Editorial: Terms of endearment

Editorial: Terms of endearment

Channel rationalisation at the post-merger HP is well under way. The numbers of distributors and direct resellers are to be reduced and new trading terms and conditions will be brought into play. But will the channel be happy with what it all boils down to?

Nothing has been finalised as yet, but as Tony Bill reveals in this week's page one story, new contracts are to be signed at the same time the number of partners is reduced. Bits and pieces of the pre-merger companies' trading terms will be combined into a hybrid model.

Unfortunately, I can't see how there won't be some pain in it all for many players in the HP and Compaq channels. Obviously some will hurt much more than others but the bottom line is that HP is looking for some economic benefit from the whole takeover.

Make no bones about it, this channel rationalisation is designed to deliver operating efficiencies and cost savings in HP's go-to-market supply chain. Bill made no excuses for the fact that this, as well as returning profitability to the surviving partners, are the motives behind the changes to be "executed" on November 1.

If distributors end up operating on tighter credit control than they were used to from Compaq and/or reduced early-payment discounts that were previously offered by HP, it will be passed onto their customers.

Perhaps the best clue as to which way the trading terms will fall is in the appointment of former HP staffers as financial directors. They will want to manage the books with the systems, procedures and accounting methodologies they are used to. Former Compaq staff feature heavily in the Australian management teams but the people controlling the ledgers are HP born and bred.

The general consensus among analysts, partners and observers is that Compaq brought the better marketing nous to the table and HP the superior back-end business systems. The former was sales-based, while the latter was procedure driven.

Compaq had a reputation for allowing its partners an average of 60-day credit terms. Insiders suggest that as much as 15 per cent of its debtors' accounts were in the 90-days column on the ledger. There was no encouragement to pay the bills early, only incentives to sell more product.

This just won't be allowed at HP, which traditionally used the reverse tactic of enforcing remittance within 30 days with a discount for paying even earlier. With HP financial directors in place, you can bet on the 60-day average payment being reeled in substantially and harsh penalties for failing to meet the terms.

This alone has to bring into doubt the viability of some of the large dealers that dealt directly with Compaq. Many simply don't have the financial strength to lose the cash-flow benefits of extended payment terms. If they can't get their customers to pay early, they won't have the reserves to settle with their supplier.

While it's true that most of the large dealers involved traded with both HP and Compaq pre-merger (so stricter payment terms are not entirely foreign) it is still going to come as a rude shock. I fear it will be the final straw for some.

Interestingly, Bill also insists the transition period from two channels to one has had little or no impact on sales for HP's personal systems group. So far, one plus one has equalled two, he claims. He had expected IBM in particular to "make some noise" in the channel about perceived confusion and chaos, but that has not eventuated. Instead, IBM appears to be ignoring HP and showing its traditional indifference to the channel. "While they are doing that, we are very happy," he said.

Tell me what is important to you in trading terms and conditions.

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