“Channel players will start moving higher into the value chain”

Introduction:

With revenue of $28 billion, Ingram Micro is the largest distributor of technologyproducts and services in the world. The company did not have much of a presencein the Asia-Pacific region till 1997 when it joined hands with ElectronicResources India (ERIL). By February 1999, it had acquired a majority stake andrenamed the company Ingram Micro Asia.

HeadingIngram’s Asia-Pacific operations is Hans T Koppen, senior VP, Ingram Micro andpresident, Ingram Micro Asia-Pacific. Koppen, who was earlier with GeneralElectric Capital Information Technology Solution, has been with Ingram since1998. He spoke to DATAQUEST on the consolidation that is taking place in thechannels business, and, the impact of the Internet on channels. Excerpts:

What are the global trends in the channel business?
In the US, the market has been consolidating in the past few years. At the uppermost rung are Ingram Micro and Tech Data.Below them a majority of the players have either gone bankrupt, merged or been acquired. The same is visible in the Latin American and European countries. Ourown acquisition of ERIL was a step in this front. Instead of spending years building a good channel infrastructure, we acquired ERIL and at once had a firmfooting in the Asia-Pacific market. Globally, the trend seems to be a consolidation of the distribution part of the channel while the resellers andvalue-added resellers (VARs) are being pushed away from the products intosupport services and integration.

Howwould Dell’s direct selling model impact channel players?
It’sdifficult to say what the trend is going to be. For example, in 1996, Cisco hadabout 16% of its products moving through channels while the balance was direct.Compare this with 1999 when about 82-84% was through the channel and the balancedirect. Distribution for Cisco would include traditional distributors likeIngram, and large telecom companies and ISPs. That was one trend but with a lotof companies moving towards direct selling, one is not sure what trend willemerge. For, unlike Dell, not many companies have shown the ability to move awayfrom channels and go direct. So I think that channels will continue to be animportant part of a majority of the vendor’s strategy.

Doyou see many companies adopting Dell’s model?
UnlikeDell, which right from day one focused on direct selling, other vendors havebeen experimenting with the model after witnessing Dell’s success. Forexample, Compaq, which started selling direct in Australia but shelved its planswhen its channel partners decided to stop selling Compaq products. Majority ofthe vendors have been experimenting with the channels, mapping out strategies,but no clear signal has come out of the initiatives.

Arevendors now offering their own services in channels’ markets?
The IBMs, the HPs and the Compaqs have always been competing with their channelpartners in terms of offering services. However, these companies typically waitfor the customer to grow to a particular size and then move in with theirprofessional services. Until then, they help their VARs or the channel partnersto take care of the service needs of the customer. Also, in the IT marketpyramid, the largest market is at the bottom, comprising the home and SMES.Vendors moving in directly and servicing these segments seems unlikely at thisstage as they would not have the wherewithal to do so and will have to depend ontheir partners to protect their visibility and brand in this market.

Howhas the Internet affected the channels market?
Thebiggest impact of the Internet has been that distributors, resellers and VARsare realizing that they cannot make money by selling the boxes. Traditionally,the model was to sell the box with a mark-up margin. However, the Internet haschanged all this. Resellers, distributors and vendors could agree on notstepping into each others’ territory. But with prices and delivery schedulesavailable on the Net, the customer is stepping into their territory. Andresellers are moving to value-added services without which the customer has noneed to go to them. So, channel players are moving towards installations,integrations, design and support, and get paid for that, not for mark-ups on theproduct. So while it will be hard for the vendors to move in at the lower end ofthe market, increasingly the channel players will start encroaching higher intothe value chain.

Howdo you view the Indian market?
Unlikethe global trend, the Indian market is still not ripe for a large-scaleconsolidation. Currently, it’s very fragmented and a few solo players do nothave the ability to reach all parts of the country. There is very littleassembling done in the country and the grey market is also quite active. Also,importantly, the market is gaining critical mass and all these elements willprevent the consolidation wave in India.

YOGRAJVARMA
in New Delhi

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