The resignation of managing director, C.N. Low, was the latest in a series of blows to the local operations of Singapore-based Digiland. Khoo Teng Liat, a Digiland senior executive, has been charged with strengthening the Australian operation. He talks to ARN's Gerard Norsa.
ARN: How is Digiland being managed since C.N. Low’s resignation?
KTL: C.N. Low’s notice period expires at the end of April. At the moment both of us are managing the business. C.N. is helping out on a lot of things. I have been asked to come down and help until we can find a replacement. I am spending about 50 per cent of my time here. [However], our priority is to have a local in place based upon our experience in other countries. We want to become a top two or top three distributor in this country. So the person we are looking for is someone who will be able to come up with a plan and a mission to help us move to that sort of position.
ARN: How well do you know the Australian market?
KTL: I am not a stranger to the Australian channel. I worked with HP for more than 18 years. One of my roles was as regional channel marketing manager. That included recruiting channel partners in Australia. After leaving HP, I joined Electronic Resources which was subsequently taken over by Ingram Micro and I then had a big role in helping the Australian operation of Ingram expand its agency portfolio. I spent a fair bit of time in Australia.
ARN: What impact did the HP/Compaq merger have on Digiland’s business in Australia?
KTL: The HP/Compaq merger has created a lot of general difficulty for the channel as a whole and we actually anticipated that. Within the channel there was a set of Compaq partners and a set of HP partners. So when they merged it became very obvious from the start that they would have to consolidate.
At the moment, there are a number of other channel players who are very anxious to show HP that they can perform. Quite a number have sacrificed margin to get the volume even though HP made it very clear from the start that one of its criteria for selecting partners is longer term potential. I think that there are quite a few players out there that just want to prove that they can produce a number and move a lot of product. Margin has been affected for everybody else.
We are starting to see our HP margin come back now. The key is understanding where we fit into HP’s overall channel strategy of improving efficiencies and saving money in the supply chain. It is looking for partners who will help them achieve that.
ARN: How do you survive and remain as a strong partner of HP in the face of such aggressive competition from other distributors?
KTL: It is a very difficult space at the moment. I think the first thing that we have to learn to do is to not knock our heads against Tech Pacific and Ingram Micro. We don’t want to get caught in their price war.
HP has indicated that there are certain areas in the market where they may need someone who is more focused and this is where we may find our niche.
We think there is some value in the fact that we have four branches nationally with local sales people. One thing that I have learned about the Australian market is that it is not just one big geographically spread market. It has very loyal regional businesses.
We have no intention to move to a single centralised warehouse like TP. We may move to a larger centralised warehouse but we still want to maintain satellite warehouses in all of the branches.
ARN: What percentage of your business is based around HP in Australia?
KTL: It used to be the majority of our business. Right now it is still a large amount but not as large as before. It is a very important relationship to Digiland in Australia and right across the region.
ARN: Was it a blow to business when the HP Procurve agency was recently taken away from you?
KTL: We were doing well for them based on the targets they gave us but on the whole the Procurve products did not represent a big part of our business. It was part of the overall solution that we were giving to some of our customers. HP only wanted two partners but we will still have access to the products.
ARN: How did the controversy of losing Epson Gold seal status affect your business?
KTL: It affected our image and reputation more than anything else. Our Epson business has remained strong and we have actually managed to grow it since then in both printers and supplies.
It was unfortunate and we readily admit that we were in the wrong. It was to do with the importation of genuine Epson product from Malaysia. It was not counterfeit.
We want to be a good partner for Epson so we have taken our punishment, so to say.
ARN: Has the business for Digiland in Australia been up to expectations?
KTL: Our last financial year — from July to June — was exceptional in terms of both growth and profitability. It is only in the last six to seven months that we have missed targets in Australia. As discussed this has been partly to do with the HP/Compaq merger and the threat of consolidation has seen a push for volume which has affected margins. Despite all that, we have maintained quite respectable numbers. In the last couple of months, I have seen a turn around and our business is coming back. Australia has been an integral business for us and as we sort through some of these issues Australia will continue to contribute very good revenues for us.
ARN: Why is Digiland’s share price so low at present?
KTL: It is a combination of the Singapore stock market and technology stocks in general being very weak at the moment. We also recorded some losses for the first half of the fiscal year. Analysts who have reviewed our balance sheet know we are still a very strong company. The first half losses were mainly in the non-cash items, some foreign exchange translation loss and some concession that we made for bad debt in these difficult times and for very old inventory. We have also made significant investment in China. Given the bigger scheme of things our losses were not really that decisive.
ARN: What do you see as being the key challenges for Digiland at the moment?
KTL: One of the key challenges will be to put the right structure in place with the right people. We are pretty sure that we have the right structure now and we are in the process of filling it with the right people.
Our other key challenge is to get our people to stop worrying about all these current issues because we want to assure them that we are here to stay, that the group is financially sound and we want to grow.
The third big challenge is to find a good replacement for C.N. because we need strong leadership here on a day-to-day basis. A fourth one would be to come up with a good strategy to grow ourselves to become the second or third largest distributor in this country.
ARN: Will growth in this country come from new vendor partners in this country or growing relationships with existing partners?
KTL: It will be both. We will be looking for other vendor partners but not in the same product categories. Our ongoing group philosophy is to be in broad categories, such as PCs, servers, storage and networking. We [also] want to be more vendor specific, so that one of the differentiators we offer is that we will be close to the vendor and understand their products better. We want to add vendors but in complementary not competitive products.