What have been the challenges in bringing the two companies together?
Guy Freeland (GF): We were competitors in the same business although Tech Pac was in parts where Ingram wasn't playing or wasn't a major player like retail, our Telstra business and the licensing business. Ingram had a much heavier components business than Tech Pac ever did. As companies they had grown up very differently. Tech Pac was truly an Asia-Pac business and had always encouraged local culture - when you walked into Tech Pac Australia you knew it was an Australian business but if you walked into Tech Pac India it looked and felt like an Indian company. Ingram, as an American corporate, has preferred a consistency of model around all subsidiaries. So there were some cultural differences that I think are now fully sorted out. Initially, Ingram people were seen as more structured and process oriented whereas Tech Pac was more entrepreneurial and perhaps a little more aggressive in the marketplace. Our challenge in managing that integration process was to make sure we retained [something of] both cultures.
I understand you were keen to come back to Australia for family reasons. How much was that a factor and what was the process behind your appointment?
GF: My family did want to come back to Australia but that had already been effectively achieved. I moved back in February and was running regional finance from here with a bit of travel. Personally I was feeling that I'd had enough of finance, particularly in the Ingram framework where it is more pure than in Tech Pac. We [Tech Pac] always considered CFOs to be 2ICs that were fully engaged in the business, sitting alongside the MD - that's how Shilly [Gupta] and I ran the group. We were constantly together in business reviews and vendor meetings. Having come into the group I wanted to continue on a more commercial path rather than in a purely financial role.
There is a feeling in the industry that Kerry [Baillie] left suddenly. How do you explain that?
SG: It was a surprise to a lot of people but not to us. He [Baillie] was very kind to accept the integration role because we needed someone of his profile and experience in Australia to help us through but it was very clear internally that he was looking to retire. It is true that we were not sure how long the integration would take but you don't go to the public and make statements of that kind because of the nature of the issue.
The other side to this that has surprised people in the industry is the appointment of a man with a financial background [Freeland]. It has been said that if you are looking to achieve growth you appoint a sales guy but if you are looking to rein things in you turn to a financial man.
SG: A lot of this speculation has come from a comment by one of my dear competitors who knows nothing about our organisation. Guy is the right man for the job and whether his background is in finance or marketing doesn't matter. He understands our vendor and customer needs as well as our business model. Having people with a finance background run a company is not new in this industry or any other industry. Frankly speaking, some people try to take unfair advantage of a situation and I am amused at the claims people make about our organisation. GF: The team is engaging very well and I am very happy with how that is progressing. I don't think anybody internally believes we will become less aggressive on the street as a result of my appointment.
Kerry Baillie is very well respected in the industry. Can we expect to see any change in approach from you or will you try to make this as invisible as possible?
GF: I don't have any particular agenda that I've come into the role with but we do have some plans and areas that we would like to put some more focus on. We want to improve the efficiency of our backend and have a number of activities going on right now towards that end.
Where do you plan to increase focus?
GF: We think we have a great opportunity in licensing. Our team is larger, and we think stronger, than Express Data's and we will give them a good run for their money. Another area Tech Pacific didn't focus a lot on was the enterprise solutions business but we now have a team of 15 people and excellent vendor alignment so we think we can have an impact in that area. We also think by improving service levels we will win back some [reseller] business that we probably lost a little of during the integration phase.
What have been the biggest integration challenges the company has faced?
GF: In terms of getting the people together, blending the cultures and integrating the systems we have done a good job. We are all working on the one [Tech Pacific] system while the Ingram one is on the wings. At some point in time we will introduce that but we are happy on the Tech Pac system for now.
Where we had issues was mainly around the distribution centre and the supply chain leading up to that. Unfortunately, we had no sooner integrated the warehouse than we were in the two peak months of the year so that probably exacerbated the issue. But that will recede very quickly as we get through to July and we have a number of projects on the go at the moment to address each of those issues. Within the next two or three months all of that will be entirely behind us and our service levels will be back to what you would expect from the leading distributor in Australia. We are looking at internal processes and capacity in the distribution centres.
SG: I must compliment Kerry and his team because we did have some problems, particularly in January and February, but the business has come back very strongly and we are now exceeding the combined sales of the two companies.
Ingram has somewhere in the region of 100 vendors. Is that a manageable number?
GF: We are not looking to rationalise at all but rotation does happen on the edges. We are looking to continue the relationship we have with all of the current vendors and we are looking at more. We managed to win back Cisco and have just signed a contract with Microsoft to take Xbox into the retail channel. We will continue to sign up vendors where we think we can represent them properly and offer additional products to our customers.
Are there any particular types of new vendor we can expect to see Ingram working with?
GF: I mentioned we want to focus a little more on the enterprise side and we will do that. I think consumer electronics is very exciting. Xbox was a key win for us in that space and Microsoft are already talking to us about how we can help them create the digital lounge room when Xbox 360 comes through. It's an idea everybody is talking about but I don't think it's really been nailed yet. We are certainly going to be playing in that space. More broadly, we will continue to identify products that SMB customers want to buy - we want to be there for all of their needs.
We are now very close to the end of financial year. How is Ingram going?
GF: Our experience has been similar to that of the market place. The beginning of the year was a little softer after a rip-roaring 2004 but we had a very strong May and June is looking good for us too. The integration is essentially complete, although there is some fine tuning yet to do, and we are confident we are in good shape going forward.
Ingram is now the largest IT distributor Australia has ever seen. Do you expect that to change the local distribution market?
SG: Size really does not matter because the power in this industry is with the customers [resellers] and the vendors. We have to continue to understand customer expectations and how vendors want to drive their businesses if we are to be successful. There are enough good quality competitors in the Australian market. We have to stay honest and competitive or we will be penalised. If we do a good job we will retain our position.
GF: All customers and vendors have a choice. If you deliver day to day on what those groups of people expect then you get to keep the business and if you don't you lose it in short order. With customers you lose it in a day or two, with vendors it takes a little longer, but all of them are on non-exclusive 30-day cancellation contracts.
Everybody talks increasingly about adding value in this industry. What does adding value mean to Ingram Micro?
SG: There is some genuine value and there is hype around value. In my opinion, value is something that helps vendors and customers to sell more. Value varies according to business, product category, vendor and market situation. You need to provide technical support and training, pre-sales support, warranties, certification programs, a good supply chain and credit support. On the other hand, some people use the concept of adding value as a device to charge a higher margin on the product. That is something I don't think we should do. It has to be value that people need and are willing to pay for.
GF: SMB is our heartland and if we don't do a good job there we don't deserve to be in business. We have identified in that space that people often don't have a marketing department and felt that if we were able to provide them with a set of tools that would help them promote their business to their customers then that would be seen as a value add. Intersell is an example of how we are trying to differentiate ourselves as being able to offer something more than delivering product on time at the right price.
SG: Our CEO has made statements about gaining competencies in emerging technologies and helping our customers to migrate into those areas that look promising for the future, such as RFID [radio frequency identification].
How long will it be before Ingram is putting RFID tags on its pallets and what opportunities do you see there for your resellers?
SG: In my opinion, it will become mainstream earlier than anybody thinks - in maybe just a couple of years. In terms of products there are the scanners and point-of-sale terminals but also from a solution perspective, applications for this technology are not very far away. We have signed up with vendors such as Symbol and are rolling out the business in many countries - hiring people and getting them certified. The transportation and manufacturing industries are starting to get it. The technology is so powerful and promising that I think it will be the next big thing in the industry.