The big will get bigger — there’s nothing new about that; but what happens to the medium and small players is the sum total of all questions that channels ought to look into. I’m not here to make any ethical judgments — whether these aggressive acquisitions should take place or not. One only seeks to focus and compare the demise of an old culture and emergence of a new one, and how channel members are gearing up for it.
There’s no denying that the channel network’s only likely to see further consolidation in the short and long term. However, it’s the small and medium size companies in the channels that have a relatively more uncertain future and this is the vital question, which needs to be addressed holistically.
One has to perceive the entire process of acquisition with a pragmatic approach. In effect, the mergers & acquisitions (M&A) or consolidation involves certain painful aspects like the game of cost planning and cultural implications, leaving a penetrating turmoil in the channels. This trend’s nevertheless unavoidable.
A few consolidations in the IT channel business in the recent past resulted in making M&A a very potent catalyst in the market that could redefine the contours of business altogether. Some of these include Ingram Micro’s acquisition of Tech Pacific and Rashi’s taking over of Mumbai-based Zeta Technologies to venture into the audio speaker segment. Rashi also tied-up with Netgear and forayed into network integration business, as well.
Taiwanese distribution giant Synnex Technology International splashed out US$24m to pick up a 36% stake in distributor, Redington. The deal was billed as a significant step in Synnex’s quest to develop its presence in fast-growing markets such as India, the Middle East and Africa.
Singapore-based Frontline Technologies Corporation (FTC) acquiring 42% stake in Chennai-based solution provider Accel ICIM. It was hoped that with FTC’s strength in the areas of infrastructure services and security, and a strong focus in the space of e-governance and education, Accel ICIM would rank much higher on the value-chain ladder.
Among vendors too, the combination of Sun and StorageTek service has resulted in an unprecedented blend of global service expertise, innovation, and customer care. HP’s take over of Compaq has also had a similar result.
In this context, however, there’s also a picture in stark contrast to the above-mentioned examples wherein IBM gave up its laptop business to the China-based Lenovo Group.
Many of my friends in the channel community have reason to debate over these M&A as problems would arise when the companies fail to live up to market expectations in delivering goods and create a monopolistic situation instead at the expense of competitors and more importantly the market requirements and the interest of the end customers.
Whenever I pose this issue before partners, they re keen to get an insight into the impact these rounds of M&A would have on channels. We ought to take a look at information management and storage vendor EMC’s acquisition of security specialist RSA. In November 2006, Ross Wilson, MD (South Asia and India) of RSA agreed that both the companies were working on some effective mechanism to avoid “overlapping” issues with partners to foster greater growth and smooth functioning. “There can be issues of overlapping with EMC as they have a bigger canvas and many of our partners also deal with them,” Wilson had said.
At the end of all these debates, one thing’s certain that the unprecedented binge of mergers’ actually fuelled by the desire to add the technical expertise, achieving better customer- and vertical-reach and ultimately the scale to drive the 21st century — or rather caustically described as the new millennium sales growth.
Market watchers opine that the merger and acquisition culture’s a step beyond co-opetition, wherein rivals cooperate. While this idea’s catching up already amongst channels at the lower rung as well, M&A will gradually also extend to tier-II channel and increase efficiency. It’s assumed that the second rung distributors in the range of Rs 50 crore to Rs.300 crore find it difficult to scale up individually.
My partner friends tell me that a tier-II distributor with a revenue of Rs.15 crore, but profit of Rs.10 lakh can easily look at merging with a smaller company, say even a security front reseller or a consulting outfit with lower revenue and can finally end up getting higher profits.
As mentioned earlier, taking a leaf out of co-opetition experience, partners also look at consolidation to specialize in some areas and emerge stronger. Many desi solution providers are now able to appreciate the fact that even in the west partners have benefited due to takeovers and that way even in India the mergers in other words association with technologically enhanced and bigger companies only brings in additional skill sets the buyers bring to the table.