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Smoothing the turbulent waters

Smoothing the turbulent waters

When Jon Shein took the reins of distributor Express Data two years ago, he had the benefit of running a company with more than eight years experience in the Australian marketplace. But taking an organisation with a new brand name, a new strategy and a disenchanted customer base, and growing it in an ultra-competitive market, meant Shein had to do much more than just maintain the status quo. ARN's Naomi Jackson discovers how Shein has negotiated the obstacles to make Express Data one of the country's largest - and most popular - distributorsWhen Jon Shein read the results of the latest Inform channel research report in ARN recently, there must have been the temptation to break open a bottle of bubbly and celebrate.

After two years, his hard work in establishing the Express Data brand in the Australian distribution market is finally paying off. Inform's research not only found that Express Data now has the second largest market share in the local market, but just as significantly, it is the preferred supplier of proportionally more resellers than any other distributor (ARN, August 5, 1998, page 12).

That's quite an achievement for a company that two years ago was the curse of many of those same resellers. Prior to Express Data's inception in 1996, it was part of Com Tech, which at that stage was a value-added distributor of networking products.

But as the networking market matured and resellers themselves became more knowledgeable about the products, the company's competitive advantage had, as Shein puts it, "become its competitive disadvantage" and it was time to realign its business strategies.

Competitor

So the decision was made to split the organisation into three separate divisions: Com Tech, Com Tech Education and Express Data. As part of the split, the distribution arm - Express Data - changed to a time-and-place distributor, and Com Tech suddenly became a competitor to many of Express Data's customers, causing a great deal of discontent amongst the reseller community.

But now, bygones appear to be bygones.

"I think we've progressed well with the channel because we've always been easy to do business with and most importantly, we do listen," Shein told ARN. "Certainly from my perspective, resellers are realistic - the majority are looking for companies that have the ability to service them and provide products in a timely and cost-effective manner and I think we've managed to do that over the last two years."

Indeed, Shein maintains the notion of "co-opetition" means IT companies are used to partnering with organisations they compete with in other areas.

"This is really quite a unique industry in that people work together and compete with each other," Shein claims. "I don't think there are a lot of companies that want to preclude themselves from dealing with any particular organisation because it just doesn't make business sense."

Nevertheless, it is a credit to Shein that Express Data has been able to be not just a supplier to resellers, but a favoured supplier.

How has he done it? "Resellers find it extremely easy to deal with us because we have outstanding account management, we've got easy systems, we generally deliver overnight anywhere in Australia and we provide fairly substantial levels of credit, which is very important for them," Shein said. "It sounds simple, but it's not that simple when you consider the multiple product lines - growing to many thousands of line items - that we deliver day in and day out."

But having emerged from the Com Tech split bigger and better than it was before, Express Data now faces the ongoing task of increasing its share of a market in constant turmoil.

The prospect of vendor, distributor and reseller consolidations is ever-present and the opportunities to get a slice of the distribution pie are apparently dwindling. Yet Shein is keeping the faith.

For starters, he's not totally convinced by the industry propaganda that suggests large global distributors are setting themselves to wreak havoc in the Australian market. "I think the total distribution market at this time is worth in the region of $2 billion to $2.5 billion, and while it sounds like a huge amount of revenue, it's certainly not enough to excite five or six multinationals to come gallivanting here," Shein argues. "I think Asia, from a commercial sense, providing everything pans out in the near future, would be far more attractive to them."

Having said that, Shein concedes a raid on the Australian market is possible. If it does happen though, the complexion of the marketplace is unlikely to alter significantly, he says. "I don't think a new distributor is going to change the landscape from a pricing perspective. From an efficiency perspective, I'm under no illusion that the majors would certainly have strong systems and strong logistical capabilities that they would build into the local operation.

"But the interesting thing is I don't think large globals coming into the market will give resellers more choice because I believe there's going to be a rationalisation anyway."

Nevertheless, Shein believes distributors will struggle if they don't meet the necessary economies of scale. "The Australian distribution market is extremely splintered," he says. "There aren't that many mainstream distributors, but it's extremely splintered and regionalised.

"If you don't have the necessary economies of scale, at some point it's going to become uneconomical to run your business. You cannot just depend on your local market to be successful because the infrastructure required for a $10 million business is pretty similar to what's required for a $30 million or $40 million business.

"So you really only get your benefits filtering through as you build those economies of scale."

Merging

And that may involve merging with other Australian distributors or getting a global backer, according to Shein.

Similarly, he expects the reseller channel to continue its pattern of rationalisation. "It never ceases to amaze me the number of resellers that spring up in the market, but if you look at what we term our tier-one reseller channel, we've seen a number of resellers disappear by the wayside," Shein said.

"In the early '90s we had a rash of resellers go out of business and the business turned up somewhere else. The biggest issue we have, though, is whenever we have a problem with a number of customers going out of business the impact to us is from a bad debt perspective.

As for continued vendor consolidations, Shein is also philosophical.

"Over the years, I have found the majority of vendors generally act locally and autonomously based on market conditions and happy vendors in the marketplace are those that are achieving their numbers and meeting all expectations.

"Vendors just don't sign up distributors for the hell of it because they don't like their products over-distributed.

"They want focus and they actually want the distributors to make a buck out of the product as well."


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