Channel cops greenback-hand

Channel cops greenback-hand

The IT channel continues to feel the sting of the strong US dollar, with companies questioning how long they can hold off price increases after the Australian dollar hit an 18 month low of $US58.96 last week.

Edmund Wang, manager of computer hardware wholesaler Z-Tek, said his business is absorbing the price increases for the moment, but conceded the economic climate is making life tough for resellers.

"We haven't increased our prices, because we are interested in long-term clients," Wang said. "Many of our customers have already advertised the product based on our quote, and they can't change the price, so we are maintaining prices and losing money."

However, he believed this would not continue indefinitely as Z-Tek's overheads were going up because all its goods were bought in US dollars.

One saving grace Wang envisages is the pricing changes associated with the GST.

"When the GST comes into effect, the price for the end user will drop because there will no longer be 22 per cent sales tax. We have to wait another two months for that to happen."

Phillip Tran, sales and marketing director for Tech-Excel Distribution, points to how a dramatic rise or fall in the Australian dollar adversely affects small- and medium- businesses.

"The distributors that buy at the right exchange rate get the cheaper price," he said. "These days it is not a matter of logistics, it is the finance.

"You can hedge, and lock it in on the exchange rate, but the problem is you are competing with other companies. It makes it very difficult for smaller organisations to stay competitive, so often even medium companies will end up dropping products because the risk factor is too high."

Tran said businesses operating on 30- or 60-day accounts can lose money on the exchange rate, because they operate on low profit margins.

"Conversely, if you cannot buy products on an account, it discourages you from keeping a large inventory, which can also drive the price up," he said.

"It's a fair playing field if the exchange rate stays the same, but if it goes up or down dramatically, it becomes very difficult for smaller companies to compete with the big organisations."

Not all channel companies are feeling the squeeze however. Laurie Sellars from distributor Alstom IT said Alstom wouldn't be directly effected because most of the company's transactions are in Australian dollars.

"The dollar is not affecting us at all really, because we deal with local vendors," Sellars said.

"There are certain products that are sensitive to pricing and you have to be careful, but we take steps to protect ourselves.

"If we have a large order, we fix the price and then forward it by US dollars so that we can't be hit by a variation in pricing. It has worked very well in the past, when the dollar fell to almost 55 US cents. The order itself was cancelled but we still made money on the exchange rate," she said.

Bruce Freeland, chief economist at the Commonwealth Bank, said the main drop in the Australian dollar has been against the US dollar. "So any importer who's either paying for their goods in US dollars or importing from the US will be effected and will see the price of those goods rise in Australian dollar equivalent terms."

Freeland said the channel would feel the impact quickly.

"Typically, the linkage between the exchange rate effect and the actual price of imported goods tends to be reasonably quick and reasonably direct," he said.

"It then comes down to whether the importers are able to pass that price increase onto the final consumers of their goods."

Freeland said some importers might be able to absorb the impact of the lower Australian dollar in their margins, while others may not.

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