During the recent Melbourne leg of Tech Pacific’s ExpoTech, Gerard Norsa sat down with managing director, Kerry Baillie, and national sales director, John Walters, for a look at the strengths, weaknesses, opportunities and threats of Australia’s largest distributor.
ARN: Why is Tech Pacific remaining so dominant in the Australian market? What are the company’s principal strengths?
JW: Everything has come into alignment. The strength and depth of the vendor relationships we have means they like to do business with us. One of the great achievements since Kerry has been here is that we are now a lot easier to do business with and we are more likeable.
This makes customers want to come to us to get their hands on the tremendous range of products we stock. The sales success then makes the vendors really keen to support us.
There has been a real change of approach here. Our customers are telling us there has been a big improvement in attitude, enthusiasm and that we are now easier to do business with.
KB: I think one of the big things about our ongoing dominance is branding. Tech Pacific as a brand is really strong. Many things have remained the same. Product volume has been retained and the systems haven’t really changed all that much but everyone in the reseller community knows about Tech Pacific. They know that we have the products and the systems. Our challenge is simply to make it easier for those resellers to access those products and use those systems.
Tech Pacific went through a period where we lost a bit of that enthusiasm — success breeds complacency — but we are now getting back to being personal.
ARN: Do falling margins represent a weakness to Tech Pacific?
KB: Again the breadth of product and vendors comes into it there. Margins on those products vary greatly. Our total gross profit hasn’t come down that much. It is reasonably stable because of those high margin products that we do have.
In some respects a low-margin environment gives us strength because our competitors can’t compete unless they can match us on volume.
ARN: So could you pinpoint anything that is a weakness for Tech Pacific?
KB: The weakness is that we depend on the vagaries of the market place. We reflect the market place. If it is strong, we tend to reflect that but if the market is weak, we suffer as well. We are dependent on the success of the vendors and the success of the resellers.
I guess you could also so that our size is a weakness as well as a strength. We need to be big. We would not go very well as a small company. We have to maintain our size.
ARN: What are your best opportunities to grow the business and profits? KB: There are not a lot of new technologies coming through. But we do see great opportunity in getting better at dealing with small and medium business channels. I would also say that it is a real opportunity for us to be better at the complex products, such as storage, security and high-end servers. That has definitely been one of my goals since being here and we still haven’t achieved that.
JW: I think that TP is really well positioned at the moment to look after customers Australia-wide. In particular, small and medium guys in regional and metropolitan areas. There is a real opportunity for us if we can use our breadth of product to become easier to do business with by improving areas of TechLink, the attitude of our staff and getting out there.
Meanwhile, because of our size we also have the ability to deal with the big boys of the channel as well. It is a two-pronged strategy. Being better at that is the real opportunity for us.
ARN: Do you see any threats to Tech Pacific’s dominance?
JW: The only threat really is that we are dependent on the success of our resellers. We need to have a good vibrant reseller community.
KB: Probably the biggest threat to us is the sustainability of some of our customers’ businesses. Reseller margins are probably under more pressure than distribution margins. Our margins are probably as low as they will ever be. With future consolidation, margins are likely to grow for distributors. We can sustain profitability on our thin margins due to volume but resellers have to compete with each other on margin rather than service or value adds and that threatens their service levels and viability.
If our resellers are strong we will be okay. If they are not we will suffer with them. Any resellers with financial problems are a threat to us.
ARN: Generally speaking, do you think that Australian resellers are doing a good job?
KB: By and large, I think they are doing a great job. Two or three years ago, resellers were finding it nice and easy but I think that has changed. Some of the poorer resellers aren’t around any more. Most that have weathered the tough times are now sharper business performers with sound business models.
ARN: Which major changes you have achieved in 16 months at Tech Pacific are you most proud of?
KB: Well, we are profitable now. Also I think just the general feel in the company. Staff morale is really high and I think it is a great place to work; staff seem to enjoy it and that spills over into the reseller community.
Low staff morale was a huge issue when I first turned up but now it is not. That means that relationships with vendors and customers have improved dramatically. They are the two most important assets of any distribution business. Improved relationships both within the company and outside the company is the thing that I find most satisfying.
In the past the company had been very process driven so I have tried to strip away some of the bureaucracy. Moving away from being process driven towards being driven by empowered people is what has actually allowed those relationships to bloom.
ARN: John, how has your role as sales director developed?
JW: Kerry gave me a clear idea of what he wanted before I joined. I have taken responsibility of the sales team in just trying to get them motivated and trained which allows us to add the value back into the vendor and reseller community.
We haven’t changed the sales team at all. Since I started last June, only one account manager and a couple of customer support reps have left out of 140 people in sales. The staff turnover has been really small.
ARN: What differences have you noticed having moved from LAN Systems to Tech Pacific?
JW: They are two totally separate businesses. It is like trying to compare Sydney and Melbourne. There is only about 11 per cent of Tech Pacific’s sales that compete with LAN Systems. Both companies are great to work for and are run by highly competent people. Tech Pacific is obviously much bigger and that represents a great personal challenge for me.
ARN: Is there a huge difference in the way the sales team is now being run?
KB: John leads the troops from the front whereas his predecessors tended to direct from their offices. Where they were analysing the figures and making decisions based on interpretations of those figures, John is out and about talking to staff and customers.
ARN: How has the HP/Compaq merger panned out for TP?
KB: I think they have done a fantastic job given all the things that could have gone wrong. Our sales and relationships with HP have improved as a result of the merger rather than got worse.
Our HP sales are much better than they were beforehand. In the third quarter we did as much Compaq business as we had in the whole of the previous year. And our HP sales — in printers — we have done about the same and we have also started getting involved in more of their products like networking, storage and high-end servers. We are actually selling more of their products than ever before. More categories and more volume. So for us one plus one has equalled more than two.
ARN: Have you seen any change in their trading terms and conditions?
KB: Not really. They have tightened up a bit but we now get an early payment rebate which we utilise. In some areas they have tightened up their market development funds.
The biggest issue I have with HP at the moment is that I don’t think they are advertising enough. They should do is spend more on specific targeted customers, markets and the channel with specific products.
I am even happy for HP to use some of our money to do good advertising. Money is being given to some channels so that they can bid against each other and I think that is a total waste of money. What HP needs to do is use more marketing money to actually drive demand. I think the difference between Dell and HP at the moment is the quality of their advertising. I think Dell are doing a much better job on advertising and that is a threat to HP because people are influenced by clever advertising.
If HP has dropped the ball anywhere I think that it is to do with allowing the quality of their advertising to fall away.
I don’t think it is necessary for them to spend money on branding. Everyone knows HP is a good brand. They need to target specific markets with specific products.
ARN: Does the strengthening Aussie dollar represent any challenges to Tech Pacific?
JW: It can make products cheaper but the broader problem is that the Australian economy may suffer a little because the exporters are getting less money. Australia has a very large exporting economy and there may be less money to invest in technology and that is a threat to the channel.
There has been a 30 per cent change in the exchange rate over the last 18 months or so but we haven’t seen a huge impact on the volume of sales.
ARN: Are the direct selling ventures of the key vendors an issue for Tech Pacific?
KB: It varies from market to market. The vendors will engage distributors and resellers where they get the job done. I think their first choice is to use resellers but if they don’t get to all customers, they will look at other avenues to get their product sold.
JW: I think it is inevitable that the big vendors will increasingly get closer to their big customers. Is that a threat to us? It means that we have to look to our business model and tackle areas of the market where we are closer to the customer. That is our role. We can’t sit here and go head-to-head with the vendors that is ridiculous. The reason we are in business is to support their strategies in this country so what we have to do is make sure that we are aligned with that. Don’t fight it. Live with it and look for areas of the market where we don’t come across them.n