The distribution market is following in the footsteps of other mature markets, expanding globally and making strategic overseas moves in a bid to stay competitive and enter into new and emerging markets.
And experts and analysts agree: now is the time to widen your sights.
Gartner analyst, Neil McMurchy, said looking outside Australia is a growing trend in the distribution game.
“We’re now seeing it in distribution in the same way that we saw it with the IT service providers, the software players and the hardware players.” McMurchy said it’s simply a matter of scale. “In distribution, even in value added distribution, scale matters. It’s just a normal consequence of an industry maturing.”
“In Australian distribution there’s a big challenge on how to add value, and grow margins beyond inventory management and reseller recruitment,” he said.
Westcon Group is a prime example of a distributor pushing further into the global front – eyeing big opportunities in the Asian market.
Westcon Group Asia Pacific vice-president, Wendy O’Keeffe, said the company is embarking on an acquisition strategy in order to boost its presence across the Asian market. In the past 15 months, it opened three offices in South-East Asia.
O’Keeffe said business in the region had grown 25 per cent based on top line revenue in new countries it has entered into. She expects to expand into a $1 billion business across the region in the next two to three years.
She said the company is looking to acquire three to five companies in emerging markets that could enhance what it already has across certain technologies including security, datacentre, software or channel services.
To have good coverage in Asia, O’Keeffe said you need to be in about 14 countries across the region.
Acquisition is one way to deal with a substantial challenge for distribution to enter into new markets – gaining traction with the tier 1 vendors that already have distribution partners in those markets.
Newport Capital managing director, Lou Richard, said it was a good time to expand into new markets, not just in Asia but Europe, US, and emerging markets as well.
“However, it can become a matter of these companies becoming ‘Yum Cha’ distributors in the new market, with 2nd or 3rd tier vendors,” Richard said.
“Dicker Data securing the HP contract in other regions would be difficult, for instance.”
From the large multinationals to the strong-hold Australian players, the lure of overseas markets is capturing a lot of attention.
That said, Dicker Data managing director, David Dicker, was mulling over the possibility of expanding into global markets.
“As the market in Australia is mature and growth potential is quite limited, it’s an obvious strategy to look to markets outside of Australia,” Dicker said.
While it was a “bit premature” to divulge an overseas strategy, he admitted he does have plans.
But don’t count on Asia as part of the growth plans. “If we were to try and expand Dicker Data into countries outside Australia, we would not start in Asia,” he said.
Distribution Central managing director, Nick Verykios, agrees it is essential to have the support of a tier-1 vendor when entering a foreign market.
If it wasn't for NetApp’s support, the distributor would not be establishing a presence in Singapore right now, Verykios said.
“For us it was a largely vendor-driven desire,” he said. “These markets are as established as ours in terms of relationships, though, and it still doesn’t give you a ready market.”
It’s important distributors understand the differences in the go-to-market in Asia, Verykios said. For instance, a lack of compromise on price will damage an Australian distributor’s opportunities.
Overall, however, IBRS analyst Guy Cranswick said the Asian market is full of opportunities for Australian companies.
“It’s no surprise that companies are picking the high growth opportunities of Asia. It’s an obvious regional choice,” he said. “Australia is settled and mature, and perhaps a little small when compared with the markets in Asia. The new growth is to the north.”
“The Chinese growth story and the correlated or associated growth in the region is a big hook for companies looking to boost revenues at positive terms of business.”
While reseller demand is a factor, the global distribution expansion is more likely a result of financial factors, he said.
"It’s based on the fact of the developed markets which are sluggish and without much prospect of strong growth in the next two years. Despite the high stock valuation and certain stories some vendors such as Cisco have had poor earnings and Westcon is closely linked to Cisco.”
Cranswick said other factors in the grwoing global push include the The high Aussie dollar and the US Federal Reserve’s QE2 package, which provided a meaningful increase in financial market liquidity, are other contributing factors.