Winning the toss
- 11 April, 2001 11:50
The dollar dives again! A new low for the dollar! How low can we go?
Sound familiar? These sorts of headlines have become commonplace lately as the Aussie dollar continues to reach new lows. And with many in the channel already struggling to stay afloat in a highly competitive market, the current currency freefall has amplified the woes of many trying to eke out a profit.
Yet the falling dollar obviously isn't bad news for everybody. Exporters are positively gleeful as new-found price competitiveness offers the opportunity to explore new markets and chase new business.
"The dollar can keep falling for all I care," exclaimed software developer HarvestRoad's managing director Grame Barty. "It isn't going to harm our business." And with projections of a 30 per cent increase in profits for HarvestRoad this year, Barty's happiness appears to be justified.
But for those in the channel who are wondering who are busy calculating the risk of raising prices, this isn't exactly what they want to hear right now. Maybe comfort can be found in the words of Nextec's CEO Richard Llewellyn, who claims "there are big opportunities out there for the taking and now is the time to help the big corporates reinvent their supply chain and adopt technology".
For David Hein, marketing manager of Hitech Distribution, it is hard enough just keeping up with the logistics of the volatile exchange rate. The costs and human resources associated with updating and amending price lists are becoming a major company concern.
So just who is being hit the hardest? Well obviously importers of US product, but according to Gartner analyst Andy Woo, the drop will have more of an impact on second-tier resellers, who don't have the ability to hedge against the falling dollar like the big boys who buy in bulk, thereby giving them greater buying power.
On the rise
As distributors and resellers are forced to try and make up for lost revenue, have imminent price hikes become inevitable? Well, apparently not. Vincent Le Plastrier, national computer merchandise manager of national retailer Betta Group, believes vendors are hedging in the range of 52 and 54 cents and thinks they will hold the line on prices while waiting to see what happens.
As for distributors and resellers, Llewellyn believes the extent to which they hedge their prices will depend on how desperate they are for cashflow, as margins continue to be squeezed.
In the short term at least, price rises will probably not eventuate, as most companies will be forced to absorb costs as they simply can't afford to risk losing sales. Highly competitive markets are always sensitive to price hikes. According to Chris Herbert of analyst Inform, prices should actually have fallen so far this quarter due to the amount of stock bought by distributors late last year. Yet while this would normally result in a price reduction, they have instead remained flat and he doubts they will rise.
"Big companies like Compaq and IBM can't risk raising their prices as their stock is in a mess and they need to maintain revenues. Therefore, they will have to absorb the costs. A lot of units were put into the channel last quarter but we haven't seen them come out in this quarter yet," explains Herbert.
So distributors are currently holding on to a lot of stock that was bought before the recent drop in the Australian dollar to just over 48 US cents. Speaking for Hitech, Hein says the company won't increase prices on stock it already holds, assuring it will only pass on increases after the price goes up for Hitech itself. Distribution is too competitive to do it any other way, Hein adds.
"The exchange rate is an ever-present issue for distributors, but many components such as memory and CPUs are volatile and sensitive to price shifts," says Hein. "Knowing how to order stock in a volatile exchange market is a bit like playing the stock market -- when prices go up the only thing we can do is pass them straight on. We update our system as quickly as we can so that our resellers can be assured of their information when they are quoting their customers."
The falling dollar is also effecting hardware component distributors such as Achieva. John Lu, the company's managing director, says the market climate is very tough at the moment but they are trying to absorb the cost instead of passing on the full impact to the channel.
"Instead of raising prices, we will be focusing on providing better services," says Lu. "To survive in the Australian market in the long-term, you need to keep a healthy percentage. This is a good challenge and it will help create better services and benefits."
Focusing on services is something many businesses will now be forced to do. If price rises are out of the question, companies will need to seek business elsewhere to raise revenue.
"Businesses will need to provide total solutions. Adding value is really hitting home now and PC vendors are trying to move away from being PC makers. They are trying to move up the value chain and compete with solutions providers," says Gartner's Lee.
And it is great time to be looking abroad, says Nextec's Llewellyn, whether it be Europe, Asia or America. If you are an ambitious Australian company, you can't ignore foreign markets, and if you are serious about growing your business that is where you should be heading.
HarvestRoad's Barty is fully aware of opportunities overseas and is looking to attempting to expand there.
"Even against the UK pound we are very attractive right now. In Australia, the quality of our technology and our services are world class, which provides a greater awareness of the products we have. There are even opportunities in OEM where we can license our products overseas," enthuses Barty.
Winners are grinners
But of course, Barty is one of the lucky ones in that he is an exporter and the plunging dollar is a blessing. According to Barty, HarvestRoad is concentrating on the Asian market where business is conducted in US dollars, where he can now offer services for up to 7 per cent less than his foreign competitors.
"It [the Australian dollar] is creating lower-price markets and it means we are staying comparative in Asian markets, which is where we are aiming. We are seeing major gaps in our products. We can offer our products for $100,000-150,000 where our competitors are offering the same for around $350,000. These solutions are very expensive and price becomes a major factor at these levels. We will remain committed to our product development as this will create a massive market," says Barty.
"At the moment we have two major multinationals looking at integrating their software with our product, partly because of the product and mainly because of price. It is never easy for small-to-medium startup companies anyway and we are used to fighting big groups so our world doesn't change, it just gets easier."
But for those of you who aren't in a position to cash in on the low Aussie dollar, then maybe these words of Nextec's Llewellyn will help ease the pain:
"The dollar is artificially low and it should inevitably increase in value, it wouldn't surprise me to see it back up around 55 US cents."
At the time of writing, the Australian dollar was trading at 49 US cents.