leon Perlman
Faced with shrinking margins, not everyone welcomes the return of multi-national information technology (IT) companies to South Africa.
The re-entry of major IT companies is proving to be a mixed blessing for some local hardware and software distributors. Some say that local users might have to start forking out more for what they refer to as the supposed benefit of direct representation.
During the sanctions era, many hardware and software products were imported unofficially by local companies. In most cases they acted as de facto flag-waver local representatives. But because of South Africas classification as one of the worlds top 10 emerging IT Markets, 1994/1995 saw a dramatic rise in the influx of the worlds top IT companies. Over 20 have opened up local subsidiaries or marketing offices in the past three years, in many cases in co-operation with local stakeholders.
But not everybody is welcoming this increased representation with open arms. The flag-waver distributors have been the hardest hit by a trend towards appointment of multiple distributors for the same products. The formation of a local subsidiary of an international company often brings with it increased pricing, slower shipping of products and complicated support, says Neil Rex, managing director of Drive Control Corporation (DCC). A local subsidiary invariably adds another tier to a companys operations. Customers will have to bear the brunt of paying for the costs of that extra tier.
In the hardware sector, some sceptics say, product support could be a major problem as end-users are forced to go through an extra link in the support chain, which could mean they do not get results as rapidly as they should.
Local support policies for hardware products have changed dramatically in recent months: on-site support covered by an average 5% price premium on built-up systems is now the norm.
In the software distribution sector, increases in the number of authorised distributors has meant better pricing for end-users, but depressed margins for distributors.
Some distributors are also concerned at the challenges posed by direct marketers such as Dell SA, which bypass traditional distributors by selling desktop and notebook computer systems through mail-order catalogues. IBM in the US has also begun selling direct, although it is not clear at this stage whether IBM SA will follow suit. Many distributors see this trend as a major threat.
They are not honouring the (distribution) channel and see no reason to support it, says Dave Rule, marketing director of Hi-Technology Group. It does not do the local distribution industry any good.
Others, however, including Mustek director Ernest Walker, are more philosophical about the challenge, relying on their dealers for continued support. Our product range is superb and we have a large market share which we aim to increase. Time will tell.