CRN Interview: Synnex CEO Bob Huang On Managed Services And The Gray Market

Synnex CEO Bob Huang spoke with Editor News Steven Burke about new opportunities, managed services, the gray market and other issues at the distributor's annual partner conference in Greenville, S.C. Below are excerpts from the interview.

CRN: Talk about Synnex's direction going forward and where you see the greatest opportunity for growth?

Huang: We are selling a lot of new products in the enterprise and vertical markets. The point of sales, AutoID, security stuff, are all new products. This morning we had meetings with system builders who were talking about high-powered computers like Linux clusters. They all offer pretty good potential.

CRN: Are you optimistic about one segment over another as you look at the lineup?

Huang: At the end of the day, we have to go look at what the end user's needs are. I don't think we have any concerns about the public sector. There may be some ups and downs in one segment of the budget. Overall in the long term the government is pretty stable and I think we know what their needs are reasonably well.

The trickier area is SMBs where you are talking about more business solutions. The public sector will not always share with you what specific applications they will get into because of national security reasons. In the business solutions area you are talking much more specific, very vertical. In the 80s we were more talking about how you increase productivity, then in the 90s where infrastructure solutions, the network. Today we are moving into more business solutions and business solutions require a lot more understanding of particular segmentation and business needs. That is what I call trickier. We do a lot of things in that area as well either through vertical market solutions or we work with ISVs to provide more total solutions to those end users. More and more resellers, particularly small resellers, not direct marketers, they are getting more and more revenue from services. We encourage our resellers to leverage our resources. That is why we have invested in BSA (demand generation services) and Microland (managed services) so the resellers can leverage our investment and hence create more service opportunities for them to serve their customers.

CRN: Talk about the Microland managed service that VARs can resell which you are launching here.

Huang: Over a long period of time we will move to we hope some level that is significant to our bottom line, but I don't think today. Just like any emerging technology you don't really know the magnitude particularly relative to our $5 billion in the distribution business. That makes it more difficult to put a number that would have a significant percentage to that big a size. However in a few years time, people are going to work out the kinks and we'll see how that evolves. However, don't underestimate [how] these services themselves will enable more dialogue between our customers and their end users and hence when they come through you will need more security appliances, more different networking appliances in order to do remote managed services. So those are opportunities. The resellers need that understanding and those services readily available to them so if the customer is interested they can sell it. Once that is done, now you are talking about annuities. They don't have to do a lot of stuff anymore.

If you think we could monitor servers and identify when there is a defect or issues, the VAR can be at the customer's doorstep before the customer finds out about it. That is very proactive. You make your customers very happy.

CRN: How many more annuity opportunities will Synnex be bringing to the table?

Huang: It is more when rather than if the service is needed.

CRN: What is your vision for Synnex?

Huang: On the product side, several customers have told us that Synnex's service is good, execution is good, but we don't have the breadth of product line of a couple of our competitors. We are spending on that. Five, six or seven years ago we only had commercial product lines, the system builder product lines. From there we got into software, supplies, IP communications product line, voice over IP, telephony, security, point of sale and now enterprise. We have expanded our product offerings. Just like services, that enables conversation. It creates a story for the reseller to go back to their customer and hopefully help customers increase productivity.

CRN: What kind of opportunity do you see working with ISVs and partnering with solution providers?

Huang: At the end of the day, now it is more solutions. These are solutions we need to provide. Very often hardware is one piece of the puzzle so we need to bring the ISV in to solve the entire business puzzle. That is what we are doing.

CRN: Any goals on how many ISVs you are looking at?

Huang: We are the type of company when we say we are going to do it we build gradually. It is not something we throw tons of money at from day one and then hope that the strategy would work. We always make sure there are some pilots and make sure the business model works from the marketing perspective all the way to the implementation so we will not be disappointed. One thing that we think makes a lot of sense is many ISVs are smaller and cannot support a lot of VARs. So we enable Microland in India to provide that type of support. From a cost perspective that makes a lot of sense.

CRN: How do you see the impact of India moving forward and its impact on the channel?

Huang: I think we are the only one moving to leverage resources (in India) to help the channel. I think if we can make this model work, it will add more value, create more stories, and more productivity improvements to the entire industry. We see this as a very positive move.

CRN: Some VARs are telling us they are opening offices in India. What do you think about that?

Huang: Those are sizable VARs. [For] the small VARs the costs will be so totally prohibitive it won't make a lot of sense, why not leverage the infrastructure we would build? It is impossible.

CRN: Are there a lot of other potential opportunities to leverage costs in India?

Huang: We are already doing that with tech support and the call center. Those are things that are easier to do. That goes without saying. There are alot of people doing that. Managed services is something newer.

CRN: Talk about the challenges facing system builders going forward?

Huang: The difficulties on the channel on the system builder business is the dominance of Dell that is certainly putting a lot of pressures on the white box side of that. Synnex certainly will play a leadership role in that area to bring everybody together and to some degree we could standardize products and systems and hence bring down the costs and we could probably function more as a smarter OEM to pull all the different products together and do a much better job on costs through purchasing. They are all very small here and there and don't have bargaining power.

CRN: Talk about the gray market and the impact that is having on business?

Huang: One of the things I was talking to the group [about] is that the whole industry needs to have more discipline in terms of the gray market, managing the products in different geographical areas so the products don't move from one area to another.

Vendors could do that and manage that a lot better than they are doing. The gray market creates a lot of damage to the industry. The volume is not that big. However, because this whole industry is so competitive, particularly in the margin area there are people constantly shopping around and this shopping around wastes a lot of people's time and energy for a very small volume of gray market products. The vendors need to make a priority to stop that.

CRN: Are the vendors turning a blind eye to the gray market to make quarterly numbers?

Huang: I don't think intentionally. But most of the geographical area managers do have some leeway to make their pricing decisions and hence sometimes people use backend money, the marketing dollars, for different purpose. Those are the things that can probably be managed a lot better.

CRN: Is the primary problem people are shipping product over borders with currency advantages?

Huang: It is not so much the currency advantage as much as the geographical price differentials that manufacturers feel they need to create: ie., for certain underdeveloped countries they feel they can not support mature market pricing so they offer better pricing particularly when it is a generic product [and] it can be shipped anyplace.

CRN: The biggest issue is price differential then in countries like China and India?

Huang: And Latin America.

CRN: What are the products involved in this?

Huang: Components and supplies. Where the gray market comes from we don't know. But it is a scam. It can be sometimes 10 " 20 percent difference from the legitimate product.

CRN: When you look at this gray market situation in 2005 versus 2004 is the volume higher than it has ever been?

Huang: That depends on the cycle. It depends on the cycle.

CRN: What do the vendors need to do to stop this?

Huang: If they need to have some price differential for certain markets, they need to not just package it differently. They need it to be stripped down. For example, Microsoft has XP Light for Latin America. That makes sense. That may not be the best case because there is language involved. You need to do those types of things.

CRN: How much time and money is being wasted on this by VARs?

Huang: It is not just VARs. It is everybody.

CRN: What is your biggest worry as you look at managing the business?

Huang: My biggest worry is someone making a decision without a good understanding of what is going on. That is what worries us. So far we see that most of the vendor community has a good understanding of what the channel contribution is either that be the new Lenovo or the Acer guys. I am not concerned right now that there are too many issues on that.

CRN: As HP, Lenovo and Acer look to compete against Dell, what is the major challenge they face competing with Dell?

Huang: If they really leverage the value that the channel brings, they will not be disappointed. But if they can not make up their mind on whether they want to go direct or the channel, then there will be more problems. When you always have second thoughts people can not commit resources to it. From the channel point of view, the energy must be drawn from within the channel to create value for the customers.

CRN: Are there not enough vendors emphasizing the local services and advantages provided by the solution provider versus price?

Huang: When their internal cost structure is not good enough to compete against Dell, instead of fixing the internal problems sometimes they look at the channel and say maybe we can take more direct.

CRN: What is your message to the VARs here at the conference?

Huang: There are a lot of opportunities for the channel to leverage our resources, not only our product but the services I talked about earlier. We have a lot of programs coming up for services they can provide to their customers. These are things that will give them opportunities to increase their bottom line.

CRN: How do you feel about the economy and IT spending?

Huang: It is so-so. 2004 was much stronger for IT spending than 2005. In 2004 we had a refreshment cycle going on after Y2K.

CRN: Any new areas you are focusing your time on in 2005?

Huang: One thing I could say is Synnex has extremely strong people. The question in my mind is how can I unleash their powers?