Treasure island

The Irish IT market enjoys massive investment from foreign companies, but that doesn’t mean it is easy to operate in. The...

While things might not be rotten in the state of Ireland right now, they’re not that great either. The Celtic Tiger’s once mighty roar has dwindled to a plaintive housecat’s meow following the government’s sudden discovery, although not until after its re-election, that the seemingly healthy economy was not what it appeared, leading to the imposition of swingeing budget cuts which the electorate had not voted for.

If you believe what you read in the press, then you might be forgiven for approaching the Irish market with even more trepidation, especially when headlines like “Carnage in Irish tech sector” appear in newspapers like The Sunday Business Post.

The ‘war’ in Iraq — and the government’s interesting view on the doctrine of neutrality which it managed to square with landing and refuelling rights to US planes carrying arms and soldiers to the Gulf — also helped focus the mind on the island’s heavy dependence on US companies, especially those in the IT and pharmaceutical sector. When it came down to it, the Irish government didn’t feel it could afford to deny the Americans, especially given the potential threat from countries in eastern Europe as rival sources of investment for US businesses.

And the size of that investment is huge. In terms of the software market, for example, Ireland is the number one software exporter in the world with exports well over €7bn in 2001. In addition, one in three PCs sold in Europe is manufactured in Ireland. In other words, the IT sector runs into many billions of dollars and employs hundreds of thousands of people. But nearly all of it is accounted for by US multinationals.

The indigenous market, by contrast (and what a contrast), is normally compared to the size of the market in Manchester. Unsurprisingly, given the small size of the native market, the biggest players — both in the distributor and reseller categories — would struggle to make it into the UK top ten. For example, the biggest distributor in 2001 was Clarity with a turnover of €154m (£106m) for the year ended 31 December 2001, although sales fell 30 per cent last year to €107m. Rival Sharptext, which is owned by the DCC group and comes under the Sercom banner along with Micro P and Gem in the UK and Distrilogie in France, Spain and Portugal, had an estimated turnover of around €120m for the year ended 31 March 2002.

To give UK readers an indication of how the Irish distributors stack up in terms of size against those on this side of the Irish Sea, it’s worth bearing in mind the following figures from Paul White, managing director of Sharptext. He says Sharptext accounts for 15 per cent of Sercom’s total sales, compared with 25 per cent from Gem and 46 per cent from Micro P (both of which are largish UK distributors, but could hardly be described as giants in the market). And once you get beyond the top two or three distributors in Ireland, turnover of the other members of the top ten is in the €30m bracket or below.

According to White, Sharptext behaves on one level like a broadline distributor by working with three brands in each sector (PC, printer, networking, etc), but says the size of the market — he estimates the total market available to distribution in Ireland is worth no more than €600m — has led to a different animal from that in the UK. “As the strongest indigenous distributor, we’ve evolved a model suitable for the Irish market by having niche distribution in all sectors under one roof,” White argues.

Which raises an interesting point about the Irish market: namely that the size appears to make it extremely difficult for the pan-Europeans and the specialists to make much of a mark. “The pan-Europeans have got a particular model that’s been developed for large markets, but it doesn’t appear to work for some of the regions,” White argues. One example of this appears to be Computer 2000, which had an Irish operation but closed it down.

As for the specialists, White claims, for example, that the total market for networking products available to distribution is only €30m, making it highly unlikely that a networking specialist would get much joy from targeting that particular niche. And he cites the example of Comstor, which came into the Irish market on the back of a distribution agreement with Cisco but withdrew about six months later.

He could also have mentioned Hammer, which entered the Irish market in November 2001 and closed its Irish office 12 months later.

Paul Sangster, managing director of Hammer, says that while the distributor went over with the best intentions, it was near impossible to grow because of the size of the market: “You have to work hard to maintain the business. The reason there aren’t any specialists is because the market is not big enough. You can’t generate revenue.”

That’s not to say Hammer has stopped selling into Ireland. It has dedicated Irish account managers at its Basingstoke headquarters and can ship for next-day delivery. “Ireland’s only an hour away,” Sangster says, “so if the customer needs to see us, we can be there. Having staff in an office in Ireland or an office in Basingstoke doesn’t make a great deal of difference. And besides, the staff we have here are Irish anyway.”

In fact, the top ten Irish distributors feature only one specialist — CMS. Enterprise sales manager Tom Keane agrees it’s the only specialist distributor in the storage area (or what he terms “data availability”) in Ireland. “It’s a niche space,” he admits, “but it’s a very broad niche with about 50 vendors and 10,000 products.” That said, there are probably only a handful of resellers in Ireland which could be defined as storage specialists. “Most resellers working in the storage space would also have a number of strings to their bow,” Keane reveals.

For many, CMS is a resource to provide the storage expertise they don’t have themselves: “They provide the customers and we provide the technology. It’s the differentiator for us. There’s a far greater degree of complexity as storage and networking come together and a far greater degree of expertise is required. So it’s of great value to us to be a specialist rather than a broadliner. More technologies are becoming more and more complex which allows our technical expertise to be a key differentiator.”

And Keane is unconcerned at any threat from new entrants. “We’ve got the expertise and the relationships with customers who rely on us. At this stage, we’ve got most of the peachy contracts anyway. In most cases, we’re the sole distributor or the biggest distributor for our vendors,” he says.

While it would also qualify as a broadliner, the second largest distributor, Clarity, has a very different model from Sharptext’s. It carries only eight products, although these encompass Hewlett-Packard/Compaq, Fujitsu Siemens and Microsoft, and concentrates on the larger resellers in Ireland. While it has about 200 customers in total, Sharptext has about 1,400 and will deal with up to 800 in any given month. Managing director Adrian Foley says its strategy is to pick out the main vendors and get them on board. The same goes for the larger resellers. “The guys who are smaller pay more for products because it costs us more to service them,” he argues. “We can’t offer the same levels of service to everybody.”

Although working with corporate resellers, White takes a wider view. “SME is our market in Ireland,” he argues. “There are thousands and thousands of small to medium-sized businesses, it’s what the Irish market is made of. If you concentrated on enterprise companies in Ireland, you would run out fairly quickly.” He believes there are probably only 30 or so dealers in Ireland which would consider themselves as corporate resellers. Most, White argues, “are generalists. The user expects them to provide all its IT requirements. The reseller maintains and owns the relationship and will partner with a vendor or distributor if required”.

Some way below Clarity and Sharptext in the top ten come distributors such as EmCee Distribution with a turnover in the region of €13m. The company specialises mainly in tier-two vendors, although it also has distribution rights for Acer and Lexmark, and sells product to retail, the SME dealer network, sub-assemblers and small systems integrators. Owner Maurice Cohen recently acquired another distributor in the top ten, Midia, a Microsoft licensing distributor which has a strong presence in the retail sector with vendors such as Canon, Creative, Logitech and Palm.

According to Cohen, the distributors have only five per cent of dealers in common and there are plans to cross-sell some of Midia’s tier-one products into the EmCee customer base and vice versa. There are also plans to share warehouses and offices over the next three months, after which a decision will be taken on whether to keep the two as separate brands.

The purchase represents a level of consolidation in the market. White at Sharptext believes some of its growth has been at the expense of other distributors and sees some of its future growth coming from further consolidation in the market.

Ireland likes to term itself the land of a thousand welcomes (‘cead mille failte’ in Gaelic) and there is a great emphasis on relationships in the sales process. “We know all our customers,” says White, “this is quite a personable market.” Englishman David Knapp, sales and marketing director at Dublin-based reseller Mentec, agrees. “The Irish market is much more about who you know. You need to be here because it’s very much word of mouth,” he says. This has interesting consequences. The size of the market means that “if you screw up on a project, the news spreads like wildfire”. And the level of service and support would be much higher too. Knapp cites the example of Agresso, an enterprise management suite, for which Mentec supports around 80 sites in Ireland. Agresso supports about four times that number in the UK. It handles 950 support calls a month, while Mentec has 400 in Ireland.

“The service culture is stronger,” Knapp says. “People will expect to get service whereas very often in the UK sites learn to become more self-sufficient. It’s a cultural difference. Compare the difference between going into a bar in Ireland and one in England. Service is a job in Ireland, it’s not something you do between jobs.”

He believes that if resellers don’t offer a service in the UK, the customer won’t ask for it: “In Ireland, it’s offered, so you get a stronger degree of loyalty.” And customers aren’t afraid to do their own research: “We’ve won business where by the time we’ve got to the customer, it’s already done the reference calls before even speaking to us.”

David Laird, managing director at Datapac, one of Ireland’s biggest resellers, agrees the market is “very much relationship driven. Our industry went towards a telesales style at the peak of things but it’s very much gone back to feet on the street. I’m convinced it won’t ever change”.

The emphasis on relationships may account for the poor take-up of Web-based ordering in Ireland. All of the indigenous Irish
distributors report very little interest in Web ordering by resellers. “I was an evangelist for the Web about four years ago,” says White, “and we put a huge amount of money into it, but it never really took off from the point of view of ordering online. The Web site is mainly used for stock availability, pricing, product enquiries and back-office management issues, such as product returns.”

EmCee’s Cohen agrees: “We have it but the number of dealers using it is very very small. We run a more relational-type business — because we’re not a fully broadband distributor, our dealers don’t automatically require it.”

Foley says Sharptext is launching its online store in May but hasn’t seen a need for it until now. One reason could be the fact that around 80 per cent of the distributor’s business is special bids or bundles. “A PC could have 20 different prices in a month. And people always feel that if they ring up they will get a better deal,” he says.

As for market conditions, Laird and other resellers agree that the market was very tough last year, but there is some disagreement over how 2003 is shaping up. Pat Keelan, marketing manager at Cara, believes there has been no significant uptake this year so far: “Every deal you win is hard won, there’s fierce competition for it. Customers are looking for ROI in the shortest period possible.”

Mentec’s Knapp agrees: “At the moment, it’s more competitive than we’ve ever known it. There are people in the market prepared to price projects at uneconomic levels.” By contrast, Laird at Datapac says the reseller is finding 2003 “very good so far. Customers are spending money now”. He thinks customers are beginning to invest in infrastructure again. The health sector is doing well and a number of corporates are picking up.

At the distribution level, Sharptext’s White says the market is generally flat: “It’s gone back to its normal characteristics after a huge spike in 1999 and 2000. We’re back in a regular market with the usual cycles of corporate customers investing and writing off technology every three to five years.”

Foley at Clarity says one reason the market is so competitive is because Dell is so dominant (it has in the region of 30 per cent market share in Ireland), although the distributor is working on projects with HP to attack the direct vendor: “Having Dell so dominant in our backyard doesn’t help.”

Mind you, the success of Dell merely highlights one of the contradictions at the heart of Ireland’s computer market. A lot of people in Ireland have bought Dell out of a sense of loyalty because it is based in the Republic. They almost view it as an Irish company. As long as they continue to do so, things will be far from easy for the channel and its supporters.

Local store done good

One intriguing example of a local growth story is PC Superstore, a retail business started in Cork in September 2000 by three directors who all previously had experience in the distribution sector. The company now has 12 stores around Ireland, with plans to open another three in the near future, and is the largest computer retail operation in terms of geographic reach in the country.

In addition to stocking the usual retail lines, the firm also has its own line of machines — the Neptune range — and claims to have been the first to offer a three-year warranty in Europe.

Although it has a similar look and feel, the shops come in different sizes. All of them have their own clinics with engineers who can fix machines on site. Seventy per cent of customers are home users, but it also has a lot of interest from the SoHo and SME markets. Repeat business is around 60 per cent.

In addition, PC Superstore has its own network professionals and does special offers for corporate customers. It supplies Compaq machines to Smith Kline Beecham. Purchasing manager Michael Murphy says the company doesn’t view PC World as its competition — the Dixons-owned retailer has three branches in Ireland — but is targeted more against local resellers and the Compustore franchise operation.

Fred Sorenson, one of the three directors behind PC Superstore, reveals the decision to move into retail was taken in the face of declining margins in the distribution business. “Our aim is to become the best,” he says, “and that’s what we’ve achieved.”

Despite his roots, Sorenson tries to source product locally — “our policy is to support our local industry and the Irish market” — and direct from vendors if possible. “We try and cut out all these middlemen,” he says.

In Ireland, but not literally

A number of distributors based in the UK are operating in the Irish market even though they don’t have offices in the country, including Ingram Micro, Hammer, Bell Microproducts and Computer 2000.

Alistair Brett, sales director at C2000, claims its decision to close down its Irish premises and supply the market from its UK headquarters in Basingstoke has been vindicated. “We decided to tackle the market in a smarter, more efficient way,” he says.

When it was in Ireland, the distributor had sales of around £30m, but it expects the figure for Irish sales to be in the region of £36m this year. C2000 has one pair of feet on the ground and three or four internal people at Basingstoke focusing on the market. Brett claims they are better equipped to service customers because they can address any issues in Basingstoke and go and stand over the people they need to get results from.

Another advantage is in stocking levels: “We bring £50m in stock, which is better than our competition. The critical mass I have in the business is going to be stronger than smaller, more local operations. I’ve got ten customers in Ireland which sit in my top 40 to 50 customers overall.” And Brett suggests customers are “voting with their euros”.

Although there was bad feeling when the distributor closed its Irish operation, Brett feels C2000 is gradually making good any misunderstanding there was about the move. “Seven of the 12 top Irish resellers joined me for dinner at the ICT awards in Dublin recently,” he says.

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