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SMBs need to be nimble

SMBs need to be nimble

Amidst the economic uncertainty there is still business potential for SMBs

According to VMware’s new global CEO, Pat Gelsinger, the IT industry is facing "a period of great disruption". Gelsinger’s message to the company’s recent global annual partner conference in San Francisco, VMworld 2012, resonated throughout the Australian ICT industry as a contrasting series of reports were released.

Troubled HP recorded a $US8.9 billion third quarter loss and Dell posted second quarter revenues down eight per cent on last year’s same quarter, making the top end of the global market look shaky at best. And the bottom end didn’t look much better locally as SMBs and SMEs face difficult times.

An Australian Chamber of Commerce and Industry (ACCI) survey showed Australian small business conditions are continuing to worsen, with non-mining sector businesses struggling with historically low revenue and profit growth.

It showed the index of Expected Economic Performance over the next 12 months to have lowered from 41.6 to 41.3 during the June quarter. It was 2.7 points lower through the year. "It is alarming that important small business growth indicators, including sales revenue, selling prices, profit growth and investment in plant and equipment, are approaching their historical low levels previously recorded during the height of the global financial crisis,“ ACCI director of economics and policy, Greg Evans, said.

And business management software vendor, MYOB’s July 2012 Business Monitor survey of 1004 SME operators found a significant decline in proactive online business activity, including online transactions, email marketing and social media, among SMBs, despite an increasing number running their own websites.

With many resellers classified as SMBs, what does this mean for the channel?

Significantly exposed

Data#3 managing director, John Grant, said the SMB reseller sector is the most significantly exposed and with volumes down, it will affect the distribution community. He claimed the SMB and SME marketplace remains as tough as it was last year. Investment is further restricted with SMB resellers appealing mostly to SMB customers who are under significant market pressure.

“It is a double-edged sword for the SMB IT sector. The fact we are in tough times globally and economically in Australia has not encouraged people to invest. The Australian political uncertainty and ambiguity over cost structures is restraining demand as well,” he said.

WhiteGold Solutions managing director, Dominic Whitehand, agreed, and said some of his customers had been hit by the slump. The reasons behind that included the availability of credit, higher bank interest rates and the consumerisation of IT, he said.

In turn, all commoditised distributors and retailers are affected by the high Aussie dollar and the cheaper online availability of products, Whitehand claimed.

“In the channel, there is the same number of fish swimming in the same small pond. Lots of similar businesses are fighting over the same limited opportunities,” Whitehand said.

Analyst backs SMB

However, Channel Dynamics director, Cam Wayland, thinks otherwise. SMBs are more likely to have the ability to react more quickly to uncertainty as decision making is made faster with less complexity, he said.

Wayland claimed the organisational structure, decision making process and the ability for a reseller or vendor to engage with an SMB is more beneficial than that of a larger, more mature and complex business.

“With SMBs, it is all about cash flow and what they’re sensing from one week or one month to the next. So when there is a degree of caution in the market, they can react quickly and delay decisions because of that business structure,” he said.

But, he mentioned the most important factor is defining the SMB market as its profitability depends on how a business defines SMB: “How vendors define SMB and what the reality is in Australia are two very different things. Australia is not the US. If you define a company with less than 500 people, that is not SMB. Typically, SMBs are organisations with less than 50 people. “Vendors and partners looking to engage SMBs can’t just ubiquitously group everybody together as SMB; they have to look at what the size of the organisation is and what they are doing. With larger companies, there is momentum that you can’t stop.”

Future optimistic

Wayland claimed although there is caution surrounding the SMB space, things are looking more optimistic.

He said the outlook for the second half of the year is looking clearer than the first, and external factors such as the economy and the political state of Australia are the only factors inhibiting the fundamentals in place.

“A lot of the uncertainty is starting to go out of the business. The carbon tax is here; the budget has been and gone etc. Impacts that were in the first half of the year have dissipated a bit,” Wayland claimed.

He encouraged the channel to “be out there” talking to clients and understanding what the different pressures are. The move to Cloud computing, IT-as-a-service and managed services were all positive for the channel and SMBs and should be embraced.

Whitehand said because of the consumerisation of IT, many people are turning to online to spend and source products. As a result, he advised SMBs and SMEs to establish an online presence.

Google Australia head of local business, Claire Hatton, said the priority for every Australian business owner is to get online and make sure that their customers can find them, quickly and from any device. Getting online doesn’t have to mean establishing a complicated e-commerce system – an online presence can help with an offline presence too.

“If you own a business and you don’t have a mobile optimised website you are invisible to a large number of clients who will go to your competitor who’s made the move online,” she said. IDC Australia senior market analyst, Vern Hue, mentioned removing the barrier to entering the online space will encourage increased adoption of Web pages by SMBs.

He said website adoptions should embrace the current social media phenomenon towards a dedicated website, as the need for more robust interaction will increase. Hue predicts more next-generation design tools will be made available to the market in the coming years that will facilitate this development and enable products to be wrapped with online services.

Five-year plan

Whitehand also advised SMBs and SMEs to bundle services and training around their products. “If they find specific technology areas that they are strong in, products that they have knowledge in, they can then forge services and training around those to get profit and high margins,” he said.

Hue mentioned resellers should also help SMBs map out how new technologies will fit into a company's long-term plans.

According to Hue, few SMBs have a comprehensive five-year plan for technology deployment, but all have a sense of where they would like to be in the future.

Also, SMBs with a strong vertical focus should look towards resellers as a key source of advanced technology resource, he said.

IDC believes that it will expand the potential for new customers and, in turn, open new opportunities for those resellers willing to adjust their business models to suit a variety of customer demands.

Data#3's Grant mentioned that even though the factors leading to the pressure on SMBs are not necessarily things that they can control, they should try to get off the back of the resources sector as the vertical remains buoyant.

“I’m not sure where you find solace in this. The only thing SMB resellers can do is make sure they are doing the best possible for their customers by talking to them all the time. However, SMEs are quite optimistic about the market,” he said.

Whitehand expects more market consolidation in the reseller and distributor market.

“Technologies themselves are converging. So the whole channel is just going to consolidate down. Distributors and resellers will make acquisitions on each other and a lot of the vendors are already beginning to do that.

“To survive, the channel has to innovate, differentiate and substantiate themselves,” he said.

Additional reporting by Rimin Dutt


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