LONDON - In the wake of new US distribution plans announced by Hewlett-Packard last week, the company is testing another distribution program in Europe. The plan will allow channel partners to maintain profit margins and get a better return on assets, but will inevitably lead to a reduction in the number of HP's major channel partners in Europe.
"We are squeezing the fat out of the supply chain," said Jos Brenkel, marketing manager of HP's Personal Systems Group Europe, who predicted HP's European distributor ranks will diminish from 160 to just 60 in six countries by 2000 due to increased loyalty between channel partners and vendors.
Tried and tested
HP's Extended Solutions Partnership (ESP), is based on a program that HP tested and has long used in Europe. With Vendor Express, the vendor will deliver products to customers - focusing on Unix/NT integration and networking solutions with such products as HP OpenView - even though channel partners will take the order, process the business and keep the customer as its own, Brenkel said.
"The whole flow of money is done through the channel. It is a service for the channel where they do not want to configure for the user, and they do not want to touch the hardware," Brenkel said. "That way, HP does not have to worry about price protection at all, nor transportation costs to the channel and then to the customer. There are quite big savings in that model to an enterprise account."
HP also plans to expand its Extended Configuration to Order (ECTO) program, in which it partners around Europe to assemble systems to fit customer requirements from components supplied by HP.
At Northamber in the UK, HP has been piloting ECTO for the last two years. According to Brenkel, the arrangement has worked well with Northamber expanding its business and HP cutting the cost of price protection by half. Actibis in Germany has been the other ECTO partner so far, but HP has now added Info-Products Europe in Holland and Raphael Informatika Group in Italy.
The total number of channel assemblers will probably reach 10 by the end of 1998, Brenkel said.
To provide balance in the market, and to allow non-ECTO partners to compete, HP also launched a program to allow distributors to specify their own configurations and to order them in high volume - more than 1000, typically - from HP. They would still be HP labelled products, Brenkel insisted, but they would be specific to that reseller and would not appear on the HP price list.
"It used to be that 70 per cent of deals carried out by resellers were done on the price list with standard terms and conditions - now it is just 40 per cent. The rest are specials - whether for corporates or the channel," Brenkel said, "We are just formalising what the market already is demanding. We are offering that flexibility to the channel to allow them to do it in the most cost-efficient way possible."
HP's policy is to recruit just two assembly partners in each European country, said Steve Brazier, senior consultant with research company Dataquest in the UK.
"They are doing this not just for greater manufacturing efficiency, but also to complement their marketing efforts," he said. "Channel assembly by itself brings small benefits, especially in Europe, but this is a much broader partnership."
Brazier contrasted HP's approach - which lets partners configure systems as they wish - with IBM's approach that insists that its channel assemblers will make the same configurations as IBM itself.
He praised HP's approach to use the channel as a means of reaching customers. Mainland Europe is very resistive to buying direct, he said, partly because of cultural issues, and also because of other factors.
For instance, the French and Germans do not like giving out their credit card numbers over the telephone, and in Germany, the banks ensure that credit card charges are so high that it deters people from using them for large purchases.
Direct sellers will have to move closer to the HP model if they are to succeed in Europe, Brazier predicted.