In the last year, I have spent a lot of time talking to Distributors in the Hi Tech sector and, with few exceptions, they have had a bad time in this recession and specifically the credit crunch. In a world of double whammys, one company has impressed me in handling the situation and getting growth in a tough market.
I have some ‘form’ here as I am an ex-employee from many years ago – the company is Tech Data. However, I have talked to distributors large and small, broadline and specialist, in every major country and a few smaller ones, and the story seems to be consistent. In a world of general sales and profit contraction, Tech Data have bucked the trend.
As an independent nowadays, there are three or four important things which I believe has helped them grow in these hard times. And remember, this is in my opinion and without any reference to the management at Tech Data – no propaganda here, just a genuine critique of what I have found. The major things I have identified may not be their ‘Secret Sauce’ but they certainly impress me as strong differences in a very large and diverse business.
1) Credit Policy
2) Going Where the Money is
3) Cloning Success in New Territories
4) Adding Strategic Lines
1) Credit Policy
I attended a meeting with Andy Gass, MD of Computer2000 or Tech Data UK. He told me that as the credit crunch bit and the recession kicked in too, he was faced with a double squeeze. First up, resellers would be suffering from the general reining in of IT spend by their end user customers and second, they would be suffering from a constraint on credit. It meant that if resellers were going to identify opportunities or even adopt a more aggressive business stance or even try to find new markets to replace a lack of business, they may find that they could not get the credit to do what they needed to. It was a double whammy. As Vendors looked to try to help with special offers or market initiatives, resellers could only watch and ponder on what might have been. Fundamental to all this would be the attitude of the credit insurance companies that underpinned distributor credit lines and we all know how they viewed the recession and credit crunch. Instead of wallowing in the recession, Andy beat a path to C2000’s credit insurance company, Euler, and had a meeting with the MD. If C2000 could show that their resellers were disciplined in payments, could they a) not decrease current credit levels and radically, b) if they could show that resellers were prepared to pay to terms, then they could INCREASE credit in the channel.
This was a whacky idea. After all, most companies were trying to INCREASE their credit days with suppliers. In the face of it, C2000 agreed contracts with resellers, particularly smaller ones or who had a lower existing credit line with them, to have a payment pact. Against this, Euler actually INCREASED available credit. They even increased it further as each month went by and the resellers paid to the agreed terms. In return for not just agreeing to pay to time but actually doing it, the resellers got greater credit lines. This meant that C2000 actually increased its available credit lines when the market was constricting, attracting more business from companies wanting to grow or who were getting squeezed by other distributors.
It wasn’t just in the UK. In Portugal and Spain, Tech Data, under the MED Region VP Oriol Cornudella, increased available credit to resellers by actually enforcing discipline on a market that traditionally paid badly. Again, by engaging with their credit insurers they agreed a plan. The first step, initiated back on October 2008, was to effectively enforce their standard credit terms on resellers. The next step was once again to reward those resellers who actually paid to terms. In partnership, the credit insurers increased the available credit in response to the discipline. The result was that while other distributors have seen sales shrink in Iberia, Tech Data has seen sales increase as resellers have increased their spend with Tech Data. In Portugal alone, sales have increased 20% this year as a direct result after available credit first dipped and then sharply increased over the last 12 months.
At a time when most companies have seen credit lines decrease, Tech Data has actually increased available credit by working in partnership with their resellers and credit insurers.
2) Go Where The Money Is
While the recession has meant a general doom and gloom, most IT resellers have seen their sales shrink, particularly as corporations and businesses, large and small, have cut back their spend.
However, many Governments, in order to combat the combined severity of the credit crunch and recession, have injected serious amounts of short term money into the economy aimed at specific projects to stimulate it fiscally. While car scrappage schemes and VAT reductions have been aimed as a broad-brush stimulation to consumers, education has been a heavy recipient of money in several countries. In Portugal, 3 phases of technology have been sanctioned, as over €2bn has been pumped into education which is aimed at providing up 60,000 university students and professors with PC and broadband connections, secondary schools will see a ‘Smart Card’ scheme which will cover security and even small cash purchases for students whilst they also receive a voucher for a PC and broadband connection and most innovatively, even primary school children will get a new Netbook under the Intel low cost PC scheme ‘Magalhaes’ that will see kids as young as 6 get a technological headstart in education.
Further, over 10,000 classrooms got interactive whiteboards (IWB) for interactive teaching last year alone, in the next phase 75 secondary schools will have one IWB per 3 classrooms and by 2015 it is estimated all students and classrooms will have PCs and access to IWBs. Not only is the economy being stimulated but kids will have a great new headstart for the future thanks to stimulus money from the Government. It also means that companies like Tech Data can prepare their resellers to take advantage of the opportunity this relatively short term money provides. By acquiring contracts to market leading products like Promethean, companies like Tech Data are providing specific ‘solutions’ positioned by vendors interested in the new opportunities to be pre-packaged as marketing bundles or menus for resellers so that they can participate. Backed by training, demos and events it means resellers can quickly show expertise and participation in Government schemes.
This forward thinking has helped Tech Data take advantage of the opportunities provided. In France, Tech Data’s CEO, Gerard Youna and Commercial Director, Nadine Bloch, put together a short term strategy to provide a menu of market leading products to satisfy the Government’s mandate under the Ecole Numerique Rurale program which would equip 5,000 classrooms with laptops and IWBs. Youna, saw an opportunity to work with Promethean and thanks to the Maverick business in the UK, headed by Jon Sidwick, which specialised in AV and IWB, they were able to quickly onboard the vendor and take advantage of the stimulus money. In less than 3 months, Promethean has seen over €2.5m of new business as a result while Tech Data France has enabled its resellers to fully participate in the ENR program. In Germany, over €500m will be spent of interactive learning technology in the next 18 months and again Tech Data hoping to use the Maverick model to roll out their menu of solutions for the markets – the same is happening in Iberia. By adding IWBs to their portfolio, Tech Data has uniquely positioned itself, and its resellers, in several countries, to rapidly take advantage of educational stimulus money funded programs. No other distributor in the same category has been so forward thinking.
Tech Data goes where the money is.
3) Cloning Success In New Territories
Tech Data has always been the sort of company to adopt ‘Best Practices’ in a harmonious fashion across all its operational territories. But adopting similar business specialisations has long been a black art and not always successful. For instance, cloning a high value added business like Datech across territories depends on a high investment and exclusive contracts with vendors like Autodesk – that is a high price to pay and may not yield results if you cannot get the right people to invest in.
But adopting the Maverick model has been successful and swift. Maverick is a specialised AV business unit which was acquired a few years ago in the UK. Run by Jon Sidwick it is one of the largest specialised AV distributors in the UK. As part of its business it also has a successful projector accessory business called Hotlamps. This is a business that is aimed at a narrow market but requires special branding, some good product knowledge, high stock availability and excellent logistics. The basic fundamental skills are at the heart of the Tech Data credo and with the use of their ubiquitous SAP system, small countries like Portugal can be ‘switched on’ quickly by having direct access to the total stock centrally held in the Czech Republic warehouse which can be sent to anywhere in Europe in 24 hours. It means with some brand marketing, product training and a will to adopt, new territories can participate in the specialised business in just weeks.
Similarly, the Maverick business unit itself is rolling out in several territories under Sidwick’s enthusiastic supervision. Not so simple to deploy as Hotlamps, it takes some specialist sales staff, the product set from key vendors, specialised marketing and purchasing plus logistics. In less than 6 weeks from contract discussion to roll out, France was selling promethean IWBs thanks to this rapid deployment model. Iberia came next and Germany is on the way – spookily exactly where the Fiscal Stimulus money is at its highest. Brightstar, a mobile phone business, is another business on the roll across Europe and Tech Data are getting experts at providing vendors with a template for rapidly expanding into markets with a proven model and brand, enabling comparatively smaller vendors to quickly attack market opportunities without massive investment each time and with a strong, skilled and financially capable strategic partner.
4) Adding Strategic Lines
Often a distributor realises that small, unprofitable lines that take a lot of managing can be real loss makers in recessionary times causing undue attention of management to resolve costly stock mistakes or similar. So distributors tend to shed smaller lines rather than take new ones on in recession. Tech Data has been no different on that front. But it has actively sought out, with a proper strategic plan, sponsored from the highest levels, new lines to aim at specific, sustainable opportunities. Tech Data has identified IWBs as a missing part of the strategy to access Government spend which is good money, even if slowly paid, and will be spent quickly in defined solutions. This makes building the portfolio of target products very important and it’s why a strategic relationship with Promethean was sought to augment these menus for stimulus spending. With their rapid deployment model, it has meant that Tech Data, Promethean and many resellers can access the opportunities presented with a menu of high quality products at aggressive prices for the resellers to sell.
Meanwhile, in Belgium, Marc Moons, General Manager for Tech Data Benelux, has won the exclusive contract to supply a package of products under the Government initiative to have all inhabitants using the web called ‘Start To Surf’ where a package of PC and broadband is subsidised via tax rebate over the next two tax terms. By distributing an anti-virus software disk in the delivered goods, Marc hopes that users will adopt the security package which would mean sales and profit for Tech Data and their resellers – but under the clever scheme of the vendor, it means that they can also get 50% of the annuity revenue every subsequent year too which is collected by the AV vendor at renewal time via the web and distributed as 100% gross margin. It means the users surf with a state of the art full web security package at a subsidised and aggressive price while the reseller and Tech Data share in the annuity revenue in subsequent years with no sales effort. The target AV package is likely to be AVG, as no other vendor offers such an annuity sharing model.
In a shrinking market, Tech Data has tactically taken advantage of opportunities while laying a strategic plan for the long term.
All this has meant that Tech Data has taken a piece of market share from its competitors by making sure the credit in the Channel is at least the same as before if not higher, that new territories can get new businesses rapidly deployed to increase business, to give resellers the chance o take advantage of new Government spend and then to access new strategic lines that open up these market opportunities. It means that resellers can share in the opportunities while enjoying more credit to help grow their business. This means they divert more of their efforts and spend towards Tech Data’s markets.
From my view, this is why Tech Data is bucking the trend and growing in a tough market – it’s the difference between battening down the hatches and surviving the recession or understanding the opportunities and adapting to seize them.
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