On the face of it, Irish distributors don’t appear to have a lot to worry about when it comes to any threat from pan-European or international distributors breaking into the local market. After all, this is the market where Comstor lasted a mere six months on the back of a distribution agreement with Cisco. A market where UK storage specialist distributor Hammer closed down its Irish office after 12 months, and where Computer 2000 upset resellers by shutting down its office and retreating back to the UK.
But the evidence of the last few months suggests that multinational distributors are deploying different approaches to make their mark on the Irish market, approaches that could threaten local distributors. Not that many appeared too worried.
‘Pan-European distributors provide no more of a threat to us than the local distributors,’ says John McHugh, director at networking and storage specialist TNS Distribution. ‘The Irish market is highly competitive between local distributors as it stands.’
He concedes multinationals can present a threat in the large volume, low margin, PC market because of their buying power and stock availability. But McHugh argues it ‘only accounts for a small portion of day to day business in Ireland. A lot of dealers have left this market long ago and concentrated their efforts in areas such as networking’.
And he makes the point that most deals in Ireland ‘are much smaller than the size needed to support [pan-European distributors’] huge cost structures’.
Ireland is a small part of their potential market, McHugh argues, representing only five per cent of the UK market ‘so that’s the attention it is given’. He claims Ireland ‘is often a second thought for them. In many cases, pan-European distributors come into the
market for a short time, get as many customers on their database as possible, then sack all the staff and pull back to the UK’.
He suggests Irish management “think twice” before joining a pan-European distributor starting a local Irish operation. ‘Their local knowledge is what [multinationals] know they need, but usually not for long. It has happened here many times over the last few
years and I am sure it will happen again’.
Like McHugh, Sentryst managing director Hugh Connolly doesn’t think the threat from multinationals is pronounced. ‘There have been quite a number of attempts by international distributors to come into the Irish market, but I don’t think anybody’s been successful yet,’ he says.
He argues that the Irish market is ‘too small to attract their attention’. The approach of the pan-Europeans appears to be ‘to try and cherry pick the major resellers. That’s business which is much easier to win and they try to use their muscle to displace Irish distributors. They have good relationships with the vendors they represent because they have larger purchasing power’.
But such an approach doesn’t address the major part of the Irish market: small and medium sized resellers. ‘A lot of pan-European distributors think Ireland is the same as the UK, but the demographics are different,’ Connolly says. ‘It’s more skewed to small and medium companies in Ireland. Very few resellers in Ireland are big enough to come onto their radar. The largest resellers in Ireland would be considered as small and medium businesses.’
Not everyone agrees. Justin Owens, managing director of Internet, networking and security product distributor Commtech, believes the Irish market is viable for multinational distributors ‘with a good enough product mix in their portfolio’. There have been some which have come and gone, ‘but the ones that remain are the ones with very strong core products. I think that is because the Irish market is so tiny compared to the UK or some of the other European countries – the distributors need to have some high volume, reasonable margin products’.
Not unnaturally, Paul McGrath, business development director at European component specialist Asbis, also disagrees with the idea that multinationals can’t function in Ireland. ‘Pan European distributors pose a threat to indigenous Irish distributors for the obvious reasons, particularly in the very competitive computer components sector,’ he claims, arguing Asbis has greater buying power and clout with vendors because of its size and market penetration across EMEA.
‘We also work off lower profit margins due to bigger economies of scale,’ he suggests – not that it’s always about price. He believes Asbis has ‘the best of both worlds’ with a strong presence in the Irish market with local sales staff and local warehousing facilities.
McGrath argues customers can ‘develop a working relationship with us while at the same time getting great prices and value for their money. We are one of the few (if not the only) true pan-European with a local presence. This is one of the main reasons for our
extraordinary growth and high customer retention’.
Peader Kane, general manager at OpenPSL, which has just been acquired by multinational Bell Microproducts, says it would ‘be interesting to explore why almost all non-Irish distributors have not done very well here – is it because they don’t understand
the local issue or that they don’t have the patience required?’
Asked what he means by ‘patience’, Kane replies that the channel can be slow to accept new entrants (distributors and vendors) ‘and there is an element of new companies having to ‘serve their time’ before becoming fully accepted as part of the channel infrastructure’.
Acceptance
Acceptance by resellers in Ireland is important. So what is it that resellers get from local distributors which they don’t get from multinationals? ‘The big benefit is in the personal relationship that Irish distributors have with all of their customers,’ says McHugh at TNS Distribution. ‘People like to buy from people they know, this is especially important if the customer has a problem or special requirement.’
He argues large pan-European distributors have rules and returns policies that do not suit the Irish culture – ‘resellers are treated as a number, which is not a profitable way to do business for a reseller’. Resellers get a ‘much better service’ from an Irish distributor when they have a special requirement. ‘This give and take is invaluable,’ McHugh claims, ‘as in most cases, installations rarely go as planned and the distributor must be able and prepared to be flexible.’
Cousins at Commtech believes it’s down to local support. ‘Many of the European distributors have support in the Netherlands or the UK, which is not really the same thing.’ A point echoed by Sentryst’s Connolly. He believes one of the benefits local distributors bring ‘is their presence – technical as well as sales and marketing. We can
provide all the services on the ground. Our value really shows through when the resellers run into difficulties, when things go wrong. Local distributors have got technical support on the ground, that’s where the real value comes in’.
He contrasts this with multinationals who Connolly suggests would like ‘to run Ireland as a region of the UK, as they do Scotland and Wales. If they could do it and get away with it, that would be their preferred approach with a lot of the back office and technical support residing overseas’.
Kane at OpenPSL agrees that there’s ‘a very strong requirement for distributors to be ‘local’. From a day to day customer point of view, your success or lack of it depends to a very large extent on your local relationships, track record and ability to provide a level of
service’.
McHugh says that when there is a problem ‘the fact the reseller can count on the distribution partner to be there when needed is invaluable. Also, if a delivery time cannot be missed, it is vital to have the stock held locally. In many cases, we have provided same
day delivery all over the country. The bigger and more loyal the customer requesting a favour, the more flexible we can be in making the request happen’.
Vendors
Local distributors have the arguments in place to convince resellers to choose them over pan-European or multinational rivals, but how do they keep the vendors on board? Connolly at Sentryst plays on fears that multinationals will pull out of the market if they find the going too tough.
‘Local distributors are in it for the long haul,’ he says. As with resellers, service is also important to vendors. ‘The level of service that local distributors can provide can be tailored a lot more – we’ve probably got a lot more flexible services. And we understand the market a lot more – we understand the resellers and where they’re coming from.’
McHugh argues it’s a question of focus. ‘Vendors know Ireland is only a small market for the pan-European distributors,’ he says. ‘If they want to show face in the Irish market this is the way to go, but the only business they will pick up is reactive small sales driven
by the user’.
Large deals and volume business ‘are never easy to see. Vendors need a proactive local distributor who has close relationships with the Irish resellers. This is where the sweet business is. These deals always require time and persistence which can only be given if you are on the ground’.
Yet again, McGrath isn’t convinced local distributors can persuade vendors. It depends on the vendor and the type of products they’re bringing to the market, he claims. In the hardware and computer components distribution sector, ‘vendors such as Seagate, Hitachi and Maxtor are only really interested in dealing directly with distributors that have a pan European dimension’.
He believes they adopt this approach because it allows them ‘to streamline their sales, financial and support structures and is much more cost effective for them.’ They can also run customer incentive and loyalty programmes on a pan-European basis and use the
distributors to ‘manage and drive the relationship locally’. He claims working with local players alone would be ‘an administrative nightmare for major vendors’.
Perhaps so, but it is self-evident that multinationals and pan-Europeans have failed to make a big impression in the Irish market when they’ve tried to set up their own organisations over here. As a result, a new approach seems to be in train: targeting the market by acquiring local distributors in Ireland.
Kane at OpenPSL believes that the best way into the market for international distributors ‘is to buy an existing player’. He should know as he works for a company which has been bought by a US distribution business. But as he also readily admits, being part of a large global operation doesn’t mean the phone ‘starts ringing with new customers – being part of a larger group does not make much difference to the business and its partners on a day
to day basis’.
Sentryst’s Connolly agrees that acquisition seems to be the favoured strategy, mainly because setting up locally hasn’t worked. ‘In my view, it’s very hard for international distributors to put a full infrastructure on the ground in Ireland and survive because it’s
very niche-oriented and there’s a lot of specialisation,’ he says. Multinationals have only really gained success in Ireland ‘when they’ve bought local distributors’.
The IM approach
Alternatively, there’s the Ingram Micro approach: partner with a local distributor, MB Technology. Gabriel Nolan, MB’s finance director, believes it has the best of both worlds. MB is local, so it can make its own decisions and react quickly to business
opportunities. ‘In particular, we can make decisions in relation to the credit worthiness of customers who might not otherwise be approved for credit on the basis of filed accounts. Local knowledge is essential in such circumstances.’
At the same time, the relationship with Ingram Micro gives MB access to the pan-European distributor’s complete range of products. While the Irish distributor ‘tends to concentrate on specific product lines [it] will supply others [from Ingram] as requested by our customers’. MB can also offer Ingram’s managed services to its own customers.
Not surprisingly, Nolan believes Ireland isn’t a viable market for pan-European distributors. ‘The market is too small and dominated by Sharptext and Clarity,’ he says. ‘Buying or partnering with a local distributor seems to be the best way to enter the Irish market. Our arrangement gives IM an indirect route to the Irish market and it has to deal with only one customer – us.’
The threat of pan-European and multinational distributors setting up operations in Ireland to compete with local distributors appears to have receded. The consensus seems to be that it makes too little sense financially – the size and demographics of the Irish market are big inhibiting factors. As a consequence, it looks likely that some will seek to have a form of access by buying local operations or partnering with them. In which case, it could be argued that the prospective involvement of pan-European and multinational distributors in the Irish market has moved from threat to opportunity.
13/09/04
Subscribers 0
Fans 0
Followers 0
Followers