The increasing rationalisation of vendors’ distribution channels has local distributors carefully monitoring market trends and their own business models to ensure their places in the value chain.
Some markets are shrinking, there’s more competition, and margins are dropping. The pressure now on distributors and vendors is intense as they try to realign their businesses in concert with market trends, said Alstom IT general manager, Greg Newham. “This is forcing the kind of rationalisation and partner reshuffling that we are seeing.”
Vendors are realising that it is critical that they get their channels in order to provide maximum benefits to both their distributors and themselves.
“Vendors need to manage their channel in a more prudent and solid manner,” managing director of Synnex, Frank Sheu, said.
Lan Systems’ managing director, Nick Verykios, agreed.
“Vendors are saying they are more dependent on the channel now for growth so they are more focused now on partner profitability,” he said. “Many vendors need to reduce their number of distributor partners to make it worthwhile for their most valuable distributors.”
The axing of Digiland and eXeed by HP has not come as a surprise to local pundits. When HP and Compaq merged, their distributor base effectively doubled in size, so the new HP is still in the process of rationalising its distribution channel.
Sheu also said he was not surprised that Cisco dropped Tech Pacific.
“Tech Pacific has had an advantage over other distributors in that many overseas vendors believe that because it’s the biggest distributor in Australia it has the greatest market penetration,” he said. “Yet big is not always better.
“Cisco wants to deal with its first-tier corporate value-added resellers [VARs] itself to ensure they have mindshare of the products. These large VARs play a key role in Cisco’s go-to-market strategy, yet through its broad-based Australian distributors Cisco is walking into the small-to-medium size independent reseller market, which is not what it want to concentrate on.”
Cisco’s remaining distributors are, Express Data and Lan Systems.
Lan Systems’ managing director, Nick Verykios, said he had anticipated that Tech Pacific would be dropped by Cisco.
“Cisco probably realised that they didn’t need two broad-based disties, and would be better off with another focused niche distributor or enhancing its partner profitability by reducing its distributor base,” Verykios said.
Sheu pointed out that vendors are now conducting quarterly reviews of their distribution channels rather than the traditional annual reviews and are subject to more frequent changes.
“These days it’s no big deal if a distributor is dropped, because they’ll probably get added at the next quarterly review.”