ARN: Where do you see the future of distribution considering the high number of failures, mergers and acquisitions globally in recent years?
Foster: When I joined this company, I looked hard at those issues. What surprised me was how many people felt we were becoming less and less of a player. A lot of people felt that the role of two-tier distribution had diminished drastically.
One of the things they focused on was our profitability and our share price, but if you go back and look at last year's numbers, we grew our revenue 27 per cent and so our business was not falling off at all. In fact it was growing significantly. But what we did have was a very intense competitive environment and we also had manufacturers that were changing the terms and conditions by which they wanted to do business.
In adjusting to those changed terms and conditions, the marketplace shook out some of our competitors.
Do you see further consolidation in the future of IT distribution?
Foster: My guess is that there are still some additional adjustments to occur, but in the US at least it is getting pretty close to where it should be. There are only a limited number of major players and I see the same thing happening in Europe. It is not yet as clear as that in Asia, but my guess is that the same phenomena that has occurred throughout the rest of the world will occur here as well.
Stead: If you think about it, last year and during the first quarter of 2000, the third, fourth and fifth largest global distributors have now gone. There are only two big players left.
Can the number of big players be reduced any further than just two?
Foster: People have talked for years about the "rule of three" that applies to global industries where there are two globals and a strong third local player. My opinion is that we will see two very good competitors [globally] - Tech Data and us.
We then expect to see a strong competitor on a regional basis. In Asia that would obviously be Tech Pacific. That has to bode very well for both vendors and resellers because they will have a choice which will boil down to who provides them the best total service.
Do you see the South African companies such as Dimension Data and Datatec as potential global competitors in the future?
Foster: Not really at this stage. They have really only expanded across the ocean so far. The question is really whether they will hook up with one of the globals. We are always looking for opportunities that will increase shareowner value and over time help the customers and vendors get an ever better global reach.
Following the recent integration of LAN Systems into the Westcon group, there seems to be a bit of a block built up in the network distribution space. Do you have any plans to break in there and if so, how?
Shea: Along with some other projects, networking is definitely a space we are moving into. We are already working very hard in that area and have recently partnered with 3Com and Intel. That obviously assists us. When you look at Ingram in Australia, we integrated two companies last year and put on 11 or 12 new vendors, including Microsoft retail and HP, in the last six months.
We have had a very busy time supporting those vendors and our resellers. It is really only now that we are emerging and evolving into an efficient partner for resellers. In regards to networking, there are many discussions - both us courting vendors and them coming to us.
Would you be looking to partner with any of the big three - Lucent, Nortel or Cisco?
Shea: It is difficult to answer but you can nearly answer it yourself if you look at what is happening around the region. As each region has Darwinianised [evolved] with the backing and facilitation of Ingram global, partnerships have come to the fore. So I guess one day that it could happen in Australia. As far as the future is concerned, all I can say is that it is more likely than unlikely.
Can you give me any idea how revenues have grown in the region, particularly in Australia?
Koppen: We have seen tremendous growth rates, obviously coming off a depressed situation because of the recent economic crisis in the region. If you look at the GDP rates right across the region, the whole economy is recovering and with that we are seeing very strong growth and pent-up demand.
Australia is going to continue to grow in a healthy way but it is a more mature market. So, while I expect some pretty good growth there, it is not like India or China. We still have a lot of room to catch up with the leaders. It is a growth market and there is enough demand for us to value-add services, so we feel we will quickly grow our presence there.
How would you describe Ingram's global Web strategy?
Stead: We are actually one of the 10 largest e-commerce Web sites in the world today. The Internet is a very large part of our plans for the future - it is a very important part of our strategy going forward.
We are the only global [IT distribution] player in existence today to have a single worldwide infrastructure in existence. It is the backbone of all the computing systems we operate under. We will be able to leverage that like no other company in just about any industry has done before as we move forward in e-commerce on a country-by-country basis.
Foster: Our Web efforts are a worldwide strategy because the Internet knows no geographical boundaries. It is truly a worldwide phenomenon.
We have also begun making the Web capability available to our resellers. They will be able to interconnect our databases and develop Web sites for themselves that can interface with their customers and reduce their costs. We can become the back office for those resellers which means they don't have to spend the money required to develop systems, processes or even Web pages. We do the development for them.
How far down the track is that in Australia?
Shea: We will be looking at this and talking to our customers in the third quarter about this Web initiative. That is not saying that we will be delivering this then, but we will be discussing it with customers, getting feedback and understanding what we need to do.
How has distribution changed in the last couple of years?
Stead: Becoming a global industry has seen a huge change. Then there is the Internet and the foundation of a B2B e-commerce future. There are incredible productivity gains that our companies and others are going to enjoy and are currently enjoying because of the Internet.
Finally, I believe once the scale is big enough we will be able to provide a series of service offerings on a fee basis. This could be outsourcing any supply chain-related processes that a reseller or a manufacturer wants to deal with more cost effectively and/or with better service.