Fiscal 2004-05 was an unprecedented year for the IT distribution industry in
India, which set the tone for the times ahead. One of the biggest news of the
year was Ingram Micro gobbling up the number one player-Tech Pacific, creating
a bipolar distribution landscape in the country. As IT distribution in the
country transitions to the next orbit, one company that had braved the
ever-changing distribution dynamics is Chennai-based Redington India. From
humble origins way back in 1993, Redington has come a long way to become the
second biggest distribution company in India. Redington's impressive
performance over the years can be attributed to its strong management team. At
the helm is Jitendra Kulkarni, CEO, Redington India who talks to G Shrikanth of
CyberMedia News, about his thoughts on the current IT distribution dynamics and
Redington's strategies. Excerpts:
How do you characterize the current IT distribution dynamics?
With two large distributors and eight to ten smaller distributors, the IT
distribution is well balanced. Currently the market is growing, so there are no
major issues. There are many growth opportunities in the existing businesses as
well as through new vendors entering the market. However, the dynamics can it
change as and when the market slows down. With multifold increase in number of
vendors and products in distribution space, vendors are relying more and more on
channel schemes to get mindshare. In the last two years, schemes have become an
integral part of channel distribution. For most of the partners, it is a Catch
22 situation. Participating in schemes means higher risks, and not participating
when other competitors participate is a sure loss. They are required to juggle
several balls at the same time.
In the last one year, what according to you were some of the major events
in the distribution space?
The Ingram-Tech Pac Merger, Lenova buying IBM's PC business, and VAT
implementation by several states were some of the major events of last year.
Also, the Karnataka High Court ruling in favor of the channel community has been
an important development. On the merger front, I think it is a good thing for
both Ingram and Tech pacific. The combined entity gets better economies of scale
and partners have one less distributor to talk to, even as the buying becomes
more efficient and uniform.
Has the merger forced some changes in Redington's strategy?
There is no change in our strategy with change in the distribution dynamics.
We continue our focus on expanding our reach, portfolio, and our value offering
to the channel. However, there are several best practices we have adopted, which
would have happened despite the merger. Some of them are collecting one cheque
per order. This is simple to operate, monitor, and reconcile. Another is our
commission payment system. We send out commission and scheme payout cheque to
the partners on predetermined dates without any follow-up by partners. There are
several other best practices we follow in credit management space.
What about mid-sized distribution companies and where are they headed?
In distribution, you either are a broad based, high volume distributor or a
niche distributor focused on a few product categories, brands, and geographies.
Any distribution company, which is in between, will find it extremely difficult
to sustain profitability. Most small to mid-sized distribution companies are
owner-managed and owner-run companies with financial constraints. Being
single-owner companies, most of them, by choice, do not want to grow beyond a
size for obvious risks involved. Customers and vendors find them more flexible
in certain areas compared to professionally-run, broad-based, distributors who
have automated operations.
Vendors and customers will continue using them to fill any gaps left by large
distributors. Sometimes, when large distributors are already tied up with the
leading brands in a particular product category and do not want to take the
number 4 or number 5 brands in the market, they prefer to go to small and mid
size distributors. As long as they are able to provide some unique value-add to
the market, other than just price, they will have a place. However, they will
remain highly vulnerable to changes in market dynamics. In the long term, they
would probably take the path of selling their company to bigger distributors who
see some value in buying them.
Redington is also a pro-active user of IT. Can you talk about some of the
major IT initiatives you have put in place over the years?
Redington has a state-of-the-art IT system that has helped us build scalability,
speed and accuracy. It has also helped us reduce our costs. There are several
on-line decision making tools available for operational managers across
functions as well as senior management. Some of them include daily sales
tracking, inventory aging, working capital forecasting, margin monitoring,
daily/weekly/monthly reporting to the vendors, freight optimization, road
permits/way bills/forms tracking, channel health analysis, budgeting and
variance analysis among others.
What's your outlook for FY 05-06?
FY 05-06 would be a very good year for the IT industry. The growth is all
round, both in consumer as well as commercial segments. The only segment that is
struggling to grow is the assembled segment-on one side, price gap between
branded PCs and assembled PCs is coming down, and on the other, ASP of
components is falling. Both these are leading to major difficulties for this
segment. However, for us, the overall revenue growth we achieved last financial
year would continue in the current year since market is growing at a healthy
rate. We also would get some additional growth through new product lines.
Notebooks, consumer PCs, MFDs and up-country markets are the growth drivers.