to get to Shanghai or Beijing to be right in the middle of it. Australia is an important market, don't get me wrong, and we are happy to be in a strong position here. But it's not a launching point for the region and it never will be.
You seem to be working on getting away from the traditional broad-based, high volume, low margin business model that Tech Pacific and Ingram have been known for.
GS: I wouldn't want to give you the impression that we are not going to focus on price where we have to. There are certain elements of products that we sell and customers that we sell to that are going to remain totally price sensitive. But when you get scale, and we now have that here in spades, you need to develop very good divisional business units that will focus on customer solutions whether those are in networking, telephony, storage or high-end consumer electronics. We will compete against some very capable local niche players but we are garnering better margins from those value-add divisions. In some cases we will be as capable as our competitors, and maybe even more so, but in others we won't. We can't be everything to everybody.
HP CEO, Mark Hurd, has said he wants to reward partners for doing more HP-only work. Do you think that is a realistic expectation in today's market?
GS: That's music to my ears because we have the full HP portfolio and it's the biggest part of our revenue stream here and in most of Asia. He [Hurd] is probably looking for more attach rates of memory, printers, software and everything else. That plays into our hands.
Do you think resellers will be happy with that?
GS: As long as HP can continue to be a trustworthy partner I think resellers will buy into it. If they start to do more direct or send mixed signals on an operating level then the game is off.