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COLUMN: The Changing Distribution Landscape?

The Channel Company’s Executive Chairman Robert Faletra says Tech Data’s merger with Synnex wasn’t born out of necessity, but of ambition.

Tech Data and Synnex’s bold move to merge and create the biggest high-tech distributor in the world certainly changes the competitive landscape. But is it an indicator of massive market changes to come?

Are there fundamental changes in the distribution business that will lead to massive restructurings and accelerated consolidation? Can the past help us predict the future, or are things so different in today’s market that there is no playbook in place?

The first question that needs answering is what drove this move. My belief is this was not born out of necessity. This did not happen because it needed to happen. When HP gobbled up Compaq, that needed to happen. There were too many PC makers in the market and something had to give.

This combination is being born out of ambition and the desire to grow and push the entire market forward. It didn’t need to happen. It happened because Tech Data CEO Rich Hume and Synnex CEO Dennis Polk wanted it to happen. It falls into the old adage that if you’re not the lead dog the view never changes—and this certainly makes the new entity, which has to be named, the lead dog and significantly so. But even before this, Tech Data was becoming the leadership mega-distributor largely in part because Hume has been vocal in the market.

Leadership requires communication. CEOs who avoid speaking publicly outside company walls rarely are seen in that light. Hume in his unassuming way has been vocal and accessible. That garners attention, projects market leadership and gives his business mojo. At nearly 20 percent bigger than Ingram Micro post-merger, his voice becomes louder—and that’s marketing muscle.

But does this move force other competitors to make similar moves? I doubt it.

It does have the potential to make the new company a more profitable business when synergies take out costs, and the efficiencies of having a larger business worldwide potentially result in increased margins. Even if margin creeps up modestly, it means this NewCo has more dollars to invest in opportunities, and that may put pressure on others.

As Hume mentioned in his discussion with CRN, the world around how we consume IT is changing and this gives the company more room to invest to drive more sales with more customers. That’s certainly an advantage, but IT products and services have been changing since the beginning of the industry. So while this dynamic is different because of where we’ve evolved, it’s in many ways similar to the pressure that distribution has always faced.

It means bargaining strength with vendors but that has limitations, is more pronounced with smaller vendors and slim with the largest ones. To some degree, vendors may be concerned that too much of their business is concentrated with too few distributors and move to correct that where they can.

Does this mean death to smaller, more focused or specialty distributors? Not likely. The new company and Ingram Micro may be after the same markets as smaller players, but niche distributors survive for other reasons and no distributor can do everything. It may prompt others to potentially eye cloud-focused distributors like Pax8 in order to keep pace with the NewCo’s investment. But that is something that has probably already been happening and my guess is Pax8 isn’t interested—at least not right now or something would have happened. It’s certainly an attractive target.

In the end, this move is exciting for Synnex and Tech Data, and it presents enormous opportunity for the combined company to capitalize on new initiatives around Infrastructure as a Service and cloud. It gives it more opportunity to grow organically and while it presents new competitive pressures for others, I just don’t see it as something that sparks massive consolidation and a remaking of the distribution world as we know it.

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