Analysis: Diagnosis Tech Pacific

Analysis: Diagnosis Tech Pacific

To say it's been a challenging six months for Australia's largest distributor is an understatement. On the forefront of a downturn in the general IT economy, Tech Pacific appeared plagued by a lack of direction and bad management decisions.

Now faced with the exodus of high-profile Australian managing director David Cullen who resigned earlier this month, the question remains: "Have the wheels fallen off?"

Tech Pacific's regional CEO, Shailendra Gupta, who has replaced the recently resigned David Arnott, says no.

Instead, Gupta says Tech Pacific ultimately fell victim to its own success in the lead up to 2001 by gearing up its operations to handle an expected industry growth that failed to eventuate. In fact, the industry took an unexpected turn and Tech Pacific had to scale down its cost structure.

"We created an organisation which was actually geared up for a much larger growth in 2001. That growth was not forthcoming," Gupta said. "We [then] headed on to our longer term plan hoping that the turn-around would happen soon, then obviously when we found that it was not the decisive thing to do in the marketplace, we had to make the organisation leaner."

As a result, Tech Pacific will realise a 12-15 per cent savings in operational costs. But will it be enough to save a company that has been besieged on all fronts for the past 12 months?

Tech Pacific drew fire from the introduction of a $33 small order fee for orders under $1000. It underwent two rounds of retrenchments totalling 84 staff including four senior management and the resignation of two senior executives. Combine this with the failed bid to divest Tech Pacific Holdings by Dutch parent Hagemeyer and the decision to abandon a $120 million ERP software project, and the events of 2001 have caused a shake up in the distributor never before seen in its 18-year history.

It also absorbed abnormal losses from the collapse of insurance group HIH, which left a 7.2 million Euro hole in its balance sheet and a failed warehousing software package that reportedly ran into the tens of millions.

"It happens at times, and that [implementation] didn't go very smoothly, so there were some reconciliation issues and we had some losses coming from that. Then we had the losses from HIH coming in, and we had abnormals coming from retrenchments and downsizing and so on. All of these add up," said Gupta.

With industry speculation rife, it came as no surprise that Tech Pacific would undergo some major changes. Pressure was also mounting in the Netherlands, where listed Hagemeyer had to answer to shareholders over the state of its subsidiaries.

Tech Pacific Australia's results flagged in comparison to the Group's operations in Singapore, India and Hong Kong. Australian sales dropped 5-6 per cent for the year and, combined with the weakness of the Australian dollar, contributed 31.5 million Euro to the decrease in sales compared to the previous year. Given that the overall decrease of Hagemeyer's [IT] business was only 22.8 million Euro, it was plain to see that Tech Pacific Australia was dragging the chain.

But Gupta is convinced these issues are behind the company. Although he admits it would have been nice to avoid some of these abnormalities in the balance sheet, none of it reflects badly on the management decisions taken or the day-to-day operations of the Australian subsidiary.

"If you look at the nature of the [abnormalities], you'll see that none of them were fundamental operating business weaknesses, so it doesn't worry us. While an abnormal loss of any kind is obviously something that every business would like to avoid, it does not necessarily reflect the day-to-day operations of the organisation," said Gupta.

The company has now consolidated around three categories: telecommunications, PCs and networking, and PSI (printers, supplies and imaging). Although Gupta is confident the structure of the company is in place to go forward successfully, he hasn't ruled out the need for some fine-tuning initiated by himself and newly appointed Australian MD Kerry Baillie.

"It is a fact that some of the policies we have implemented in the last five to six months our customers are not very happy about. We have no intention of displeasing our customers. We need to listen to our customers, we have to understand their expectations, we have to deliver those expectations, and that will keep us in the business," said Gupta.

Gupta's mandate for the channel in 2002 is simple: to make it easier and cheaper to deal with Tech Pacific.

"We have absolutely no doubt in our minds that our future is decided by our customers. If it is too much of a hassle and too costly, then customers are going to move away from us. There is no complicated logic involved here. We have to make our customers competitive for their end customers, if we can't do that then obviously we don't expect their business," said Gupta.

"I can tell you one thing is for sure. The competitors will get a run for their money. Tech Pacific runs a dominant profitable business in every country dealing with the same competitors and we have no doubt that we'll do the same thing in Australia," said Gupta. "Tech Pacific is an Australian company, that's our home turf, and if anything we expect to be a lot more successful here than any other place in the world."

Gupta on Arnott and Cullen

"At that level, the professionals know when is the time to change for the benefit of themselves and the organisation. They wanted to pursue opportunities outside and that was a good opportunity for the organisation at the same time to look at new approaches. There was no such thing as people being asked to resign. Any senior professional, if under his leadership of the organisation doesn't do well, then he knows it's time to move and have someone else run the organisation . . . because that's the way it works in the commercial world."

Recently appointed regional CEO of Tech Pacific Shailendra Gupta on his predecessor David Arnott and the departure David Cullen this month. David Cullen and David Arnott were unavailable for comment.

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