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How many distributors does a vendor need to service the Australian market?

Some recent stories I’ve read, and conversations with senior industry folk, have brought an old question back into the spotlight – how many distributors should a vendor have in any particular market?

EMC is doing some “soul-searching” about its exclusive local arrangement with Westcon Group (see page 20), Oracle just brought Ingram Micro on alongside itX, Lenovo recently made Dicker Data its fourth distributor in this market, and Citrix tore up a few contracts in the US to form an exclusive partnership with Ingram. There’s a fair bit of movement going on at the minute and, in truth, that’s not unusual.

The first thing to say is that the ‘right’ number varies from one country to the next, and that there’s more to consider than market size alone. For example, EMC’s president for APJ, Steven Leonard, told me in a recent interview that it has four distributors in China. Hardly surprising, given that this the most populous country in the world, but it might surprise you to know that the same vendor only has one distributor in India.

The question of how many disties, and which ones to work with, is a question vendor channel managers are toying with all the time. So how many is right for Australia? Well it definitely isn’t eight, or six, or even four in my opinion; no matter how many boxes or licenses you’re shifting every month. Blanket coverage leaves little incentive for any of the many distributors to bother promoting a vendor’s products and, although resellers are likely to benefit from the price wars, the service levels they receive will almost certainly deteriorate accordingly. To my mind, nobody wins from this model.

Whether it should be one, two or three gets more difficult but depends largely on the product set and desired amount of coverage. For major tier-one vendors such as Microsoft or HP, I think you can make a case for three because they have huge volumes and massive product ranges that go right across the market from enterprise to consumer. Having said that, they don’t come much bigger than Cisco and it has struggled to make a three-pronged distribution strategy work in Australia.

For the rest of the market, I would argue that two distributors is usually ideal. This creates healthy competition, and an environment where both parties can differentiate on something other than price, while offering resellers a choice of preferred supplier and a backup.

For those just starting out in the market, there’s little point working with more than one. But even some more established players prefer to retain exclusive arrangements so that the distie knows they’ll win any business they create – you can’t get a much clearer business driver than that. To date, EMC has been one vendor that prefers that model, at least in Australia, but the strength of its bond with Westcon Group is likely to be severely tested in the months ahead as the regional office keeps a watchful eye on its channel expansion.


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