The French president Charles de Gaulle once had a vision of creating a Europe ?from the Atlantic to the Urals?. Now, it seems that manufacturers and the channel are hell-bent on following suit.
For de Gaulle, a united Europe was a counter to the influence of the US, but for the IT industry it is the US manufacturers which have adopted this view of Europe as a single entity. The US manufacturers have long regarded the UK as their springboard into Europe but more recently a number of them have begun using pan- European distributors as a means to achieving this end. The IBM RS/6000 division now has a number of pan-European distributors, such as Ingram Micro, CHS and German distributor Magerus.
Establishing a European presence may be desirable, but it will not make anyone a great deal of money. According to IDC, the European market is stagnant. While sales in the US rose by 20 per cent in the first three months of the year, the growth rate in Europe, Middle East and Africa (EMEA) increased by only eight per cent.
Phil Goodman, marketing manager of Metrologie, believes that pan-European deals are still in their infancy and that there are a number of problems yet to be overcome. Metrologie?s parent company is in France and has offices in Germany, Spain, and the Czech Republic as well as sales outlets in a number of other European states. Metrologie acts as a European distributor for a number of companies including Hewlett Packard (HP) and Digital. The company is involved in a pilot European distribution project with HP and this is where there are some problems to be sorted out.
?We have a European contract with HP, which wants to make a single point of order. HP books everything centrally from Geneva and ships to our head office in France. It is a great deal for us, but HP has not yet sorted out its internal structure. The HP people in the UK are paid on HP bookings and billings. If we go to HP in the UK and ask for help they do not see any benefit from assisting us,? Goodman says.
If a manufacturer?s staff are paid on a country by country basis rather than sharing the benefits of a Europe-wide scheme, there is bound to be a certain reluctance on the part of country managers, sales and support staff to offer assistance to dealers or distributors involved in pan-European sales. Goodman does not believe any major manufacturer has completely sorted out its act when it comes to pan-European trading.
He identifies other possible areas of contention. Although it is less true now than in the past, some manufacturers still issue single country warranties, the idea being to prevent the shipment of grey imports and to deter purchasers from taking advantage of currency fluctuations. Further problems arise where accounting is concerned. Although the European Union is seeking the harmonisation of VAT rates, there are still some differences. Deciding to which country VAT should be paid can cause problems, according to Goodman. In addition, accountancy procedures and legal requirements vary from country to country.
Although many US firms regard Europe as a single entity there are vast differences between countries, says Peter Gottlieb, director of strategic accounts at financial software house Tetra. ?One of the things that vendors need to realise is that there are glaringly different ways of doing business. The attitude of some American companies is that this is an American product and English the universal language of commerce, which does not go down well in some countries,? he says.
According to Gottlieb, the French are the most difficult customers to sell to. ?It is not possible to make a sale in France without a serious local presence. You need a French speaker and all the documents and literature has to be translated into French.
?By contrast Italy is a very regional market. You can have a partner in Milan who has never made a sale in Rome and is never likely to and vice versa.?
When selling in Scandinavia, Gottlieb suggests that bringing a bottle of alcohol is a stratagem that will win the hearts and minds of customers because of the high cost of alcohol in these countries. ?It is almost as important as a business card,? he says. A degree of national pride also comes into the European sales story. IBM?s decision to allow assembly of the RS/6000 in Italy boosted sales considerably even though the components to be assembled were made outside the country. Conversely, shipping some of the mainframe manufacturing out of Germany to France and Eastern Europe partly accounted for a slow-down in sales.
A survey carried out by the consultants Romtec, on behalf of Hewlett Packard found that 400 resellers in 40 European countries were facing increasing competition not only from other dealers and Vars but from hardware manufacturers that offered both direct sales and service and support.
According to Romtec, product sales accounted for 46 per cent of reseller revenues and services for 29 per cent. The Computing Services & Software Association (CSSA), the trade body of the software industry, has also recently conducted a survey of its members which revealed that 85 per cent of them planned to increase their efforts to export to Europe in the next three years. Currently only 22 per cent of those surveyed are doing business overseas. Thirty eight per cent of those surveyed made Europe their prime target for exports.
But CSSA director general Rob Wirszycz warns that selling into Europe is no easy process and reiterates the view that there are huge national and regional differences. He has just chaired a CSSA task force examining the potential of software and service vendors selling into the German IT market.
?To approach the German market you are going to have to open an office and have at least a year?s track record before they will buy. The German market is essentially conservative and engineering driven,? says Wirszycz. In his view there are three Europes. The first comprises the English, Dutch and Scandinavian countries, where English is deemed to be the natural language. The second is Teutonic Europe ? Germany, Austria et al ? by far the most conservative in purchasing terms. The third is Latin Europe, which includes Italy, Spain and France. Each tends to operate with distinct national difference, so there is no quick-fix solution to selling into Europe.
?Going into Europe, especially as a Var, is not a hobby,? says Wirszycz. He believes that there is a need for harmonisation of prices and VAT rates but that, certainly in the case of the latter, this is still a long way off.
Last November Digital signed its first pan-European reseller agreement with network integration company ACI, a part of US multinational Anixter. ACI marketing director Hakan Johansson identifies with some of the points made by Goodman and Wirszycz. Johansson believes there is an increasing trend towards putting together pan-European and global deals. Originally, the impetus came from US Multinational corporations which wanted to open up in Europe but Johansson now detects similar moves by UK and other European companies wishing to penetrate the UK.
There can, of course, be some price fluctuation as exchange rates in different companies alter. But some companies, such as IBM, set a uniform price for products which is applicable right across the continent.
One of the critical factors is to make sure that incentives are offered to all employees in countries involved in pan-European deals. Most contracts are led by a one-country team. A UK or French-based multinational, for example, will place the order and take overall control of the specification and implementation. But it is the local offices in the other countries involved that will be responsible for providing support to the customer.
In effect, ACI overcomes the problem of offering an incentive to employees not directly involved by giving them a double bonus. ?It may be an expensive way of doing it but if we roll out something in Europe, the customer is going to want local support,? says Johansson.
He acknowledges that many US companies do not fully understand that there are cultural and taxation differences between the European states. ?There are problems with the different rates of VAT but the US companies tend to think that now we have the EU it has all been sorted out, which of course it hasn?t,? he says.
Johansson believes size is important. ?If you are going to deal with the multinationals then you must be multinational yourself,? he says. Nor does he believe that it is an easy process to become a pan-European reseller ? the company has been working on its plans for about nine years.
Other companies operating in Europe reiterate these views. Check Point Software specialises in firewall systems for the internet and intranets and operates across Europe. The company?s managing director, Steve Barnett, offers advice to dealers contemplating a pan-European operation. ?You have to take something special with you. You cannot just go in and sell on price,? he says. He also cautions resellers to beware of the differences within the channel structure in different companies. ?Don?t assume that the channels are the same as ours. The Americans assume that the UK is the same as the US and that Europe is the same as the UK but there are huge differences. France is very regional while Scandinavia is very flat.?
He recommends hiring a local consultant or other staff to establish a presence. ?But watch out for the consultant?s hidden agenda,? he says. ?They will always be looking for ways to make more money out of you.?
Check Point resellers can set their own user price as long as it does not affect the overall sales of the supplier. There is some price differential across countries, but because of the nature of the product, Barnett says most sales are made at or near list price. ?When you have a piece of software that costs #12,000 it may sound like a lot of money, but when you realise that it is going into a #3 million or #4 million project it?s a drop in the ocean,? he says.
There is little doubt that the majority of companies in the IT industry and outside it would welcome a harmonisation of the European taxation systems. Some also look forward to the day when there is a single European currency. As IBM and many other companies have discovered, the current European IT market is flat if not declining. Although the number of pan-European deals are small in number they do exist, and dealers and Vars can take advantage of them to increase profit margins.
It is a situation where everybody wins. The manufacturer sells more kit to the distributor, which can take advantage of volume discounts; the distributor and dealer can pass on savings to the dealer and the dealer to the customer. More importantly, in an increasingly global environment, the customer has the chance to have a European-wide service and support agreement.
But penetrating the European market requires expertise, patience, investment and sound business practice. Anyone thinking that the gravy train is rolling along slowly enough for them to jump on and cash in had better be prepared to pay the hefty fare involved.
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