The Office for National Statistics (ONS), the government body that collects and collates employment figures in the UK, does not have separate figures for the number of people employed in the channel, despite its obvious importance to the UK economy. Total annual sales through the channel are estimated at about u10 billion, and account for a third of the total IT spend, including staff costs, in the UK.
But the total of channel staff is lumped in with the massive 202,600 employees that work in all sectors of computer and business wholesale.
Most of these people work in the PC distribution channel, although some distribute other office machines, such as faxes, or even office furniture.
The figure is further complicated, says Brian Burke, manager of the computer sector industry unit at specialist credit checking company Graydon, by the fact that many of the people working in the channel, particularly for distributors, tend to be self-employed consultants and don't necessarily show up on government statistics. For this reason the number of people working in the channel is a moving target and there are no definitive figures.
What the ONS figures do show is that the number of people working overall in computer wholesale dwarfs the number of those working in PC manufacturing (98,000), systems managers (130,000) and computer engineers (45,000).
Computer guru Robert Cringley has described the global PC economy as the third biggest industry in the world - behind energy production and illegal drugs, but ahead of the car and aerospace industries - and the increasing size and importance of the channel in the UK seems to back that up.
According to Jinty Weldon, database solutions director at analyst Romtec, sales through the UK channel are likely to top u10 billion this year.
'In the past two or three years the percentage of indirect sales has grown compared with direct sales,' she says.
The overall market for PCs continues to grow rapidly in real terms. The channel has managed to beat off the danger of direct PC sellers, whose numbers have dropped from a 1993 peak of 190 down to 130 this year. Third parties are claiming a larger share of a bigger market.
The level of channel sales varies across product categories, with about 70 per cent of all PCs sold in the UK going through the channel, according to Romtec, and 80 per cent of printers. The figures vary more for software products, but the area of least penetration by the channel, surprisingly, is in networking where most products are still sold direct. One of the problems faced by the channel is that the business where it has the highest penetration is also the business that has the lowest margins.
According to Romtec analyst John Ses, the UK PC market is set to grow by 20 per cent this year in terms of units, but price-cutting will mean that revenues will grow at a far smaller rate.
'The indirect channel has grown in both real and absolute terms when it comes to PC sales,' says Ses. But he adds that larger resellers have grown far quicker than small dealers.
'There has been a polarisation,' says Ses. With many of the smallest resellers going out of business the overall picture for the UK channel is healthy, despite shrinking margins, with customers moving away from no-name clone PCs and an increasing tendency to buy well-known brands, many of which go through the channel. 'This year there is continued growth for all the channel, but the lion's share goes to the biggest resellers,' he says.
Romtec records sales from some 5,150 dealers in the UK that sell third-party products. But it excludes the smallest, one-man band resellers, which are hard to keep track of and tend to handle negligible volumes.
Some manufacturers reckon that the total figure including the smallest resellers would more than double the official figure. The Romtec total also includes only head offices of resellers and not branch offices.
The Banner Computer Readership Survey 1996, which pinpoints computer buying trends in the UK gives another snapshot of the strength of the UK channel. The Banner survey categorises UK businesses by size and estimates the percentage of those businesses which source product through resellers, as opposed to through direct suppliers, high street retailers or through superstores.
For the smallest of UK businesses - those with under five staff - the percentage that buy PCs through resellers is 48 per cent. For firms with six to 10 employees, 54 per cent buy from the channel. About 60 per cent of companies with 11 to 19 employees buy from dealers, 58 per cent of companies with 20 to 49 employees and 77 per cent of firms with 50 staff or more.
Overall, the percentage of business buying PCs from the channel fell or remained the same for each size category, except for those employing 50 or more. This backs up Romtec's view that it is the larger dealers - or at least those that would have contracts to supply the larger companies - that are growing faster than small resellers that supply only smaller customers.
The trend is similar when it comes to software, with sales from the reseller channel down to all sizes of business. The loss to the channel has been the gain of high street retailers and superstores, which have increased their share of sales to all businesses. Ominously for resellers, superstores increased their share of software sales to companies with over 50 employees from six per cent in 1995 to 17 per cent in 1996.
The brightest news for resellers from the Banner survey is that most small businesses, of which about half buy their PCs from resellers, are still not computerised. The problem is that, according to the survey, they do not see any potential benefits. This targeting, of what one manufacturer called 'Trading Estate UK', is one of the biggest challenges that face smaller dealers.
Clearly, there is still plenty of room for growth in the UK market and the computer industry and the channel looks set to play an even bigger role in the economic fortunes of the UK in the future.
According to the Computing Services & Software Association (CSSA), the IT industry in the UK is worth an estimated u30 billion, although this is an all-embracing figure which includes the cost of in-house staff working in the IT departments of large companies. Software and services business, which includes the bulk of the channel, amounts to some u12 billion. The CSSA has some 445 members in the UK, including a number of resellers.
But CSSA representative Rob Wirszycz says that it is virtually impossible to get a definitive figure for the value of the channel in the UK. The problem, he says, is the danger of double-counting, because manufacturers have already listed the sales of their products in their own figures before they are resold. A profile of the CSSA's membership, though, does give an indication of the health of the UK IT industry.
According to the 1995 CSSA annual report, revenue for its members rose by an average of 16.5 per cent during the year, while staff numbers rose by 5.8 per cent to 86,931. The increase in turnover pushed up the average sales per employee to a healthy u82,242. Membership of the CSSA, which now represents 75 per cent by revenue of the total number of computing services and business software companies in the UK, is open to computer companies that have been established for two years, and have provided accounts.
Wirszycz says that although the CSSA's members are increasing in size, the IT industry in the UK is not expanding. 'Outsourcing is the fastest growing area,' he says. 'So the industry is not growing but rather business is being transferred from in-house suppliers to external suppliers.' Many of the new staff recruited during the year are those joining the large services companies that have picked up outsourcing contracts.
The bad news for existing Vars is that hardware maintenance and support services are declining areas, becoming subsumed into wider outsourcing contracts. Other growth areas for members are consultancy and network computing. Once again it seems like it is the smaller Vars that are losing out at the expense of the larger companies.
There is a further problem for smaller UK resellers as they try to grow - and that is the problem of credit.
According to Denise Sangster, president and CEO of consultancy Global Touch, the channel in the UK is healthier than that in much of Europe, but it is still in decline. 'The channel in the UK is in better shape than elsewhere in Europe,' says Sangster. 'But the IT market is a global one and problems with the channel in Europe drag the UK down and make it harder for it to compete.' All PC manufacturers have sales down across Europe, she says.
Sangster says the biggest issue affecting the health of the channel in the UK is the lack of available reseller credit. 'The way that resellers get credit is having to change and that will have an impact on all resellers,' she says. According to Sangster, the lack of credit facilities in the UK is holding back the channel, at what should be a time of growth.
'In the 1980s resellers were selling products,' she says. 'Then they sold solutions, now they need to sell partnerships.' By partnerships, Sangster means that resellers need to not only sell products and obtain finance for themselves, but also look at ways of helping the buyer finance the sale. 'Most channel partners in Europe realise that they are undercapitalised,' she says 'But they don't see independent finance companies as partners, and they should.'
Research by Graydon suggests that a staggering 25 per cent of Vars are technically insolvent, which would seem to suggest that credit in the channel is breaking down and that there is a lack of effective mechanisms to deliver it. Sangster reckons that a third of credit for US resellers comes from independent finance companies, and she says that resellers are happier dealing with them than trying to get credit from distributors.
'Some of the best resellers in the US could not run their business without third-party credit,' she says. 'It is not seen as a sign of weakness in the US.' The advantage of third-party credit companies is that they are prepared to offer flexible and imaginative credit solutions, rather than just providing the bare minimum of credit as an afterthought to resellers.
Sangster says that third-party credit companies started funding the US channel in the late 1980s - a period of growth and high margin - but that UK resellers never moved to take advantage of it. The irony is that now credit is needed even more by resellers but there is no history of third-party finance companies being involved with the channel. Despite this there are a large number of active resellers in the UK.
It is estimated that there are about 25,000 companies reselling products in the UK, although the number with significant volumes is only in the high hundreds. The problem, as always with the channel, is getting an accurate figure for total sales.
Graydon estimates that UK sales through distribution total about u6 billion a year, with the top 10 trade-only distributors taking about a quarter of that. A few companies have breached the u200 million mark. Frontline's sales are over u500 million and then there are companies such as CHS/Merisel, Ingram and Northamber all doing more than u200 million of business. Azlan, Metrologie, Ideal, Persona and Datrontech are not far behind. Then there are the resellers. Computacenter's most recent accounts show a turnover of u564 million and SCH is u300 million and growing. Tplc is also a massive contributor; P&P, Compel, Info' Products, Lantec/Eltec, SHL Systemhouse and many others are big and getting bigger.
But a wider figure for the channel is difficult to obtain because of the hybrid nature of some of these resellers. Also, some of the business is partly duplicated through the channel. IBM sells a system to Northamber, which sells it to Computacenter, which sells it to the user. The basic cost of the system appears in three different channel profit and loss accounts.
'The problem is that there is no standard measurement to make comparisons with,' concludes Graydon's Brian Burke. 'We are trying to identify the actual size of the channel to come up with a meaningful figure.'
Until then the channel may be reaching maturity, but there is still no accurate way to find out just how big it actually is.
What we can be sure of is that the UK computer channel is making a significant contribution to the economy of the nation, both in terms of business activity and employment. The business is, in essence, a service industry and as such, if the UK economy goes into decline so does the channel - just as it did during the recent recession.
But it is also helping the make UK business more efficient and competitive by delivering IT to industry and commerce. If it does its job well then the UK will be better placed to deal with harsh economic times than it was in the past.
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