New kid on the block

Ever wondered how vendors decide to enter the Australian market and look for resellers to help their market-making push?

"Somebody will say, 'I’ve always wanted to live in Australia'," says Kevin Joyce, general manager of Aexus, a company that helps IT vendors develop new markets. "They decide we’re a better cultural fit than an Asian office is. Or an executive will say, 'I hear the weather is nice in Sydney and the beaches are good so perhaps we should sell there'.

"It’s either that or a reseller or customer is a catalyst. A reseller will contact a vendor through their website or an end user walks up to the vendor at a trade show and says they need it immediately."

Whatever the catalyst for the decision, the vendor in question quickly opens an Australian office and starts to prospect the local market.

If they were fortunate enough to be approached by an end user the size of Telstra at the trade show, the vendor in question makes sufficient profit to fund a complete local office. Others will simply come to Australia, sign dozens of resellers and watch as nothing is sold because resellers have no risk associated with doing nothing.

Smarter vendors are more discriminating in their choice of local partners and use companies like Aexus to research the local market in terms of demand for the product and the presence of local resellers capable of meeting any demand. "In a typical due diligence when we take a product on you need to explain it to everyone you know in that area of the market," Joyce says. "We visit customers, resellers, industry experts and spend a lot of time in coffee shops and boardrooms," an exercise that takes three to four months.

Others vendors use agents to open our market, a process that Joyce says sees a vendor spend at least $100,000 to fly the agent to the US for training, then pay for several months work and follow-up visits from offshore salespeople and executives to close the first deal.

However it is conducted, the process quickly reveals a product’s prospects. "If you can say it makes high margins and is being raved about in North America, you are in with a chance," Joyce says. "If you do not have an extremely good story you are just another product and finding someone to take your product is very hard indeed."

Aexus' Joyce: Ideal resellers show niche ability

When the story generates interest, Joyce then has the luxury of getting picky with his choice of recommended resellers. "The ideal reseller is someone that can show niche ability," he says. "Vendors know that the only time anything is hugely successful at minimum cost is when there is a niche player." Specialisation is therefore his main recommendation for resellers looking to take on new products.

"If you come to me as a reseller and you only sell into one market, I’m happiest," he adds, recalling one particularly successful product intended to manage blood samples for pathologists with such a small potential reseller pool that the selection could be achieved in minutes. Another product he handled succeeded because fewer than 500 local organisations used the computers on which the software could run. The tiny pool of resellers catering for their needs could quickly reach the entire market.

Resellers looking to attract offshore vendors entering our market therefore need to understand the dynamics of our IT industry and tailor their businesses accordingly.

"Vendors will look at Australia and say it has a huge Federal Government market, a big health market and a good education opportunity. The best resellers are the ones that understand the industry a vendor is trying to sell into. Why do you think big companies have vertical sales reps?"

But even niche resellers, Joyce says, should not assume success is assured because vendors’ enthusiasm can sometimes outweigh the resources they are willing to commit to their local push.

"Asia Pacific is 10 to 12 percent of the global market and Australia is lucky to be 3 percent. And we are in the wrong time zone for the Europeans and the Americans.

"To make it work you need all the tech support they can offer."

And as the real experiences below illustrate, you will also need perseverance, courage and a willingness to learn.

"I see most resellers in this country work with a core, stable group of products," he says. "That is where a customer will look for a true solution provider to add value. There are a handful of prods not in everyone’s portfolio and I think we must be out there looking for new technologies that are actually fixing the pain."

For Buckley and his company Vantage GVT, those customers turn to it for products and services required for enterprise-grade audio and videoconferencing. And of late Buckley says they have been annoyed with their firewalls’ inability to cope with the amount of traffic generated by videoconferences, a bottleneck he thinks means good business.

This approach is fuelled by past experiences when Buckley imported technically elegant products that impressed customers but did not generate sales. "We imported a product from the UK. It was a great technology, however there was not enough pain for the customer to make them invest to solve it. It was a nice-to-have, but you cannot make a business out of those."

But customers’ worries about fi rewalls suggested a bigger and better opportunity. "Voice-over-IP generates 5Kb/s," he says.

"Videoconferencing is 400Kb/s. The firewall can’t handle it. But when you consider that VoIP will soon be a mission critical application, you can’t have the firewall being a bottleneck."

Buckley therefore looked for a product that could avoid firewall bottlenecks and found one from Crossbeam Systems, a company whose products combine firewalls and other networking appliances from other vendors to make them centrally manageable and improve performance. Crossbeam’s approach promised the firewall performance improvements Buckley desired, so he travelled to the company’s Boston headquarters to ‘ask them 100 questions’.

GVT's Buckley: Travels to the US once a year on the hunt for new products

"What you are really trying to assess is how they compete in the US market. How do they plan to grow their business, what is their marketopening strategy, what are their competitors and their revenues?" Exit strategy is another important factor, as Buckley believes a vendor must have a viable exit strategy if it is to succeed in the first place. This process lets Buckley assess whether or not it is worth becoming the vendor’s first or second reseller in Australia. "With or without us, I think Crossbeam will turn over five or 10 million [dollars] here in its first year.

"If you can get to that level of spending in the first year it is a viable business for one or two players. If it is only half a million or a [million dollars] it is not."

With the decision made to resell Crossbeam, Buckley says the rest follows easily. "We need to appoint a prod manager, someone to own the number and who can be a technical pre-sales person. He is the one that the sales guys can use to identify an opportunity and he has to qualify the opportunities. But you apply those resources only once supply agreements are in place. We’ll borrow resources from the vendor to do evaluations and then allocate our resources later. It is just part of that investment cycle."

And that cycle will see Buckley return to the US year after year, but his destination will likely be the offices of vendors he has already identified, rather than trade shows.

"The web is the main source of products, plus my personal network," he says. "We are trying to pick a market first, to solve a problem. If you can figure out what the customers’ pain is, you can look for a solution to that pain. And if you find the product that solves that first, you can make a business of it."

Jim Kuswadi has another approach, formulated by experiences that led him to believe introducing new products is not overly complex.

Indeed, he has introduced products many times as managing director of Sydney Reseller Amtex, whose Power Supplies Division offers hundreds of DC-DC converters, battery chargers, power inverters and other power conversion products to serve the electronics and computing trades.

This side of the business is one of a handful of local companies offering specialist equipment, and Kuswadi rarely has trouble introducing new products. "Usually it is about bringing a brand name to the Australian market," he says. "For example, an Israeli company called Nemic Lambda approached us to bring in their power supplies. We are a well-known power supply distributor so it made sense for the company to contact us, and their products are industry standard so we did not need to do market research."

Advertising, dedicated marketing and free samples were deployed to stimulate the market, until "... we got to a good arrangement in terms of stock rotation and payment terms".

Amtex assumed the risk, but the journey from prospect to profit took just a year. "I was surprised how fast it was accepted," Kuswadi says. "Our reputation in the industry and the fact it was an international brand seem to have given the market confidence."

It also gave Kuswadi confidence to attempt a more daring product introduction, for his Systems and Displays Division that specialises in the sale of components for industrial computers and displays, and also offers services to design and assemble these rugged machines.

Although this division was performing well, Kuswadi felt it needed a growth strategy and found one in an English software product that allows scheduling and distribution of video into multiple PCs.

The product appealed because Amtex’s ability to create tiny industrial PCs and housings that can withstand harsh environments -- the company last year made a PC capable of surviving prolonged exposure to water from a hose -- gave it the idea to use the software to create schedules of advertisements retailers could display in their stores.

As industrial PCs can use touch screens, the in-store units could even become gateways to websites so shoppers could look up detailed product information as they cruise the aisles.

The scheduling systems also offered the chance for retailers to change the advertisements on display at different times of day, a potential boon for supermarkets where weekend traffic and weekday shoppers are very different.

Kuswadi therefore hoped that cracking the market for merchandisers and advertisers would mean plenty of work for building new computers for the Systems and Displays Division, a hope fuelled by the lack of a comparable product or concept in the local market.

"We looked around and found that none of the retailers even knew about the idea, and no-one had it installed," he says. "All that was available was DVDs connected to TVs or a more sophisticated PC-based system. But in both cases their downfall was reliance on moving parts. Our solution, Avisum, is totally solid state."

Despite these advantages, more than a year later Kuswadi is just beginning to see light at the end of the tunnel after a journey made arduous by the fact that Amtex quickly discovered it knew very little about its target market in the advertising industry.

"We are electronics guys," he says. "For us to learn about the advertising industry was too hard," a lesson learned after existing staff failed to make significant inroads with the new product, even after Amtex created a new company called Avisum to disguise its high-tech origins.

"We realised that we needed to get someone from that industry with the contacts and knowledge to take it to market," Kuswadi says, and that person is a dedicated business development manager from the advertising industry with contacts and inside knowledge the Amtex team can only dream of obtaining for themselves. The new manager has labelled the Avisum concept "digital signage", secured trials with some of Australia’s largest retailers and brands and generally accelerated the sales effort beyond Amtex’s own efforts.

"It is very tough being a market maker," Kuswadi concludes, having financed the entire venture from his own pocket. "I expected that in one year we would be off the ground. Now I think it needs another year."

But he is prepared to stick it out and wait now that he sees momentum building behind in the concept of digital signage. "More and more people understand it," he says. "And I am prepared to take the risk because the industrial side of the Displays and Systems Division still has orders. Avisum benefits from having a big brother."

Without that big brother, however, Avisum likely would not have survived its first year. "We have had very little support from overseas principles," Kuswadi says, for Avisum and for other products. "Maybe in consumer electronics there are still vendors’ funds to help. But in our area, nobody wants to know what you spend. It’s your business alone."

James Hopkin never thought distributing memory would lead to a situation in which he needed to investigate the difference between a knife and a tool. But being first to market in Australia with a Swiss army knife that packs a USB memory key alongside the usual blades, toothpicks and bottle openers has opened his eyes to Australia’s laws about knives.

"We thought it would violate laws," says Hopkin, a co-founder of memory distributor IMS Memory. "We thought it could be a thing that would hold us up," as knives cannot be sold to people under a certain age, or through certain types of shop.

This fear led to some unusual due diligence checks. "Before we signed up to distribute the product, we contacted every police department to explain what the product was, gave them the dimensions of the blade and made sure it would be okay to market here."

This part of Hopkin’s tale has a happy ending. "The product does not violate any state or territory laws," he says. "It is considered a tool, not a knife."

But the end of the story of his company’s attempt to move into consumer-oriented products cannot yet to be written. IMS Memory sells memory, typically for desktop computers and servers, and sells business to business through a range of resellers. Buyers are typically corporates upgrading the RAM of their PC fleet or boosting the memory available to their servers.

Some of the products it distributes are made by Swissbit, which also produces the hybrid knife/memory key. Yet despite the lack of experience, the idea of moving into the retail sphere with the knife/memory key appealed because it offered the chance to defend a relationship as well as make a profit.

"We were concerned that if we said no to this product, Swissbit would find another distributor in Australia to handle it," Hopkin says. Little imagination was required to extend that relationship into a full-blown competitor across Swissbit’s product lines, a big influence on the decision to take the product on.

But the chance to make a profit on a hot product was a more motivating factor. "I believe Swissbit launched it at the CeBIT trade show in Germany. It was immediately picked up by the press and got pretty big worldwide exposure," including spontaneous local interest in the product that proved there was demand.

There were still hurdles to overcome, however. "We were worried about the cost of the products to begin with. The Swiss army knife has quite a large price tag and the flash RAM is expensive," factors that added up to a fear that losses could be swift and savage. "Because of our background in memory distribution we know prices fluctuate. And for this product it looked like a price drop was possible as component prices fell."

IMS' Hopkin: Longer term proposition was on offer

With the twin challenges of making a new market and making a profit to face, IMS Memory therefore held off the product for some time.

But their attitude softened when it became clear that the manufacturer, Swissbit, was willing to back the product to the hilt and had even formed a joint venture with Victorinox, maker of Swiss army knives, to create future consumeroriented products.

With a longer-term proposition on offer instead of a quick hit on a novelty product, Hopkin "... talked to a couple of freight forwarders about how we can get the memory from Europe to Australia as fast as possible", and was pleased to find it would be possible to quickly and cost-effectively import small quantities of the devices.

The company has since launched a multipronged offensive to enter the consumer market, one tactic of which has seen it enter discussions with potential sub-distributors that can use pre-existing relationships with large retailers to get the product onto their shelves more rapidly than would be possible if IMS Memory tried to approach them itself.

A retail website -- upgradeable.com.au -- was another initiative, as Hopkin felt early adopters would search for and buy the product online. "Initially people get excited about it and price is not a big issue," he says. "And we wanted to get some sales through!"

A public relations campaign is another of the company’s tactics and has seen IMS Memory hire a PR company. The objectives of the PR campaign are twofold: create general end user demand that will stimulate resellers to adopt the product, and second, to focus on media opportunities to get the devices onto Father’s Day shopping lists.

With that occasion a few weeks away, Hopkin knows there is no guarantee of success. But he is optimistic his company has done all the right things to make a success of the product and launch a new consumer business.

"Consumer is a good area to grow into. We are not competing with anyone and Swissbit are taking it as seriously as we are.

"This could be a potentially big market for us," he says.