Success in the channel is all about ongoing growth; solutions offered, and geographical presence. Westcon’s business model has evolved over the past 31 years. Today, the business focuses on what it regards as the four growth areas of the information technology sector, namely security, networking, communications and the datacentre.
Westcon-Comstor Southern Africa CEO Guy Whitcroft says: “Underpinning all of this, we have a services division, cloud focus and our global deployment, as we operate in 70 plus countries and ship to over 180 countries.”
Last year, the group’s global gross revenues were about $6.5 billion.
Whitcroft says: “Certainly in the South African context, our ability to deploy around Africa and everywhere else makes us unique, as an increasing number of local companies are starting to push into Africa and beyond. This means our resellers can deal with a South African regional office and distribute into the region or further afield as they see fit.
Rolling stone gathers no moss
“Distribution has to be an evolutionary business,” says Whitcroft. “When I started out in distribution in the late '80s, and compare what we did then to what we do today, it’s a very different playing field. There’s a lot less room for error and margins are under constant pressure. These challenges aren’t specific to distribution; throughout business we see everyone focused on gross margins, the cost of sales, underlying costs in the business and, ultimately, providing a return to shareholders. However, this can be an overly simplistic approach.”
He clarifies: “Some people just look at a business' net profit as a percentage to evaluate whether it’s a good business, without considering the type of business and its cash-to-cash cycle. Some industries – like construction – have a cash-to-cash cycle of several years, whereas in distribution you turn your money around fairly quickly in a 60-, 45- or even 30-day cycle. On a 60-day cycle you’re turning it around six times a year, so if you make three or four percent net profit that translates to a 20% or better return on working capital.”
Price drops as value changes
As the IT industry becomes commoditised, so prices have come down, driven by a number of factors. “When I started out in the IT industry in 1973, it was all about mainframes. You had computer companies selling massive computers to end-users at a cost of millions of dollars, but the set up was free. Today, you pay for each component of your IT infrastructure separately.
“Distributors were initially simply aggregators of product, bringing in large volumes, splitting them up and selling them off, and the affordability enabled by that process was the value add. Today, distributors are adding value by aggregating services, skills and the cloud.
“One of the truisms that people lose sight of is that value is only what your customers are prepared to pay for. However, the more demand there is for always-on connectivity and the more evolution there is by companies like Amazon, LinkedIn and Netflix – all of which are underpinned by security, networking, communications and datacentres – the more demand there will be for our solutions across those four focus areas. We clearly see strong growth in these segments and our job is to ensure we have capability in services, cloud and deployment operations to enable our customers to take full advantage of them.”
Whitcroft says it’s impossible to predict what the channel will look like in ten years. “No one can predict that evolution. We’ll become more service rich in some areas, enabling the channel to provide a richer set of tools and capabilities to end-users. Ultimately, IT is a tool that enables business to be more efficient and more effective, and to reach more people. The move to the cloud enables businesses to operate without worrying about things like services or back-ups. Being able to take care of those risk factors outside of the business is huge – and ultimately it leads to more cost efficiency, lowering the cost of doing business. That’s really what the channel is about.”
For Westcon, the future also holds further growth into other geographical areas. Westcon Group Southern Africa covers South Africa and its neighbouring countries, Westcon Group Africa encompasses East and West Africa, while different Westcon Group entities cover the Middle East and North Africa. It’s a vast region with an equally vast array of languages, cultures and ways of doing business, all of which have to be considered.
Whitcroft adds: “Africa is an exciting place to be at the moment, it holds enormous potential with a growing middle class and we’ll continue to evolve our product and service offering to meet the demands of this evolving and changing market.” It’s an extremely tough marketplace right now, says Whitcroft. “Skills availability continues to be a challenge for the IT industry as a whole, partly because technology demand develops more quickly than the skills to support it can be developed. There’s also a combination of local and global uncertainty currently. There’s global uncertainty around Brexit and the US elections; closer to home we have question marks around what’s going on in Zimbabwe and Mozambique, as well as our local set of challenges. I read somewhere that South African corporates are sitting on a R600-billion cash pile to invest when they feel more confident in the future. That could have an enormous impact on the channel.”