Neither Gateway 2000 Inc or Tech Data Corp, the latest two US imports to the European distribution market, are immediately interested in entering the Italian market, due to continuing problems with long payment cycles. One of the problems with direct marketing in Italy is payment. Their minimum 90-day payment cycle poses a particular problem for us with our 30-day money-back guarantee. If we could get credit card payments, it would possibly work, said David Prais, Gateway 2000’s manager for European marketing, based in Dublin, Ireland. Gateway, from the US mid-west, only arrived in the UK one year ago, and has since set up shop in Germany and France. Already, in the third quarter, Prais said, Gateway showed an operating profit before its write-off for its launch in France. In contrast, Tech Data has, so far, gone into business only in France, where it bought the country’s largest wholesale distributor, Softmart International SA, in March. The acquisition should increase Tech Data’s revenue to $2,400m, from $1,500m in sales and $30m in net profit in calendar 1993, of which $200m will come from France, says company chairman and chief executive Steve Raymund. Softmart International scored $135m in revenue in calendar 1993. As a result of such a sizable acquisition, says Raymund, We’re not in any great rush to expand. We feel that it gives us a chance to learn how to manage a multi-company, international corporate structure. We intend ultimately to have a pan-European distribution company, but it could take two years or a decade. We intend to go slow, to manage the risk; we have a healthy respect for things that can go wrong. Already, adding $1,000m in new revenue every year is enough to handle, he said. Italy, in particular, he said, puts us off a bit; it’s not an immediate interest. It is difficult to make money, nearly impossible to get paid. But, he added, every market has its challenges and Italy is a big economy with lots of vitality. It’s just more difficult to negotiate the financial shoals there. It requires more in-country knowledge than other countries in Europe. In the meantime, Tech Data is helping Softmart to expand its product line with access to more capital and to improve its backroom operations. Small companies usually don’t have the resources to achieve what they want. We’ve given them more working capital, which was largely their problem. The shortage of capital had caused them to stick with the same vendors. In the last few months, we have added all of the major networking vendors and now we’re working on the storage vendors, but these will figure more in fiscal 1996 than than in fiscal 1994, Raymund said.
Fooled German journalists
He noted that sales of mass storage and networking account for half the business in North America, whereas Softmart didn’t do any in France. Increasing the efficiency of Softmart’s backroom operations will be a bigger project next year, when Tech Data converts its Florida-based mainframe system to a system with client-server components, Raymund said. Gateway, says Prais, will succeed where Dell’s direct marketing operation has not, for several reasons. You have to give people a reason for buying direct, because it represents a change of habit and there is anxiety attached. Dell never offered a reason for people to go direct in France and Germany. Its prices were 30% to 40% higher than those of Vobis and Escom. In going into the German market, for example, he said, Gateway rewrote all BIOS and system drivers in German. The German press has told us, ‘you are the first company to do [direct marketing] properly.’ After our launch, one journalist told us, ‘I gave you guys only 15% chance to succeed, but now I would give you 50%,’ Prais said. Prais says Gateway is not seeing the resistance to direct marketing in corporate accounts that has been perceived. In all countries, people want standard things and good value. Part of that value he said, is providing staff that know the culture, and marketing that speaks to well-known themes. It’s not just linguists that a
re important, but culturalists, he said, noting that an Irish expatriate in Gateway’s German office fooled German journalists during a sales call demonstration into thinking she was German.