Compaq in balancing act on EMEA direct sales

Compaq in balancing act on EMEA direct sales

After months of what observers have seen as waffling, Compaq officials now say they will move seriously into direct sales in EMEA (Europe, Middle East and Africa), selling both to corporate accounts and to individual consumers over the Web.

The direct sales will begin in the third quarter, said Kasper Rorsted, the new head of Compaq EMEA's personal computer and electronic commerce group.

In doing so, however, Compaq has to pull off a harrowing balancing act, moving towards the model being practiced successfully by competitor Dell, without angering its valuable base of 25,000 resellers in EMEA.

Globally, Compaq has been criticised for missing the boat on selling directly to end users, but the departure of chief executive officer Eckhard Pfeiffer in April seems to have paved the way for a change, analysts say.

In EMEA, Compaq already sell high-end systems packaged with services directly to large corporate accounts. These sales, however, stem solely from the service divisions of the two companies Compaq acquired, Tandem and Digital, according to Virginia Cartwright, a Compaq spokeswoman.

Compaq EMEA has largely shied away from selling lower end computers directly to companies, however, and only offers direct sales of PCs and PC products to consumers in isolated markets in Europe, such as Spain.

Just what share of Compaq's products will be sold direct is still unclear. The company wants to address the quarter of the IT market in EMEA where products are sold directly, said Rorsted.

"We cannot sit there and let that 25 per cent go unaddressed," said Compaq's Rorsted. " We see this as a huge opportunity." Compaq appears to have realised that it can no longer ignore this market segment.

"There is a big shift going on in the market. If we don't change, we can die in solidarity with one another," he said. He was referring to the necessity for Compaq and its resellers to support what Compaq is calling its "customer choice model". That means letting the customer choose when, where and how to buy hardware, whether that be direct, through a reseller, or using a mixture of both.

The group which Rorsted was named to head last week will be shoring up these efforts, in conjunction with Compaq's PC consumer group. The group brings together Compaq's commercial PC business -- the systems it sells to corporations -- with its electronic commerce activities for selling its computer products over the Internet.

The moves by Compaq come in response to pressure from Dell, according to an analyst from International Data Corporation. In 1998, Compaq ranked first in Western Europe by number of units shipped, with IBM and then Dell following as second and third ranked, according to IDC figures. But Dell grew 75 per cent over the same period the previous year, while Compaq only grew 29 per cent.

"They have to react. They have to do something about Dell, or risk having Dell overtake them in two to three years," said Brian Pearce, program manager of IDC's European distribution channel program.

That is a delicate procedure if Compaq wants to keep on good terms with its resellers. Many won't like the idea of losing the relationship with their customers, according to IDC's Pearce.

It would also be "suicidal" to completely sever relationships with the channel that has made Compaq so successful, he said. "These people have the skills, the knowledge of IT systems and the customer relationships."

Compaq will follow the lead of its customers for its new direct sales strategy, offering them a mixture of direct and indirect selling. "We don't believe it will be black or white," said Rorsted. Although Compaq will not yet give specifics, its direct sales effort will involve both selling directly to large companies via extranets, as well as selling to consumers over the Web. The efforts will start in Western Europe, but will eventually be implemented throughout EMEA.

Customers may choose to do everything from purchasing through invoicing through Compaq, or may prefer to order from Compaq, but have the product configured and delivered with extra services from a local reseller.

Initially, direct sales programs will be set up in countries where Compaq already has call centres. The direct approach is already being tested in the UK and France.

Compaq has call centres in nine Western European countries, and plans to add them in six more, Rorsted said, but wouldn't say in which ones. Besides the UK and France, Compaq has call centres in Sweden, Belgium, Finland, Spain, Italy, Switzerland and Austria. Direct sales are farther off in Eastern Europe, where countries lack the appropriate telecommunications infrastructure for such call centres, Rorsted said.

Dell and Compaq even seem to be converging in their business models in Europe. While Compaq is making efforts to sell more products direct, Dell has had to beef up support efforts in some European countries, according to IDC's Pearce. Large customers were telling Dell that they still want services delivered by their current resellers in conjunction with Dell's products, he said.

Compaq has also been discussing the changing structure of the market with its channel partners for months, and evaluating how they can redefine their roles, Rorsted said. "They still have a skill set which is needed by customers. Our key channel partners are excited about this," Rorsted said.

On the record, few resellers will say they are against the changes. Computacenter PLC, a London-based reseller which describes itself as Compaq's largest European partner, appears to be sold on the idea. "We understand why they are making moves to serve their customers better and cheaper," said Martin Hellawell, marketing and sales manager.

"We are not worried more today than yesterday," Hellawell said. "Compaq has been selling to very large businesses in Europe for a long time," and has always channeled some of that business to Computacenter, he said.

A manager for Compaq products at reseller Ideal Hardware PLC also sees a place for his company in the changing model. "For the moment we have every reason to believe that those channel partners that add value have a place in the new structure," said Mark Walker, Compaq business unit manager.

Walker also shows a bit of scepticism, however, regarding broad pronouncements of a new strategy, particularly by a US computer vendor. "There's quite a long track record of senior EMEA officials [at Compaq] making statements that are sweeping and inaccurate. While some of the things may happen, its the timescale I doubt." Walker said.

If resellers roles are limited in the future to acting as "delivery boys" for Compaq, that could, lead to a backlash, IDC's Pearce said. The channel could react by not pushing Compaq's products as energetically.

Large distributors -- whose job it largely is to warehouse, ship and finance hardware purchases -- may have less to fear from the changes. Compaq is leaning more heavily on them to manage its far-flung base of resellers, actually giving them more to do, Pearce said.

Compaq officials also say it is unlikely that it will curtail the number of distributors in EMEA as drastically as it has done in the US. In May, Compaq said it would limit its distributors in North America to Ingram Micro, Tech Data, Merisel and Inacom.

"The US is one country. In Western Europe we have 14. We don't have four channel partners with the same market position in each of the 14 countries," said Rorsted, echoing comments made last week by Compaq EMEA's new head, Werner Koepf.

Germany's largest computer distributor, Computer 2000 GmbH (C2000), said it does not feel threatened by Compaq's efforts. "Logistics and finance are our core competencies. I don't see the need for that going away in the foreseeable future," said Werner Hollik, director of sales at C2000. Hollik said he sees no indication that Compaq is ready to invest heavily in those areas. "Our understanding is that Compaq's expertise is designing and marketing computers." If anything, Hollik said, computer manufacturers are pulling out of that end of the business, and distributors are moving closer to manufacturers by taking on channel assembly -- putting together the individual hardware components themselves.

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