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November 21, 1995


By CBR Staff Writer

There was significant disagreement over how much consolidation the European distribution market will see in the next few years among participants in a EuroChannels ’95 panel on overdistribution. Unlike a couple of years ago when participants believed logistics were the most important competence, this year saw equal importance given to value-added services. What’s going to determine the number of channels in Europe is how many value-added resellers can play the logistics game and how many distributors who are good in logistics will be able to do value-added. The point of over-distribution will be determined from that point on, said Tom Schuster, director of distribution sales, Europe, Novell UK Ltd. Emilio Ghilardi, channel marketing manager, computer products, for Hewlett-Packard Europe, was the most stalwart defender against over-simplification of the European distribution scene. We have 60 distributors and 60,000 resellers in Europe and, in the next few years, I expect that we will continue to have 60. I don’t see it going down to 35. There are opportunities in Europe. Even the so-called ‘broadliners’ are organising themselves into divisions the better to address niches. For most European countries, small and medium-sized enterprises are the most important and fastest growing parts of the economy. That’s why value-added resellers will be more and more important. To avoid over-distribution, the manufacturer must try to understand the distribution profile of the product, while the channel must focus first on the customer and choose the business model based on the customers and then move toward the appropriate vendors, not vice versa. Ghilardi was supported by John McCartney, from US Robotics, based in France.

Lots of different channels

We believe there are going to be lots of different channels, a broader distribution, because there will be more segments of products. It’s not at all clear that each product we sell can be sold by the same distributor. We believe channel management in Europe will become much more complex over the next six to seven years, despite consolidation. Chip Lacy, co-chairman and chief executive of Ingram Micro Inc, said the next few years will see a drop in the number of, for example, broad-line distributors in Germany to from around ten to four, even though he agreed with Ghilardi on the number of micro-marketing opportunities. Concern about over-distribution in Europe was real, he insisted. In the US, 20 vendors comprise 65% of sales and there are seven to eight viable word processors, for example. In Europe, it is easily three vendors that comprise 60% of sales and, in word processors, hardly more than one or two. It’s a fundamentally narrower market, which concentrates things on a wholesale level, creating more pressure and concern about over-distribution. It’s much harder, for example, to just slow-boat a poorly-performing product in Europe like we do in the States, he said. Novell’s Schuster agreed. One of our problems in Europe is that value-added resellers are too dependent on Novell. We advise our distributors not to have more than 28% of their revenues from one product or vendor because it leads to emotional dependency, which is not good for business. A distributor has to spread the risk, so as not to be affected too much by market fluctuations, technology changes or [contract] rights changes, he said. He noted that Novell looks for a distributor with an efficient telephone system; one with ramps not stairs, one that has a warehouse big enough for forklifts to operate; and one with a proactive not just reactive tele-marketing force. Without denigrating the importance of value added, Lacy said that 80% of European distributors did not have their logistics right. Their request for higher margins is saying, ‘Protect us, we’re not efficient.’ Most European distributors were founded as product marketers, so many of them have a vendor’s, not a logistics perspective. We’ve seen product marketing far superior in Europe to anything in the US, but then you go into the backroom and just want to cry. – Marsha Johnston

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