The global resellers arrive

The global resellers are coming. Plenty have already arrived. 

One of the most recent arrivals was Indian-headquartered, global player Servion. The $80 million company that specialises in customer interaction management (CIM), opened its Melbourne offices in October.

“If you look at the Asia-Pacific, Australia is one of the largest economies. I actually think we have come here late rather than early,” says Servion chief executive officer and founder ‘Bala’ Balakrishnan. He says Servion is determined to build a powerful business and that Australia is perfectly placed. 

Servion is one of many global IT channel players to land on Australian shores in the past year. In July, one of the world’s leading Microsoft Lync integration partners, Modality Systems, moved into the Australian market. The company has more than 350,000 Lync seats deployed in over 200 countries. 

In April, Swiss communications vendor Ascom paid $14 million to buy its long-time Australian channel partner, Integrated Wireless. Canadian reseller SereniTaaS is serving Australia remotely after winning the local agency for Zadara Storage. US managed security provider Proficio, which counts HP Arcsight, Imperva and Palo Alto Networks as vendors, has set up a Sydney office while signing Brisbane security provider Cloudport as a reseller. 

In the distribution tier, Australia recently saw a major play by $25 billion global distributor Arrow Electronics, which bought local operation Observatory Crest.

California-based secondhand network equipment specialist Curvature – which until recently was known as Network Hardware Resale – already provides services to Australian customers from Singapore chief executive officer Mike Sheldon realised it could do more business by setting up shop here. The company, which claims to be “the world’s largest supplier of pre-owned networking gear”, plans to launch its Sydney operations.

“After selling to Australian enterprises for many years, we have been very successful and we have a built a pretty good little business from Singapore but when deals are small and urgency is of the utmost importance, we still suffer from being 2000 miles away,” says Sheldon. “We can’t deliver overnight except to Sydney; our products suffer from a relatively high transportation cost. Even at cost, it’s expensive. You ship a $200 box – it costs $200 to ship. 

“Australians largely procure things from Australia because the same factors that make us less competitive make them more likely to acquire locally. The transaction costs for buying from the US or Europe or Asia are really high.

“Australia is by no means a humongous market like the US or China but far more business gets done as a percentage of the total than in any other market than I’m aware of, apart from maybe Brazil for a different reason,” he adds.

Sheldon hopes that by operating onshore, Curvature will double its Aussie turnover. “We have a $10 million business in Australia from Singapore but I think it could [get to] $20 million quickly if we were local.”

What makes Australia unique, says Sheldon, is the amount of technology and connectivity. “If you look at population, you would think Australia was a much smaller market but the equipment we sell and maintain has much more to do with connected devices, how many devices, how pervasive is wi-fi connectivity, what speed in general is the pervasive bandwidth and those are all very positive in Australia.”

Government calling

The Australian government certainly welcomes foreign investment. According to its rhetoric, it wants overseas companies relocating here.

The reality is that most companies are locally owned. Australian Bureau of Statistics data shows that at June 2011, 97 percent of businesses were wholly
Australian-owned. 

Nonetheless, government policies are focused on attracting foreign investment because of Australia’s remoteness. The Department of Foreign Affairs and Trade website says, “Without foreign investment, Australia would be unable to build our economy to its full potential and would have less funds available to spend on hospitals, schools, roads and other government services.” 

Austrade provides overseas businesses with assistance by providing them with information about grants, R&D tax incentives and other assistance. 

Servion, for instance, was lured down under by Victoria’s Napthine Government, determined to set up a Silicon Valley to replace Victoria’s dying manufacturing industry. The government sent its minister for technology, Gordon Rich-Phillips, to Mumbai to meet with Servion executives, and invited them to see the Australian Open. When Servion decided the timing was right, the government helped the company with registration. It even connected Servion with Australian lawyers. Victoria was the only state to connect with Servion.

This willingness for foreign investment does not extend to differential tax treatment – a core principle for some countries looking to tempt overseas businesses.

A recent study by UHY, the international accounting and consultancy network, found that Australia sits below the global average in attracting Foreign Direct Investment (FDI) as a percentage of GDP. According to the 33 country comparison, Australia sat in 10th place with a rate of 15.2 percent. Compare that with a global average of 17.1 percent. It was also well below the EU average of 20 percent. Essentially, other countries are doing a better job of attracting overseas businesses. Singapore’s start-up industry receives significant government support with tax breaks and fund matching on investments. None of that is available in Australia – a fact that could make local IT players breathe a sigh of relief (see breakout).

Still, this hasn’t stopped the aforementioned global resellers with deep pockets targeting Australia. 

Peter Strong, the executive director of the Council of Small Business of Australia (COSBOA) fears it could put many resellers out of business. “The argument is they will bring cheap prices and make everything better…[but] in the long term it worries me that there will be a decrease in service,” Strong says.

Next: customers pushing

Australians’ tendency to be early adopters drove SerenTaaS CEO Glenn Cameron to our shores. “The Canadians are very slow in adopting cloud whereas the Australian market is very open to the concept – more than the Canadian and the US market.”

He says vendors and customers were behind the move. “We had a partnership with Zadara Storage and they had a global customer who was looking to expand into the Australian market. Zadara’s business model doesn’t expand outside the US so they asked if we were interested in looking at the Australian market. We had a quick look at it and saw it as a pretty good opportunity.

“Half of it is driven by an existing customer and vendors opening up opportunities for us, the other half is looking at the Australian market and saying it’s a pretty unique market when compared to the Canadian market, where we are headquartered.”

Ian Guest, head of marketing at Lync giant Modality Systems, says the company was also drawn to Australia by its clients. 

“We had operations going in Europe and North America for several years and we had quite a wide client base and because that was globally spread having operations in the APAC region in Australia, we decided the opportunity was great enough to move certain resources there.”

Having a strong vendor relationships should help overcome anxieties as the new kid on the block. “We are very closely aligned to Microsoft. We are one of the largest Microsoft Lync operations in the world. In terms of other vendors, really we try to be agnostic because one of our key values to customers is we have a good knowledge of a number of different vendor technologies that forms part of a wider solution.”

Born global, living local

Although there was a rush of names cropping up this year, Australia has long been a destination for international IT resellers. British-based Logicalis burst on to the Asia-Pacific market in 2009 when it bought Netstar Group for $21 million, adding to its offices in Brazil, Argentina, Uruguay, Paraguay, Chile and Peru, alongside its German and US businesses. It is owned by Datatec, the same group that owns distributor Westcon.

Logicalis Australia marketing director Oliver Descoeudre says its link to Cisco and a global reach puts it in a very strong position to service the market here.

“The advantage of the federated model is we have the autonomy to make decisions that reflect local customer requirements but we have the ability to draw on group tools and group skills where required,” Descoeudre says.

“Where we have a global deal we can go back to the UK and say, ‘What can be done for that, let’s replicate that’. It’s an advantage. We can do what we need to do but we have the ability to fall back and draw from the experience of a 4000 employee company where we≈need specific experience.

“And we are now seeing a lot of deals where we are working collaboratively with a UK or US developer, a common architecture or common solution and the customer is looking for that consistent delivery of services, far more now than four years ago.”

NTT Communications has been operating in Australia since 1987, originally to service Japanese multinationals connecting back home. After a few years, it was servicing Australian companies and Australian multinationals.

In 2011, it bought a 70 percent stake in Australian resellers Frontline Systems and Harbour MSP, which gave it a footprint in four Australian cities and a strong channel. Last year, it consolidated under NTT Communications ICT Solutions.

“It fitted in with our strategy of global network services, data centre services and infrastructure-as-a-service offering,” says director of NSW sales Michael Fortescue. “Having Frontline and all their capabilities was a very good complement and gave us a footprint right here in Australia in terms of offices and customer footprint. We work with all the major vendors including HP – we are their largest partner in Australia – Microsoft and Hitachi Data Systems.”

What was the attraction to Australia, a tiny market by global standards?  “We identified Australia as being one of the strongest growth markets in the Asia Pacific apart from India and China,” Fortescue said. “One of the drivers is that the world is looking to globalise and Australian multinationals are looking for strong providers to take them on the journey to build up operations in other geographies. NTT is very well positioned to help them achieve that because of our local resources, local billing and we can decode the complexities of doing business in Asia, the US and Europe.”

Fortescue concedes that entering and succeeding in a new market isn’t easy. It helps to have kind of backing the company gets from NTT. “One key differentiator for us is we have a $3.5 billion development arm so we have very deep pockets in terms of R&D and we continue to invest in awesome technology.”

While some global resellers might face challenges coming into the Australian market, for many the potential upside is too good to miss. NTT won’t be the last multinational with deep pockets to try to strike gold in the lucky country. 

Local resellers cannot afford to get complacent.