ScanSource announced plans to sell off global operations worth $623m last month. The divestment will stem from its hardware business - both in unified comms and point-of sale - as it shifts its focus to software selling.
The sell-off will effectively see ScanSource exit the hardware distribution market in Europe altogether.
According to CEO Mike Baur, who spoke to CPI soon after the announcement, it's too hard to get scale in Europe as a hardware distributor.
Instead, Baur said that ScanSouce's EMEA business will change its identity to focus entirely on software and recurring revenues; something he claims his partners are asking for.
What has been the reaction from the other hardware distributors across Europe? Do they agree with the premise that the hardware markets in Europe are simply "too fragmented" to make worthwhile profits?
UK: Westcoast MD, Alex Tatham
For Westcoast, one of the UK's largest distributors, selling hardware is as viable as ever.
"For us, we're a big hardware distributor and we're selling more hardware than ever before. And there's a lot of stuff coming through the channel," said Tatham.
However, he does sympathise with ScanSoruce's complaints of "high margin pressure" in Europe.
"We have low margins, but [ScanSource] is a value-add distributor and they're trying to keep their margins high. And I'm afraid this is the kind of thing you get. As a result, you've got to get rid of some parts of the business in order to keep those margins high."
It's an issue that makes Tatham say: "In my view, value-added distribution doesn't really exist".
"If you're fighting to hold your margin, no matter what extra value you're adding, customers don't want to pay for it. And if you have shareholders wondering what's going on, you've got to refocus your business because it's not meeting their expectations.
"For us, we sell a lot of hardware at low margin… and we're seeing plenty of hardware going through. The thing is, the big guys like us are going to swallow up that business, and do it cheaper."
Italy: Esprinet CEO, Alessandro Cattani
Alessandro Cattani, the CEO of Italy-headquartered distributor Esprinet, sees "a lot of sense" in Baur's concerns about the market.
"Our history has always been focused on very few nations [Italy, Spain and Portugal] exactly for this reason. We believe that if you try to be a big player and scatter yourself across 10 different regions, you become too small in every country to be relevant and to get enough leverage on your cost of structure," he said.
"If you look at our strategy and the strategy of many other European distributors, we are profitable because we are big enough in certain areas, so we can make a profit."
Cattani thinks that ScanSource may have initially misunderstood the European market.
"Because of the differences between the different European nations, there's a need for local people, local warehouses, local offices, and then you replicate your costs.
"And unless you have the volumes, you're dead. That's something that for American companies is hard to understand, because they grow up in a huge homogeneous market where you have offices in one or two places and you have access to a huge market. Europe is different….You have to have a localised presence."
Is Esprinet therefore poised to benefit from ScanSource's withdrawal?
"Specifically in data capture solutions, the area where ScanSource operates, we are active there. We are not seeing a lot of requests in that area yet, but that could change.
"To my knowledge they are not very big in Spain and Portugal, which are the geographies where we are active, but obviously if they eventually leave the area that might be the opportunity for us to grow a bit more in that space."
Latvia: ELKO CEO, Svens Dinsdorfs
The CEO of emerging markets distributor ELKO also sees ScanSource's focus on scale as perhaps being led by cultural expectations.
"Americans like scale and that is a business model for them to go on," he said.
"I think Tech Data and Ingram are doing it as well, but some of them are failing because there is not enough space for big volume. For scale it's very much about total efficiency and a very rigid business model, with rules and algorithms... Another way is to be localised and closer to customers and flexible."
ELKO itself is a $1.5bn business. But Dinsdorf says that his strategy is to remain close to specific markets.
"It's still about consolidation in the distribution market…We recently saw ALSO acquire ABC Data [Poland's largest distributor], so it is definitely a trend," he said.
"I think the options are to be big and strong in a small number of countries - to really live in those countries - or have a pan-European operation to get scale.
"This industry is changing its processes….Distributing software is easier, I agree. But we have never been strong in software. We are sticking with hardware. We are fighting this battle."
US: Tech Data Europe president, Patrick Zammit
According to Zammit, Tech Data is making the opposite gambit to ScanSource, planning instead to continue to expand across country markets in Europe.
"I think it's critical for distributors to have significant pan-European scale in all major countries and technology categories in order to best serve the market," he said.
"In the future, it will no longer be enough to be local as we increasingly see channel partners in need of pan-European and even global support."
However, he recognises Baur's point that software and recurring revenue models are becoming increasingly important parts of the distribution business.
"Software represents a significant portion of our Advanced Solutions business, and cloud is our fastest-growing technology," he said.
However, rather than "shifting from one model to another", Zammit said that he hears partners asking for distributors to be able to deliver a more holistic proposition.
"Taking a broader view, we are focused on providing an end-to-end product portfolio that includes advanced solutions, end-point solutions and next-generation technologies like cloud, IoT and analytics, security and services," he said.
"More and more, our partners come to us seeking support to address specific business challenges rather than a shopping list of IT products."
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