NEWS ANALYSIS: eSys launch raises hackles

NEWS ANALYSIS: eSys launch raises hackles

eSys, the latest component distributor to set up shop in Australia, has drawn hostile comment from its would-be competitors. However the company maintains its belief that it will be the number three distributor with a 40 per cent share of the hard disk drive market by year's end.

Singapore-based eSys intends to become one of the top-three components distributors in the country for memory, central processing units, motherboards, monitors and printers, but will mainly focus on hard disk drives. eSys will distribute hard drives for Western Digital and plans to have three to four local service centres operational by the end of the year.

"In Australia we are targeting two specialist markets: the tier-two manufacturers, and selected national and regional distributors," said Ian McKinnon, eSys national distribution manager. "We are looking at hard disk drives being around 60 per cent of our business in Australia.

Beginning life as Karma Distribution, eSys has operations in 19 countries, with core markets in Korea, China, the Middle East and India where it holds a 53 per cent share in the hard drive distribution market.

However, the channel has questioned whether the company will be able to replicate its overseas success, particularly in light of the tight market conditions of the last 12 months. Western Digital already has three distributors in Australia: Westan, Servex and Achieva.

"We are still seeing the market suffer, so anyone who wants to go into competition here will have to work doubly hard," said Ken Lowe, managing director of BCN Technology.

"I don't know if it will be worthwhile -- the market is not getting any bigger, so from an investment point of view it's not going to be easy."eSys managing director Vikas Goel believes the company's aggressive target is realistic. "In every market we have entered, we have started with nothing and in a short space of time been in the top three. I don't think there is any reason why Australia will be different," he said.

As well as hard drives, eSys will also distribute Via Cyrix processors and Hynix memory. The company will rely on central procurement, logistics and finance out of its head office in Singapore. Its Sydney office will provide sales, service and marketing support.

Local distributors remain unfazed by the new entry into the market, despite the predictions. "I am not worried. They are discounters," said Westan managing director Victor Aghtan. "We will do what we do best: provide the right service and keep a level of respect in the channel. That's the way business is done."

Goel is confident its low-cost business model will give the company a competitive advantage in Australia. "Our overheads are less than 1 per cent, not the 3 or 5 per cent that most distributors operate on, so we have a distinct edge over those companies. Over time, we will become the preferred supplier."

BCN's Lowe dismissed the company as an "importer". "I wouldn't classify that as a distributor," he said. "We are authorised by Via and I have had no formal notice of the eSys appointment in Australia. Two or three people can only cover a couple of wholesalers. It's trading rather than distribution."eSys also distributes Maxtor hard drives overseas, but will not be doing so in Australia due to existing distribution agreements. Western Digital, however, is hoping the new player will help bring its market share up to around 30 per cent.

"Australia is Western Digital's third-largest market in the Asia-Pacific region, behind China and Korea," said Daniel Loski, Western Digital's vice president for South Asia sales. "We have three distributors already in this country but I believe four will be necessary to grow the business. We have had good results with eSys overseas and our distribution so far has been addressed by niche distributors."

But Westan's Aghtan said the vendor was over-distributed in Australia as it was.

"My opinion is that there should really be no more than two [distributors]," he said. "When Westan was the exclusive distributor, Western Digital had over 30 per cent of the market. The current distributors cover 101 per cent of the market, so why add another one? It is only going to drive down the razor-thin margin we are seeing in hard disk drives, products that carry three-years warranty services and have low, single-digit margins.

"Eventually these distributors are going to realise that it's a fool's game."

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