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NEWS ANALYSIS: Global Storm

NEWS ANALYSIS: Global Storm

The attacks on the World Trade Centre and the Pentagon and the subsequent collapse of Ansett Australia have struck deep into the Australian economic core, but the immediate impact of the tragic events on Australian channel operators has been mainly psychological.

While hardly measurable, it is clear that the effects of the recent events are going to be played out through erratic market behaviour and reduced consumer confidence for at least another couple of years, and despite any government intervention. In the short term, however, the follow-on effects of the diabolic trifecta on the day-to-day business of Australian resellers appear to be negligible.

Unlike in the US, where flight bans and passenger backlogs affected domestic and international freight shipments, Australian companies have reported no serious fulfilment disruptions. "It's difficult to get freight into the country, but it's fairly easy to move freight around the country," said Nick Verykios, Lan Systems' general manager and marketing director. "From a local business perspective, business keeps going on."

With both Ansett Air Freight (owned by TNT) and Qantas international cargo operations resuming international flights last week, the temporary disruption is not likely to have any serious effect on the movement of IT products domestically.

However, the impact on the global movement of goods has yet to be assessed.

"Daisytek [in the US] will obviously be affected, as they do a lot of air freight," said Fiona O'Connor, Daisytek's state manager for WA. "Feedback from there is that towards the end of the month they will start to see the effect."

Like O'Connor, most local distributors claim to be stocked for up to eight weeks, with no distribution group expecting an increase in local lead times. However, according to Ross Cochrane, Express Data's general manager, the impact on different sides of the channel's business is going to become apparent in the next few weeks.

"Software licensing is obviously not going to experience any supply-chain issues, as most of it is done electronically," Cochrane said. "On the other hand, licence sales usually pick up towards the end of each quarter, which is coming up, and a lot of people will have other things on their minds in conducting their daily business." The ED executive believes there will be no disruption to PC shipments, but he expects to see some delays in shipments from US-based networking suppliers in the medium term.

Indeed, "flow" is something most US-based vendors cannot promise their overseas channels right now. While HP wasn't commenting on the events of this month, vendors such as Cisco have made it clear their priority over the next few months will be in assisting the US relief effort by focusing on their North American customers.

"Thus far, we are not seeing a huge amount of disruption to the markets outside of North America and we're working with our channel and direct sales teams to work with our customers on any delays, which I understand are not major," Cisco's director of corporate affairs for Asia-Pacific, Terry Alberstein, said.

Meanwhile, in a message to its employees worldwide, Microsoft president Steve Ballmer confirmed last week the Windows XP launch was going ahead as planned. "Terrorism wins when everything else in the economy stops," Ballmer wrote, making it clear that Microsoft will join the battle to save the world economy from plunging into chaos by maintaining a business-as-usual attitude. Microsoft product shipments in the region have not been affected by the events, according to John Ball, Microsoft Australia's distribution manager.

The prolonged IT slowdown and the consequent inventory build-up will nevertheless ensure no medium-term impact in terms of lead times and shipments to the channel. If anything, the current situation is likely to result in a correction of channel inventory and ultimately lead to more realistic pricing and healthier reseller margins, according to Lan's Verykios.

But the full impact of the terrorist attacks, which targeted the primary symbols of Western financial and military power and have officially pushed the world into the first synchronised recession since the 1970s, can only be speculated upon. One thing is certain: psychologically, the tremors are likely to be felt for a long time.

"What happened was almost like a straw that broke the camel's back," said Verykios. "We, as a nation, are suffering from change fatigue [that is, post-Y2K, post-GST and post-Olympics], from cultural, political and economic instability fatigue, and a whole lot of uncertainty. Then, suddenly, there is this psychological hit that tells you the world is not such a safe place either."

The ramifications of the attack will become apparent over the next few weeks, as channel executives struggle to budget for the forthcoming quarter, according to Roger Bushell, product director for systems at Ingram Micro.

"We're finding it difficult to determine which way the market will go in the next quarter. We've got historical information and we know that the final quarter of the year is usually not the strong one," Bushell said. "Everyone is now going to become nervous and afraid, especially in the household environment where people are likely to become more conservative with their spending."

Indeed, with the global economic outlook being the gloomiest in the last 30 years, no amount of encouragement from Federal Treasurer Peter Costello is likely to change the fact that the current economic and political uncertainty can only lead to recession. But this is not new to the IT industry.

"From the consumer side of it, the economy was always facing problems, because the new technologies have been absorbed by households without working out how they're going to fund that on a long-term basis," explained Peter Brain, executive director of the National Institute of Economic and Industry Research.

"Before September 11 it looked like that choice was going to be more of a gradual adjustment, but would have had to be made anyway. What [the events of this month] have brought on is that the adjustment will have to be made quicker, which means that we're going to get a sharp shock, rather than a gradual stagnation and then recovery," he said.

"In terms of the industry side of the equation, the world was in a synchronised recession anyway," Brain said. "The IT sector, especially on the business applications side of things, would go ahead quite strongly as people strive to save costs and with less people by substituting technology."

And then there is the prospect of war that needs to be factored into any economic forecasts, despite the difficulties in measuring its impact in advance. "I think [the prospect of war] will affect us, but we can't measure it as we don't know where it's going to hit us or when it will hit," said Daisytek's O'Connor.

"But I think people will pick up and get on with it - it's the Australian way."


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