Will the Ingram buyout decisively shift the IT industry's balance of power?

Channelnomics Europe's Sam Trendall examines the shifting power structure of the tech industry

As a journalist I am naturally hyperbolic. (In fact I would say I'm by far the most hyperbolic person you are ever likely to meet).

But even with that caveat, I would posit that it is no exaggeration to say that Ingram Micro's acquisition by Chinese conglomerate Tianjin Tianhai is, in many ways, the single biggest and most significant story I have covered in my eight years writing about the IT channel.

Of course, vast swathes of the world will have no interest in the news, and a far, far greater number than that will not have even heard about it. And, even if they had, the majority of those would have no idea who either Ingram or its new owner are, nor what their planned union might mean.

So, there have clearly been more obviously impactful stories in the technology industry over the last decade - such as the launch of the iPad, the birth of Facebook, and the Edward Snowden revelations and their subsequent fallout. And you could certainly make a case for each of those, and many more, as being the most important development of recent years.

The Ingram buyout is, on the face of it, simply one sales and logistics company buying another. It would appear to have little bearing on anyone outside of each company's workforce and customer base. And, even then, such changes may be imperceptible - beyond the alteration of the name in the small print at the bottom of invoices and payslips.

But the deal could, in its own small way, be at the vanguard of the most significant economic and geopolitical power shift in 100 years. Over the next quarter century or so, few things will have as big a bearing on the world we live in as the developing relationship between China and the rest of the globe - in particular the country it would surely like to supplant as the earth's pre-eminent superpower.

Eastern promise
The US can no longer ignore or deny China's economic might, nor the strength and success of some of the companies it has spawned. Nowhere is this truer than in the tech sphere where, in the last 15 years, the long-standing US giants of the hardware vendor world - such as HP, Dell, Cisco, Apple and IBM - have faced increasingly fierce competition from the east, particularly China.

Lenovo, Huawei, ZTE, and Xiaomi are among the mainland China-based manufacturers to have become leading vendors in their markets, while Taiwanese players Acer and HTC have also made big waves. But for all their gains, these companies' business has remained - to varying degrees - somewhat skewed towards their homeland.

Becoming a major force in Europe and, particularly, North America has proved markedly more difficult. A few years back Huawei made big investments and big noise in the channel a bid to generate more success in Europe. While it has made some noticeable inroads, it is fair to say many in the channel - particularly among the Cisco partner community - have viewed the Chinese vendor's advances with a degree of caution.

The channel push came on the back of a failed 2008 attempt to buy in stake US-based networking player 3Com. The two vendors had worked together in a joint venture dubbed H3C for a number of years. But, after 3Com had ended the venture by buying out Huawei's minority stake, the Chinese giant joined private equity shop Bain Capital in an attempt to buy the US networking firm outright.

Huawei's presence - even as the deal's junior partner - was enough to give the US government jitters, and authorities nixed the buyout on security concerns. The following year 3Com agreed a deal to sell up to fellow US firm HP - which regulators evidently found more palatable.

But the failed 3Com buyout has been but a minor countercurrent against the wider tide of Chinese money deluging the US. According to data from Dealogic, Chinese acquirers have already spent some $23.5bn on a total of 23 US acquisitions so far in 2015. This is higher than the total of $20.6bn spent - across some 115 acquisitions - during the whole of 2015. The $6bn-plus Ingram buyout is pegged by Dealogic as the second biggest ever Chinese deal for a US target.

To give you an idea of the scale of the target itself, Gartner figures reveal that some $1.1tn was spent on IT hardware and software in 2014. Ingram's turnover for the year came in at almost $46.5bn - equivalent to about one in every 25 dollars spent on IT products across the globe, or four per cent of the market.

In dollars and cents terms alone the acquisition is clearly a big deal - but the nature of Ingram's partner and customer base could give the merger even more significance.

The world's largest distributor will no doubt have relationships with numerous reseller and vendor suppliers to not just the US government, but other administrations across the western world. It seems unlikely that the suspicion and underlying enmity that put paid to the 3Com buyout has completely dissipated. Once the deal closes some of Ingram's long-standing relationships with channel partners and manufacturers may face more scrutiny than they have for some time - even if not from the partners themselves then from people like me wondering aloud whether the distributor's new Chinese ownership will give its customers and suppliers pause for thought.

Trading places
Of course, that is if the merger goes ahead as planned; the deal is subject to all the usual necessary approvals from regulators in all relevant geographies, as well as stockholders of both firms. Usually such considerations would be little more than a formality - albeit an arcane and complex one. But there will be more attention than usual paid to the machinations of bodies such as the US Federal Trade Commission in the coming months as they decide whether to green-light the buyout.

Even if everything proceeds as planned and Ingram's customers, workers, and suppliers all ultimately have no qualms with the firm's new owner, it is harder to predict the reactions of its competitors. The California-headquartered broadliner is already the world's largest distributor, so opening up major new revenue streams in a country with a population of 1.4 billion people could potentially give it a position of unassailable dominance.

But, as much of a threat as this might provide to Arrow, Avnet, Tech Data and scores of smaller players, other distribution firms might also see a competitive opportunity. The approval period will be followed by weeks if not months of integration activities, which might drain management's focus away from sales and strategy. And, once the deal closes, the change in ownership could give Ingram's leadership another layer of bureaucracy to negotiate, not to mention the potential for rivals to stir up any fears - rightly or wrongly - about the inherent security risks of being Chinese-owned.

However, the deal gives Ingram the chance to be in a unique position as the world's political and economic landscape shifts irrevocably over the coming years. As recently as 25 years ago China was not even in the world's 10 largest economies, with a nominal GDP less than a tenth of that of the US. Now, it is in second spot, with an economy more than twice as big third-placed Japan - and still gaining on the number one.

The lines of diplomacy between the globe's two most powerful nations are more open than ever, and trade is able to flow from east to west and vice versa - albeit with the odd barrier to hurdle along the way. But for all that, the IT industry in both China and the US remains dominated by local players - and suspicious of outsiders.

The opposition that US authorities have presented to potential Chinese entrants has, reportedly, been replicated when the roles are reversed. According to numerous news stories last year, the Chinese government has, in light of the Edward Snowden revelations, removed a number of major US technology vendors from its approved supplier list. Such reports appear to be backed up by the financials of US companies - most notably Cisco - that have cited major setbacks in China during the fallout of the NSA mass surveillance scandal. Throw in the EU's increased focus on transatlantic data-protection issues and it all adds up to a global market rife with fear, uncertainty, and doubt.

In this context, Ingram's buyout could be a watershed moment for the worldwide IT industry - and perhaps even for how enterprises across China do business with their counterparts in the US and the western world more widely. If all goes to plan, in a year's time Ingram Micro will be Chinese-owned, with US headquarters and history, and a European CEO to boot. The broadline giant will be hoping that it can serve as a unifying force, and an emblematic exemplar of how east and west can put aside historic hostilities and get on with doing business.

Is it time to believe the hype?

Sam Trendall is content editor of Channelnomics Europe