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SWOT: The two channels: US and them

SWOT: The two channels: US and them

It was Winston Churchill who described the British and Americans as "two peoples, separated by a common language". The same might also be said, however many years later, of Australians and Americans. Whilst the similarities between the two cultures are obviously strong, scratching away at the surface reveals a divide that, from a business perspective, can be hard to bridge.

This is certainly true of the US IT channel, which at first glance appears very similar to our own. There are the big distributors and integrators, and many of the names are the same - EDS, Avnet, Ingram Micro, Getronics, etc. However, if an Australian technology developer was to go to the US expecting to replicate the same channel structure as back home, they would quickly be in for a shock.

The reasons are many, says Michael Gale, the Australian-born managing director of San Francisco-based consulting firm Gramercy Ventures. His company has assisted numerous Australian technology developers in creating US sales channels, and says that while most of the world's technology companies were born in the US, there are disproportionately few VARs.

"In the rest of the world, lots of people have made a very successful business model out of building distribution businesses," Gale says. "In the US, vendors typically sell direct, because it's their home country. A lot of those channels don't exist."

Another difference is scale. The US IT market is up to 20 times larger than its Australian counterpart, and this, according to Gale, makes going through a mass distributor almost impossible.

"The chances of you raising enough capital to take one of those companies into the US these days are pretty slight, because the returns in those commodity products are so low, and the costs of building retail marketing and a consumer brand are huge."

According to Mary Margaret Gibson of channel consulting company PRTM, while the size of the US market looks like a great opportunity, it also makes for a greater number of competitors.

"In a smaller geographic market [like Australia], you can actually know the competitors," Gibson says. "It's very difficult for anyone coming into the US to gain an accurate understanding of the real strength of some of these competitors. It's hard enough to do it if you are here all the time."

According to Gibson, the regular path for a company coming to the US is to hire one of the large research firms such as IDC or Gartner to analyse who their potential partners might be. "If there's some interest [from partners] then the first step is to put a customer support and marketing group here to start building some credibility with those potential partners. Then they can work with those partners to market to the partners' customers. The alternative, if you have a lot of money, is to buy a VAR outright."

For Sydney-based software maker Odyssey Development, its initial experience of coming to the US in 1989 was almost enough to send it straight back across the Pacific. Although the company was only one year old, founder and group general manager Ian Davies says Odyssey had always viewed the US as a desirable market to enter early. Realising that no one in the company had the first idea about setting up a US channel, Odyssey hired a marketing company, Silicon Valley-based McKenna Group, to advise it of the best course of action.

"Their goal was to find us distributors, partners, channels, whatever - their brief was to find our entrée to the US market," says Davies. "The plan was that they would find us the relationships and the method, and we'd ride off into the sunset. However, it didn't work. We wound up paying them in excess of six figures, and all we got for our money in the end was a lovely, glossy brochure."

The experience so disheartened the company that it bypassed US channels and went direct. "We really didn't want to open an office in the US but it was the only way to be sure that something was going to happen, because at least then you're in control," Davies says. "For us, at that point, the cost of keeping an office staffed in Los Angeles was akin to keeping astronauts alive on the moon. But once you start doing it, you have to stick with it because if you give up, you lose the money you've thrown in to date."

It was six months before Odyssey earned its first US dollar. The company continues to do most of its US business direct, and Davies has grown wary of US channels.

"The channel partner inevitably has multiple agendas, multiple products and you can't be sure that you're going to get the slice of their attention you would like. And their priorities will alter over time. The way you can be sure you'll get 100 per cent of their effort is for them to be your own guy."

Davies concedes that the company made a lot of mistakes in its strategy, but says the greatest learning experience was how to deal with Americans and their approach to business.

"It is, in fact, inconvenient that Americans and Australians speak the same language, because it creates the illusion that the two cultures are very similar, whereas in fact they're not. You can produce a marketing campaign here that will work but will leave Americans completely nonplussed, and vice versa."

According to Lou Schillaci, the chief executive of Perth-based industrial software developer SigPoint, the key to success with US VARs is spending time with them. SigPoint is the second company that Schillaci has taken to the US, following in the footsteps of WA-based NDG Software (now known as Network Harmoni, which relocated to San Diego in 1998).

Schillaci says that, when dealing with US channel partners, getting to know them is vital - as is getting to know what their potential customers think of that supplier. "In other words, you've got to go and meet everybody. This is really invaluable. You can sell a lot of product through a VAR in a very short period of time if they are very well connected."

And actually maintaining an office in the US is mandatory. "And then you have the person [there] who can make the quickest decision, because these people will call you and want a meeting in two days," Schillaci says. "And when you have a meeting with a US company, they want to walk away with some sort of decision."

The issues of scale in the US market are not just related to population, either. Schillaci says the biggest mistake that Australian companies tend to make is to assume that the US is just one place. "It's as big as the whole of Europe, and every state has different laws. If you're trying to sell to government, there are 50 governments. You can't just go out there and try to do it all at once - it's impossible.

"And lots of companies are burnt doing deals in the US. We don't have much legacy in this - there aren't a lot of people that have done it that we can go to, to help us out."


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