The European distributor channel is booming, seeing growth rates three times above those of the overall IT industry.
But the companies also face a shake-out as they struggle to adapt to the Internet, the threat from direct sales, and customer demand for higher service levels.
According to figures from research company IDC, 80 per cent of western European distributors expect their turnover to grow by 20 per cent or more this year, which would make this channel the fastest growing indirect sales method in the region.
Half of the distributors questioned believe they will see their turnover go up by 20-29 per cent, while 17 per cent predict growth of 30 to 39 per cent. But they admit this will not necessarily bring similar leaps in profits, and IDC believes downward pressure on margins is unlikely to ease during this decade.
Instead, says Brian Pearce, senior consultant with IDC's distribution channels research arm, they must boost profits by expanding their range of services and added value.
Top of the three main new challenges identified by the distributors is competing with the direct sales model.
Although the success of Dell and Gateway is forcing PC makers to reassess their route to market, this does not always work against distributors, Pearce pointed out. As vendors seek to be more efficient and price competitive in their delivery, some are "delegating final assembly, configuration and testing to distributors." This creates new opportunities, but largely for the big players, a fact that has accelerated the recent trend to mergers between distributors seeking greater European regional coverage.
More specialised distributors are taking the opposite path, seeking to gain market share through adding value. Distributors see this as their second major challenge and realise they must invest in skills to support and service more technical products.
The third challenge is to integrate the Internet and electronic commerce into their business processes, which will also require significant investment and new working practices.
IDC believes that the distributors who address all three of these issues - and they are likely to be the largest ones on the whole - will be able to enjoy continuing market growth and will retain "a central role in IT distribution, benefiting both from natural market growth and from IT vendors' decision to re-engineer the supply chain."
The survivors will not be able to bank on larger margins or less fierce competition, but instead will be able to grow through new business opportunities such as PC assembly, services and midrange systems, Pearce concluded.
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