Growing through an acquisition is nothing new for Ingram Micro. But till now none have been on the scale of Tech Pacific. And as is the case with any merger this size, the naysayers are out in full force.
The distribution industry in India had primed itself for a bout of consolidation, ever since rumors surfaced about the possibility of one of the top players selling out. But the market was caught unawares when, in the last week of September, Ingram Micro announced the global acquisition of Tech Pacific for approximately $493 million. What transpired afterwards has been utter chaos.
Rumor mills have been working overtime spewing speculations and assumptions based on hearsay about the likely outcome. 360 Magazine did an in-depth analysis of the ground situation to separate fact from fiction and provide our readers an accurate picture.
Apprehensions Aplenty
While the common cry was that the acquisition was a good move in terms of consolidation in the industry several partners expressed discomfort. Especially since the acquisition doesn’t seem to increase Ingram’s footprint in any market.
The most commonly raised question was what – other than infrastructure – does it stand to gain from the acquisition, considering the close parallels in the product range of both the distributors. 360 Magazine spoke to several industry analysts to understand the rationale behind this move. The most common reasoning was that Ingram has effectively done away with any major competition. Resellers, though, are more worried about the effect on the existing channel network. Prior to the acquisition, there were two sets of favored channel partners.
Now this status is likely to change, as the logical move would be to consolidate in the lower rungs as well. But K. Jaishankar, CEO, Tech Pacific India says, .Contrary to reports we would be adding more resellers to our family. And there won’t be any change in the status of existing resellers either... Jaishankar adds that there won’t be any retrenchment either, and partners would continue dealing with the same account managers. In fact, the combined entity is so large it plans to hire more people.
Monopoly In the Making?
Though resellers are rest assured about their position in the scheme of things, concerns abound about the possible formation of a monopoly. Rajesh Gupta of Varanasi-based VCPL cites the example of the HP-Compaq merger. Says he, .Neither the channel community nor the end customer benefited from that merger.
But the arrogance with which HP does business has increased... Gupta feels that the only hope lies in other major distributors like Redington, Neoteric and Rashi providing tough competition. Even fellow distributors feel that with this move Ingram will emerge omnipotent. Aditya Khemka, CEO, Aditya Infotech feels that, .Ingram has now become too big for manufacturers, and will emerge as a super buying power... Tejas Sheth, general manager, Zeta Technologies, agrees, .The acquisition will strengthen Ingram’s buying power and improve its supply chain efficiency manifold...
Allaying any such doubts Jaishankar says, .We understand that we do business because of our partners. So we won’t utilize our sheer size to force reduction in service levels. The whole objective for the merged entity is to remain at the size of the summation of the two separate entities and grow from there...
Sanjit Sinha, senior manager, IDC India too does not believe that a monopoly is in the making. His reasoning is that over the years many of the smaller distributors have been competing successfully with the Big Three. Also, manufacturers are now looking at regional distributors to increase their reach. .So unless the combined entity starts doing extremely well it won’t emerge as a monopoly in the near future,. says he.
Adds Neeraj Chauhan, director, international operations, Esys, .I do not see a super distributor emerging, given its overlap in customer and manufacturer. Both had different operating models. The eventual outcome will depend on which culture prevails.. And though Jaishankar thinks otherwise, analysts say that the sum of the two combined entities will be less than 1.5 times the existing size.
Another rumor that has been floating around is that credit availability might come down and target pressure could go up. Says Sampath Iyengar, proprietor of Mumbai-based SAM7 says, .I believe margins will fall, as this move leaves one less distributor to bargain with. In a way, it transfers the bargaining power to the distributor.. Partners also feel that the combined entity might not be able to take the combined credit exposure.
But Jaishankar refutes these assumptions. Says he, .We know credit is one of the values provided by the distributor to the reseller. If we put constraints on this, our growth will be restricted.. Agrees Sinha, .Credit is always extended in tune with the volumes the partner does. The distributor will always give credit, if the partner continues to provide business..
Market Advantage
While both distributors say that credit and margins would improve for the better, it’s too early to predict which way the pendulum will swing. Some feel that reduction in competition doesn’t augur well for the market. But most are hoping it will help them realize better margins. Puneet Oberoi of Infotech Solutions Jalandhar-based says that consolidation will promote healthy business, as distributors would benefit from better bargaining power. Gurpreet Singh, of Ludhiana .s Premier Computers, feels this acquisition would help Ingram provide better services, and sort issues like credit . Jaishankar fully agrees. .The combined entity will provide the best of logistics, credit, price, products, availability and any other factor that the reseller requires to remain competitive,. says he.
Other than this, new opportunities could open up for other distributors as well. Manufacturers partner with multiple distributors to arm twist them.
Reduced competition at the top is an opportunity for smaller players, as they can exploit opportunities presented by a possible dilution in the merged entity’s portfolio. Khemka feels that the combined entity might have a manufacturer reshuffle, which could result in manufacturers looking at local distributors.
Even Sheth feels there is an opportunity for others to do big business. Tier-two distributors can now look at distributing bigger brands like HP and IBM. Chauhan expects to sign up new manufacturers who want to maintain the balance in their distributor portfolio.
But Jaishankar says that competitors who think it will be easy going are in for a shock. Says he, .We will fight to retain our market. I have spoken to all our manufacturers and they have expressed good comfort with the new scheme of things.. Sheth feels that while there is an opportunity for others to grow, the financial backing required is huge. .Both Ingram and TechPac dealt in branded PCs and high-end enterprise products. Most other distributors in India lack the expertise to distribute these products,. says he.
Channel Benefits
Ingram plans to penetrate deeper into the Indian IT market, especially smaller cities and towns. It can also pass on the cost benefits resulting from economies of scale to its customers. Also, the need for resellers to deal with multiple distributors has reduced, which will enable them to focus more on selling than buying. Says Prasad P. N, secretary, ITTA, Pondicherry, .Resellers would now have to deal with only one distributor instead of two.. He adds that its bigger size and turnover would enable Ingram to give better prices and rebates to resellers in the long run.
Concurs Greg Spierkel, President, Ingram Micro, .We view this investment and the subsequent teaming up of operations as a positive thing for our partners. The merged team will bring a number of new manufacturers to our combined customers. It will have more programs to support our customers. growth. We clearly expect to have more product availability (which is a key need for our customers), and we will work hard to add more financing and credit tools..
Manufacturers want to increase their reach. Previously, they could go to either distributor. With lesser negotiation power, their only option is to have their eggs in different baskets. Most might opt for a single national distributor and multiple regional distributors. But Jaishankar says that manufacturers can now leverage a larger, more efficient infrastructure and penetrate deeper into the market.
Expectations
While TechPac was known for its strengths in logistics, Ingram has been admired for its pricing. The general expectation is that the new entity would combine the two positives. The acquisition will definitely provide Ingram with better economies of scale. The cost scale efficiencies will help it to be more competitive in the market. Spierkel says that Ingram will bring its resources worldwide to assist in the merger of the operations in India. But he expects some challenges during the transition, as any merger of this size will.
The merger is expected to be completed by end 2005. Jaishankar expects the merged entity to be a $1 billion company in India in a year’s time. Till the details are worked out, the two would continue to work as separate entities, and would even compete in the market.
As Chauhan puts it, this consolidation is good for the industry, as the reduced competition would mean better realization for the channel. But manufacturers would need to keep the distributor portfolio balanced. So we can expect new players to grow in size to fill the void.
Both understand the distribution business, and both are highly professional and mature organizations, who understand the need to better themselves; especially now since they will be under scrutiny. Hence, resellers can rest assured that attitude-wise it would hardly affect the business.
The distribution industry in India had primed itself for a bout of consolidation, ever since rumors surfaced about the possibility of one of the top players selling out. But the market was caught unawares when, in the last week of September, Ingram Micro announced the global acquisition of Tech Pacific for approximately $493 million. What transpired afterwards has been utter chaos.
Rumor mills have been working overtime spewing speculations and assumptions based on hearsay about the likely outcome. 360 Magazine did an in-depth analysis of the ground situation to separate fact from fiction and provide our readers an accurate picture.
Apprehensions Aplenty
While the common cry was that the acquisition was a good move in terms of consolidation in the industry several partners expressed discomfort. Especially since the acquisition doesn’t seem to increase Ingram’s footprint in any market.
The most commonly raised question was what – other than infrastructure – does it stand to gain from the acquisition, considering the close parallels in the product range of both the distributors. 360 Magazine spoke to several industry analysts to understand the rationale behind this move. The most common reasoning was that Ingram has effectively done away with any major competition. Resellers, though, are more worried about the effect on the existing channel network. Prior to the acquisition, there were two sets of favored channel partners.
Now this status is likely to change, as the logical move would be to consolidate in the lower rungs as well. But K. Jaishankar, CEO, Tech Pacific India says, .Contrary to reports we would be adding more resellers to our family. And there won’t be any change in the status of existing resellers either... Jaishankar adds that there won’t be any retrenchment either, and partners would continue dealing with the same account managers. In fact, the combined entity is so large it plans to hire more people.
Monopoly In the Making?
Though resellers are rest assured about their position in the scheme of things, concerns abound about the possible formation of a monopoly. Rajesh Gupta of Varanasi-based VCPL cites the example of the HP-Compaq merger. Says he, .Neither the channel community nor the end customer benefited from that merger.
But the arrogance with which HP does business has increased... Gupta feels that the only hope lies in other major distributors like Redington, Neoteric and Rashi providing tough competition. Even fellow distributors feel that with this move Ingram will emerge omnipotent. Aditya Khemka, CEO, Aditya Infotech feels that, .Ingram has now become too big for manufacturers, and will emerge as a super buying power... Tejas Sheth, general manager, Zeta Technologies, agrees, .The acquisition will strengthen Ingram’s buying power and improve its supply chain efficiency manifold...
Allaying any such doubts Jaishankar says, .We understand that we do business because of our partners. So we won’t utilize our sheer size to force reduction in service levels. The whole objective for the merged entity is to remain at the size of the summation of the two separate entities and grow from there...
Sanjit Sinha, senior manager, IDC India too does not believe that a monopoly is in the making. His reasoning is that over the years many of the smaller distributors have been competing successfully with the Big Three. Also, manufacturers are now looking at regional distributors to increase their reach. .So unless the combined entity starts doing extremely well it won’t emerge as a monopoly in the near future,. says he.
Adds Neeraj Chauhan, director, international operations, Esys, .I do not see a super distributor emerging, given its overlap in customer and manufacturer. Both had different operating models. The eventual outcome will depend on which culture prevails.. And though Jaishankar thinks otherwise, analysts say that the sum of the two combined entities will be less than 1.5 times the existing size.
Another rumor that has been floating around is that credit availability might come down and target pressure could go up. Says Sampath Iyengar, proprietor of Mumbai-based SAM7 says, .I believe margins will fall, as this move leaves one less distributor to bargain with. In a way, it transfers the bargaining power to the distributor.. Partners also feel that the combined entity might not be able to take the combined credit exposure.
But Jaishankar refutes these assumptions. Says he, .We know credit is one of the values provided by the distributor to the reseller. If we put constraints on this, our growth will be restricted.. Agrees Sinha, .Credit is always extended in tune with the volumes the partner does. The distributor will always give credit, if the partner continues to provide business..
Market Advantage
While both distributors say that credit and margins would improve for the better, it’s too early to predict which way the pendulum will swing. Some feel that reduction in competition doesn’t augur well for the market. But most are hoping it will help them realize better margins. Puneet Oberoi of Infotech Solutions Jalandhar-based says that consolidation will promote healthy business, as distributors would benefit from better bargaining power. Gurpreet Singh, of Ludhiana .s Premier Computers, feels this acquisition would help Ingram provide better services, and sort issues like credit . Jaishankar fully agrees. .The combined entity will provide the best of logistics, credit, price, products, availability and any other factor that the reseller requires to remain competitive,. says he.
Other than this, new opportunities could open up for other distributors as well. Manufacturers partner with multiple distributors to arm twist them.
Reduced competition at the top is an opportunity for smaller players, as they can exploit opportunities presented by a possible dilution in the merged entity’s portfolio. Khemka feels that the combined entity might have a manufacturer reshuffle, which could result in manufacturers looking at local distributors.
Even Sheth feels there is an opportunity for others to do big business. Tier-two distributors can now look at distributing bigger brands like HP and IBM. Chauhan expects to sign up new manufacturers who want to maintain the balance in their distributor portfolio.
But Jaishankar says that competitors who think it will be easy going are in for a shock. Says he, .We will fight to retain our market. I have spoken to all our manufacturers and they have expressed good comfort with the new scheme of things.. Sheth feels that while there is an opportunity for others to grow, the financial backing required is huge. .Both Ingram and TechPac dealt in branded PCs and high-end enterprise products. Most other distributors in India lack the expertise to distribute these products,. says he.
Channel Benefits
Ingram plans to penetrate deeper into the Indian IT market, especially smaller cities and towns. It can also pass on the cost benefits resulting from economies of scale to its customers. Also, the need for resellers to deal with multiple distributors has reduced, which will enable them to focus more on selling than buying. Says Prasad P. N, secretary, ITTA, Pondicherry, .Resellers would now have to deal with only one distributor instead of two.. He adds that its bigger size and turnover would enable Ingram to give better prices and rebates to resellers in the long run.
Concurs Greg Spierkel, President, Ingram Micro, .We view this investment and the subsequent teaming up of operations as a positive thing for our partners. The merged team will bring a number of new manufacturers to our combined customers. It will have more programs to support our customers. growth. We clearly expect to have more product availability (which is a key need for our customers), and we will work hard to add more financing and credit tools..
Manufacturers want to increase their reach. Previously, they could go to either distributor. With lesser negotiation power, their only option is to have their eggs in different baskets. Most might opt for a single national distributor and multiple regional distributors. But Jaishankar says that manufacturers can now leverage a larger, more efficient infrastructure and penetrate deeper into the market.
Expectations
While TechPac was known for its strengths in logistics, Ingram has been admired for its pricing. The general expectation is that the new entity would combine the two positives. The acquisition will definitely provide Ingram with better economies of scale. The cost scale efficiencies will help it to be more competitive in the market. Spierkel says that Ingram will bring its resources worldwide to assist in the merger of the operations in India. But he expects some challenges during the transition, as any merger of this size will.
The merger is expected to be completed by end 2005. Jaishankar expects the merged entity to be a $1 billion company in India in a year’s time. Till the details are worked out, the two would continue to work as separate entities, and would even compete in the market.
As Chauhan puts it, this consolidation is good for the industry, as the reduced competition would mean better realization for the channel. But manufacturers would need to keep the distributor portfolio balanced. So we can expect new players to grow in size to fill the void.
Both understand the distribution business, and both are highly professional and mature organizations, who understand the need to better themselves; especially now since they will be under scrutiny. Hence, resellers can rest assured that attitude-wise it would hardly affect the business.
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