IT distributors and resellers reading this will not have failed to notice that the market has been undergoing an ever-increasing level of consolidation lately.
Why? Big players in the channel need to accelerate their growth plans to achieve further economies of scale in order to maintain or increase their financial returns. Manufacturers are also forcing the consolidation trend by reducing their number of distributors to a minimum, resulting in better efficiencies and being able to rely on financially strong long term partners. HP, as an example is in the process to streamline the number of master distributors in each country down to as few as two.
Finally, margins are under continued pressure and are likely to stay that way for the next years while companies fight to maintain their market share. Privately-held distributors as a result are under the most pressure. In order to survive, they have to grow fast. To do this they need capital which is extremely difficult to find as these players offer little security to lenders in terms of assets. With such pressures prevailing in the market many have opted to sell.
Maturing market
Consolidation coupled with an increase in specialization in order to successfully sell solutions rather than products is all part of a natural maturation and progression of European IT channel. Although there are a few differences in individual countries, this situation prevails across Europe.
In line with this trend, distributors have been forced to review their product portfolios and service offerings, adding more innovative value propositions in the solutions and services area while maximising their expansion opportunities through both organic growth and acquisitions. Avnet Technology Solutions is following exactly this path. Although it already has several acquisitions under its belt this year and will continue to target more over the next 12 months, the organisation is also looking at a number of other ways to achieve rapid growth and the economies of scale that will help strengthen its market position.
Filling the gaps
Avnet Technology Solutions has embarked on a three-pronged strategy in EMEA to maintain and extend its market position. We call the first area the fill the gaps strategyin other words, securing new value propositions and presence in technological or geographical areas where we are not the dominant market player or not present at all. In terms of technology, the sectors we are focusing on include wireless and RFID technologies, enterprise software and systems, security, and open storage solutions. Filling the gaps involves rounding out our technology portfolio and establishing a strong presence in emerging markets like Eastern Europe and the Middle Eastfor example, we recently opened an office in Dubai. In some cases the technology gaps to be plugged coincide with geographical under-representation. Although the organisation has probably the strongest VAD presence in Eastern Europe, we continue to actively screen potential acquisition targets, which provide either a new platform to develop new business with new technologies or to extend our existing market position in this region.
Increase vertical-market capabilities
The second prong comprises adopting a more solution-oriented approach. One way of doing this is to increase our vertical-market capabilities. An example here would be our Avnet Applied Computing Solutions business, specialized in the OEM environment. One vertical for example where we are able to develop full life cycle solutions is in the healthcare market for OEMs. Minimising system downtime is critical in any organisation, but even more so in a hospital because these systems are so vital to patient care. In addition, the extremely short life cycle of IT hardware causes Medical OEMs headaches as their products have a much longer period of use. Consequently life cycle management as well as after sales service become critical for the OEM. With locally certified engineers Avnet Applied Computing Solutions is able to offer such solutions.
Strengthening relationships
The third element of the organisation's EMEA strategy involves deepening our relationships with our principal vendors, throughout Europe. Naturally, this is beneficial to the two sides involved, but strengthening the close ties with our reseller partners is also a key focus here as we are able to invest more on a European level on our competencies around our key partners technologies. With the increase in the implementation of highly heterogeneous IT infrastructure, encompassing systems from many different vendors, we as a value add distributor must provide this help to our VAR community as most are not able to make such investments in people and training. Avnet Technology Solutions will never aim to take over end-user relationships from its resellers, but rather to enhance the excellent work they are already doing with additional services, helping them do their job even better and bringing additional value to their offering.
Strategy for flourishing businesses
For Avnet Technology Solutions, acquisitions may also provide a route to reinforcing vendor relationships. An example of this type of acquisition is the German company Zeta, bought by Avnet Technology Solutions in April this year. With HP reducing the number of its distributors in Europe, Zeta had little hope of being able to compete effectively on prices and offerings against players more than twice their size. Avnet Technology Solutions came to their rescue, acquired them, and retained the HP business. In addition, Zeta specialises in open storage, one of the key sectors Avnet Technology Solutions was looking to develop further.
Underpinned by this three-part EMEA strategy that dovetails organic and acquisition-based growth, innovative technologies, emerging markets and solutions, Avnet Technology Solutions and its reseller partners can face the challenges of ongoing price turbulence and market instabilitynot only surviving, but flourishing.
Dieter Lott (pictured) is a vice-president at Avnet Technology Solutions with responsibility for mergers, acquisitions and the development of new areas of business throughout Europe. His vision for the future of the business group includes creating new value propositions that will expand the Company's role within the IT supply chain. He assumed this position in October 2005 after serving as the general manager/vice president, for a relatively new business start up Avnet Applied Computing Solutions.
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