In CPI's ongoing Spotlight Series we're looking at the southern European market.
We've spoke to the region's largest distributor, one vendor, and two pan-European partners who have invested in the region.
We asked them what is needed to successfully land and expand in the markets there, what are the tech procurement trends, and what local idiosyncrasies should channel players turning their eye south be aware of.
A tale of three markets
Firstly, it's a very mixed bag.
Looking at 2020 GDP growth forecasts, Spain's economy looks set to expand by 1.5 per cent - outstripping Germany's predicted one per cent, and the UK's 0.5.
However, Italy and Portugal are the region's weakest links. Growth is set to limp to a meagre 0.7 and 0.4 per cent respectively, which would make them the slowest-growing EU economies.
However, this makes these markets ripe for consolidation and acquisitions.
One of the largest examples in recent years of an outside reseller snapping up a local player was Claranet's 2017 purchase of MSP ITEN, one of the biggest solution providers in Portugal.
At the time, CEO Charles Nasser told CPI there are still plenty of consolidation opportunities both in Portugal and the wider southern European market.
And once you're in, the market is far from saturated.
'A very flat landscape'
Alessandro Cattani is the CEO of Italy, Spain and Portugal's largest distributor, Esprinet.
With revenues of €3.6bn, and a presence in all three countries, for Cattani, one of the key characteristics of the market is that it is a little behind in the curve of utilisation of technologies in comparison to western Europe.
For him this means two things: Firstly, that the opportunities to capture market share as digital transformation needs grow are vast, and secondly, that those who make the effort to train customers will be rewarded.
"At the moment we are facing primarily small and mid-sized companies that have intrinsically simpler needs in terms of IT. But this will change," he said.
"So there's a lot of training which is needed to bring technologies, and especially advanced technologies, to the market. There is a higher-than-average need for consultancy and training that must be provided to end customers."
He added that he thinks partners can therefore be bolder and stand out better in this kind of an environment than in a larger saturated markets.
Thomas Jensen, Bechtle's EVP for its mediterranean region, agrees.
The German VAR giant considers the region as key to its EMEA strategy.
And after 20 years working in the region, Jensen says that being aware of the structure of its channel is vital.
"The southern European partner landscape has very few large players but none of them are dominating in the market," he said.
"Typically it's a very flat landscape of a lot of mid-sized partners, so our intention is to grow to become one of the significant players in each of the southern European markets, and we will stand out by being one of the few partners at the top of each market.
"The customers here are many mid-sized, and this is really our sweet spot," he added. "We have never been a company that aggressively pursues the large corporates in this market. And we grew double-digits in the first half of 2019 by dealing directly with midsize customers."
However, size isn't everything. For customers in this region, it seems genuine localisation is indispensable.
A local direct touch
"Another key characteristic is that this is a very "relational market", Esprinet's Cattani explained.
"What I mean is that, perhaps it is part of the character of the Mediterranean people in having an intrinsic need to build personal relationships on which to build trust. This is part of the higher level of consultancy you need to offer to be successful here.
"You must not only have the knowledge, if you want to have a relationship in this channel you need to make the proper kind of local investment."
It's a lesson that network security vendor WatchGuard has learned over its 15 years of operations in the region.
"A small but vital example that is often overlooked by other vendors, is localisation," WatchGuard's regional director of field marketing for EMEA, Maria Pinto, said.
"Language is one of the biggest barriers in the region, so to be successful, a vendor needs to address every single country in their own language and style. This includes everything from sales and marketing and technical support to training and product or service upgrades."
She added: "Around 96 per cent of businesses have less than 50 employees and in most cases do not have a high-skilled, dedicated security team. So they depend on trusted IT partners for guidance, advice and decisions… Relationships and mutual trust are very important in this region."
Where's the money going?
WatchGuard's Pinto said that, generally, southern European customers are not early adopters. Therefore what sells well are "solid, well- established brands and proven technology solutions."
She added that she also would characterise it as a price-sensitive market, adding that WatchGuard has adapted by offering its "enterprise-grade cyber security solutions" at a price that is accessible to the majority of end users: mid-market companies.
"In general, companies search for complete solutions that are easy to install and easy tomanage with a very low total cost of ownership (TCO). Recent ransomware attacks have hit the region very hard, while regulations such as GDPR have forced companies to invest in additional cybersecurity technology within their budget restraints."
She added that because of the combination of wanting local consultation and "good value", value-added distribution is more successful than broadline, volume distribution models.
"Resellers demand a lot from distribution including support, training, flexible logistics and credit lines. Therefore, it's important for vendors to extend the necessary tools and support to distribution as well."
For Bechtle's Jensen, the procurement trends are not too dissimilar to the rest of Europe.
"It's the ability to have sustainable IP solutions, whether it's on devices or their infrastructure, that is also key here," he said.
"You need to help them to really develop their business into becoming a much more cloud-enabled business, and a much more as-a-service business."
However, what he thinks does not sell is trying to push customers too hard one way or another.
"I feel that in particularly many of the vendors in the industry, and also some of our colleagues, are very rigid in trying to push as-a-service. And there's a strong justification for that, but it's not the right approach here.
"We need to listen to where they are in their life cycle of IT. And then you help them at that stage and not try to force a technology or a business model that they're not ready to move into."
He said that this is especially true because of what he describes as a conservative approach to cloud.
"They want to understand exactly what cloud can do for them before they transition their business there. There's no doubt that cloud is the future. But that doesn't mean that every customer is going to jump on board and transition to it straight away.
"It's not any different from black and white TV to colour TV; that incubation period took quite a while."
Insight's Italy country manager, Pietro Marrazzo, picked out three key spending priorities.
"When I speak to CEOs the first priority for them is security, and this is also driven by the legal requirements of GDPR." Marrazzo said.
"The second area is datacentres, because of course there is a connection between the way people are working today, where the data store is stored and where the applications they use are.
"And so there is a growing understanding that companies need to change the way they manage their datacentre. Hybrid cloud is really increasing, and really driving probably around 50 per cent of the services we provide today in the Italian market."
"And the third area that is growing in an exponential way is AI and IoT. Ninety per cent of our interactions with the technologies are because of companies wanting to change their business model and they need to prepare the infrastructure. I think with the help of services like AI and cognitive services companies can really change the way we work."
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