Last week I had the pleasure of speaking to two senior overseas executives from global distribution groups. It is not something I usually enjoy because they have such minimal knowledge of the local scene, but in both cases I came away refreshed about the importance of the Australian market in the big picture.
George Smith, president of Avnet Computer Marketing in Europe, and Mike Grainger, Ingram Micro's president and chief operating officer, both spent some time in Sydney to review local operations. Smith has tallied 24 years service with Avnet and Grainger has been at Ingram Micro for 12. They know their organisations and they know distribution.
The two organisations are vastly different but their determination to continue investing in their Australian is encouraging. Interestingly, both view the Australian market as being closer to Europe in trends than the US.
Both organisations face challenges, according to the visitors, but at the same time they insist that distributors remain more relevant than ever to their partners up and down the supply chain. This is particularly so in Australia where there is a minimum of the large organisations that vendors prefer to service direct.
Who else but distributors can aggregate go-to-market costs such as inventory and credit for the large number of diverse manufacturers targeting the even larger number of customer-facing solution providers?
Both Grainger and Smith said the sweet spot for their businesses, indeed IT distribution as a whole, is the small and medium enterprise and we all know this is the dominant feature of the Australian economy.
While the Australian market represents less than 5 per cent of the world's IT spend, it is a mature market and one where the costs of doing business are relatively low. Both Avnet and Ingram Micro see it as a greenfield with lush pasture upon which they can fatten up.
The Wall Street-listed distribution specialists identified the same fundamental rules to sustained and profitable growth in the IT distribution business. These are principles they are now applying with vigour in Australia.
Firstly, you need global financial strength, according to Smith and Grainger. The whole Avnet group, which includes an array of distribution businesses, accounted for just under $US13 billion of sales ($1.8 billion gross profit) according to its 2001 annual report. Ingram Micro's 2001 annual report showed in excess of $US25 billion in sales with a $1.3 billion profit. A lack of finances is not a problem for these two. They have the wherewithal to invest further in Australia as they see fit. In acquiring local companies to get a foot in the door - Avnet via Integrand and Ingram Micro through ERA and ITG - the two companies already have significant investments to protect.
Good customer and supplier relationships were also considered by Smith and Grainger to be key yardsticks in this industry. Avnet CM's midrange and Unix focus makes it a particularly important partner globally to many of the big names in the IT industry and the Applied Computing business services local OEMs around the world.
Meanwhile, Ingram Micro's supplier alliance list is a who's who of the industry.
The third key to success is the need for excellent processes, systems and methodologies. Grainger acknowledged this to be the single most important area where costs can continue to be removed from the business.
Ingram Micro already has a standard reporting system across the 37 countries in which it operates. This delivers cost efficiencies on a grand scale and it is currently investing heavily in its e-commerce strategy, which will also have global impact on the expenses line.