The distribution market in Ireland saw many changes this year with new entrants emerging on the scene and some spectacular events, not all for the good, in the retail sector. As we did last year, Channels polled some of the leading players to get their impressions of the year that has gone by and the likely shape of the distribution market in 2005. Paul White is managing director of Sharptext, the country’s leading broadline distributor. Michael O’Hara is managing director of Data Solutions, a company specialising in networking technology and security software, whereas Michael Callaghan has recently been appointed managing director of CMS Ireland, a Kiltimagh-based distributor that specialises in storage systems.
1.This time last year, many of you were optimistic that 2004 would be a good year for the IT business. Did it meet your expectations and what were the factors that affected your business for better or worse this year?
Paul White, Sharptext
Yes, 2004 met with our expectations. We grew our customer base and expanded our market share. We saw good unit growth and demand for IT products, although the unfortunate aspect was the decline in transfer pricing. A decent notebook that cost between €13 and €1500 last year is now only about €11 or 1200. But we expected that. The market has got more competitive fuelled by Dell moving on HP in the printer market, and of course there’s the ongoing scrap between all the PC makers.
Michael O’Hara, Data Solutions
It has been a good year for the IT industry; Q1 & Q2 were particularly strong however Q3 was worryingly slightly quieter than expected (even after allowing for seasonality). It seems to have picked up in Q4 again. With the majority of IT vendors selling their products in dollars, its continued weakness has meant that product prices have been falling which always helps when you are trying to get a corporate end user to release a purchase order. A continued weak dollar also means that interest rates will remain low and less likely to be increased which is generally good for business as it will mean lower cost of borrowing funds!
Michael Callaghan, CMS Peripherals
2004 was a year of continued improvements within the Irish operations which led to an increase in revenue of 8 per cent. This level of growth helped us meet our expectations in terms of where we needed to be as a company and ensured that we continued to focus on adding value to our customers. Revenue growth at a group level was up by 15 per cent at €127m vs €111m in 2003.
Highs would have to be in the performance of both our Retail Electronic Group and within our Enterprise Group. In particular within the Enterprise group, the Professional Services element has seen fantastic growth year over year and it has helped differentiate us from our competitors in terms of a ‘value add’ partner. In the Irish market this has lead to us partnering with a number of key customers in the retail section, which has broadened our customer base and given us access to a wider market.
2. Is there still room in the Irish market for local distributors or are the economies of scale offered by pan-national distributors essential for today’s competitive environment?
Paul White, Sharptext
We’ve always believed that the pan-European distributors are not interested in small regional markets like ours. Their margins are only suitable for big economies like Germany or France. They won’t invest on the ground to support a local dealer community, and it’s not just in Ireland. It’s the same in other small countries like Denmark. The vendors realise that and help to keep people like ourselves competitive because they see we’re important in a small market
Michael O’Hara, Data Solutions
Yes there is!! I think especially so in Ireland; it is such a small market that the larger pan-national distributors find it difficult to justify investing the significant resources required to give the necessary support to the Irish channel. This is particularly true if you are a ‘solution selling’ distributor where you add wrap sales and technical services and support around the products you distribute. However in a pure ‘box move’ distribution environment the pan-national distributors can be more successful as price is usually the deciding factor in these situations.
Michael Callaghan, CMS Peripherals
Yes we believe there is still need and room for a local presence in the Irish market and we feel that the presence within Ireland is vital in order to build relationships with customers and to show a commitment to the market.
You need though to have a defined proposition for the market with a team to support this. We also believe as in our own case the connection or involvement in a larger group with a base in the UK give a few advantages, one being just pure scale in what are cost conscious times. On the business side links outside the country help to expose you to a wider selection of vendors and market trends. This in turn helps build incremental propositions to the local channel, which they then tap into. So to survive locally the ‘the trusted advisor’ role will ensure a future for the local presence of those with specialist capability.
3. What are the compelling technologies and/or services that will drive your company’s business in 2005?
Paul White, Sharptext
We’re seeing a lot of activity around Wi-Fi and wireless. Also fuelling growth is broadband connectivity, not just at home but in small business as well. Licensing compliance is also a big issue now. There’s a general awareness around that people need to take this matter more seriously. Professional Audio/Video is also becoming a big issue for us, and security—both e-mail and general network security—is very important. Blade servers are beginning to happen too, at last.
Michael O’Hara, Data Solutions
DataSolutions is sticking closely to its MAD strategy of ‘Managed Application Delivery’. We have seen tremendous growth in both our Citrix and Security business units this year and are very hopeful that both these areas will continue to grow strongly in 2005.
We will hopefully be adding a number of new vendors in 2005 both in existing business units and into new business units!
Michael Callaghan, CMS Peripherals
As a company we are very optimistic about 2005 and are about to launch a number of new products within the coming months. One product, the disgo Xkey (work PC in your pocket), will allow workers to work from home or remotely in a totally secure PC environment. Another new product, just launched in early December is the idisgo. This is a new MP3 player aimed at the entry level of the market.
We are seeing a convergence of technologies. Everyone is looking for products to be portable and mobile and that is where we come in with our data storage capability. All our products are storage based. We are involved in anything that stores data, where you store your own personal information. We again see this range continuing its success into 2005.
These new lines combined with our existing partner base have placed us in a very strong position for continued growth in FY’05.
4. Does the Irish IT industry still require a distinction between distributors and resellers in the local channel or is a more direct relationship between vendors and end users the way forward in 2005?
Paul White, Sharptext
The direct model suits those who are selling appliances only. We sell business solutions and these are based on best of breed products that require a knowledgeable seller. You don’t get business solutions in a box; you have to put them together. That’s where the opportunity for the reseller continues to be. Some say the reseller is gone; in fact the number of resellers is growing.
Michael O’Hara, Data Solutions
The answer to this question is really dependant on the product or vendor you are talking about. Some products or vendors at the very early stages of their life cycle are not ready for distribution. There is usually a very small market opportunity (and as a result margin) which would not encourage a distributor to invest their limited time, personnal and resources here. However, it is vitally important that the vendor’s products are successful and in these cases a direct relationship between vendor and resellers works best.
As products or vendors become established and business starts to grow rapidly the need for distributors is often critical for the vendor’s continued success! In these situations it is usually impossible for vendors to have enough internal resources to service their reseller channel (particularly true in a small market like Ireland) and distributors can provide these resources usually at a lower cost than the vendor can themselves!
The ideal environment is a three way partnership where the vendor, distributor and resellers are all working closely together to maximise the opportunities in the Irish marketplace!!
Michael Callaghan, CMS Peripherals
More than ever we see that need for distinction, certainly between the reseller and distributor. From an Irish market perspective, the majority of vendors require representation where they do not have a local presence. Also resellers may not have enough reach to the breadth of market a vendor may desire. The distributor will always be able to offer that breath via his relationships. On the subject of relationship that is still a vital factor in the industry here.
Another reason is the whole area of accreditation where a distributor can carry the necessary credentials due to the fact of having scale of return on in investment and can extend that service across resellers. We see the channel as it is, actually getting stronger.
We strongly believe that there is a vital ‘value add’ role for distributor’s within the Irish IT industry and we have always positioned ourselves as a value add storage distributor. We see a lot of this value in acting as a mechanism that brings new products to market; offering a wider range of services to customers than vendors would traditionally have and also bringing leads and deals to the table which help our reseller and retail partners to grow.
CMS Peripherals also supports the supply chain in terms of credit risk. Our market is particularly volatile given one in ten reseller goes to the wall. We protect supplier interests by taking this risk on for them and we try to grow the reseller market through a ‘shared risk’ approach in terms of credit.
5. What grounds for optimism do you see in the Irish market in 2005?
Paul White, Sharptext
I would continue to be optimistic for the reasons I’ve already given. We are continuing to see growth in the IT market and growth in our own business.
Michael O’Hara, Data Solutions
It is all about the dollar, silly!! A continued weak dollar means that product prices are cheaper and we are also less likely to see interest rates rise significantly which means it will remain cheap for business’ to borrow monies to fund IT investments.
There also seems to be a strong air of confidence out there among the end user community and this is a good indicator that corporates will (hopefully) continue to invest in IT projects in 2005!!
Michael Callaghan, CMS Peripherals
Our outlook for 2005 is double digit growth with a strong emphasis on lead generation for our corporate resellers, more new technology for our retailers and improved customer services to all our customers and process improvement. We have refocused some elements of our business on new and incremental trading opportunities, which have higher margin potential for our Resellers, we have also restructured our business into business units with targets per area. We have also focussed on utilisation of resources across UK and Ireland in order to reduce duplication. We do expect to see a continuation of improved trading conditions and are confident of a healthy return from trading activities in 2005.
31/01/05
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