Just as John Wayne uttered those famous words `this town ain't big enough for both of us', Australia's IT distribution market has endured a year of rapid consolidation and is beginning to realise that, while the players are plentiful, there isn't enough business to support them all.
Almost everyone agrees that Australia has too many distributors, but each distributor will tell you there is more to it than over-population.
Despite repeated retorts that `the Australian channel is completely different', the global market is already having a dramatic effect on local business.
For example, CHS' international woes gave CHA the financial hiccups, while Siltek's acquisition of Prion in November demonstrated that to survive you need economies of scale while retaining niche skills.
Further complicating the market has been the ongoing penetration of South African distributors into the Australian market, notably Dimension Data and Datatec, with its acquisition of CNI's Logical business, formerly Anite Networks.
Meanwhile, resellers are finding themselves in a commanding position at the turn of the millennium, where the abundance of distributors arguably places the buying power in their court.
But not only does competition equal the occasional price advantage, distributors are bending over backwards to differentiate themselves with unique offerings designed to complement resellers' own customer services.
It's generally accepted that the distribution market is essentially dominated by three companies: Tech Pacific, Ingram Micro and Express Data. Siltek Asia Pacific's acquisition of Agate and Prion has also cre-ated another serious rival, while CHA and Digiland are still finding their feet in the middle ground between being international and local.
On the local front, smaller specialist distributors such as LAN Systems, Tecksel, John Mills, Genitech and Simms are proving niche is nice on its own if you can retain the right focus.
But for the general, smaller outfits like Chips & Bits, Microbits, Magnafield, Anabelle Bits and Dicker Data, the future appears less certain. The managing directors of companies such as these are likely to spend a few quiet moments over the Christmas/New Year period pondering what they will do about the `get big, get niche, or get out' adage.
At the `get big' end of town, David Cullen, managing director of Australia's largest distribution house Tech Pacific, believes the company has found the right balance between volume and specialist skills.
The `category model', as Cullen describes it, revolves around five distinct business units: networking, telecommunications, PC, software and printers, and supply and imaging.
The idea is that Tech Pacific can maintain a degree of niche focus in each of its chosen market areas in order to retain the flexibility more easily achieved by some of its competitors.
`We recognised we needed to be more flexible over the last 12 months,' Cullen said.
But despite this strategy, Tech Pacific remains king of the big-volume business. `It's an old saying that to be in this business, you have to be a volume player - there is no in between.'
The company achieved income of $1.1 billion for the 1999 financial year, and expects revenue growth of 15 per cent this year on 40 per cent growth in volumes.
The figures are a telling sign of just how tough high-volume/low-margin box shifting is on the bottom line, but `that's distribution', Cullen stated.
What's important to him is that Tech Pacific's parent company, Amsterdam-based Hagemeyer, continues to provide the cash injection as required for new projects.
Express Data's managing director, John Shein, is also playing the big investment game, reporting the company has shelled out $1.5 million over the last 12 months to develop its internal systems.
While he agrees the market is over-crowded, Shein believes ultimate success will be achieved by people who can maintain investment levels in their busi- ness. `To be a serious player, you need to scale your operations.'
Next year's revenues are predicted to hit $400 million for the combined Australia/New Zealand operations, up from $300 million this year.
The trick, he explains, will be to find the right balance between an efficient operation, while ascribing to the volume-equals-market power motto.
His only qualification is that big distributors need volume, plus vendor relationships multiplied by the ability to generate significant market share. `We are no different to a fruit and vegetable operation - fresh today, rotten tomorrow.'
The volume distribution model, however, natu-rally attracts its fair share of detractors. In particular, niche distributors appear content to maintain growth in their own right and leave the big boys to fight out the margin and logistics wars.
Niels Kofahl, managing director of Tecksel, believes niche distributors such as his will survive because of their ability to add value while still maintaining margins. `We don't sell on price alone.'
In fact, he said he is feeling `quite buoyant' about his future in the niche category, arguing the real battle next year will be between Tech Pacific, Ingram Micro and Express Data.
`Tech Pacific will probably survive, but the others will have problems.'
Kofahl added that, in particular, Ingram Micro `completely misjudged' the market when it bought ERA in March. `Ingram has always been strong in the OEM market, and now they are trying to compete with Tech Pacific and Express Data.'
`There isn't room in Australia for three large distributors,' Kofahl added. `They just [all] seem to have one thing on their mind - global presence.
`As the margins are squeezed by the vendors, the rebates aren't as plentiful as they once were.'
Part of the problem is balancing the competing demands of an efficient logistics operation with the cost of adding value, a situation he aptly describes as `an absolute bind'.
Another vocal niche distributor is Nick Verykios, chief marketing officer of networking specialist LAN Systems.
`I don't believe in get big, get niche or get out. It makes no sense when you consider how modern-day business works.
`[Distributors should] find value by providing the services the reseller needs to win new business, consolidate current relationships and help your resellers maintain a defensible stake in the market. In turn your business is protected. That has nothing to do with big or niche.'
Verykios said the company has tripled its revenues from a `substantial base' over the past 15 months, with 90 per cent of its growth organic.
But regardless of where distributors fit in on the sliding scale between efficiency versus volume logistics or the ability to tailor niche services for the market, market dynamics now dictate that each company will need to reposition itself or face the consequences.
Udo Brand, director of strategic alliances, mergers and acquisitions, at TechNet Capital, has studied the channel for years and managed acquisitions such as Siltek and Prion.
One of the biggest challenges facing the channel, according to Brand, is how to manage the communication efforts and multiple times a product is handled in the value-added chain from R&D, manufacturing to delivery to the end user.
`This is why product vendors [such as Compaq or Intel] realise that dealing with fewer parties capable of getting efficient processes in place [to deliver in time at low cost and worldwide] is the obvious option,' he said.
Predicting who will survive the consolidation push is difficult, Brand admits.
He predicts multinational companies have the best chance of survival because of their ability to interweave their supply-chain management services with major product vendors and financial backing.
`I don't believe it is simply a matter of whether vendors [like Dell or Compaq] go direct and try to cut out distributors and resellers. There are many vendors who would like to go direct, but will use a partner to outsource this as a service,' he said.
`If we look at the broad picture for local distributors, they will probably not be able to survive in their present shape. Large multinational companies can generate economies of scale and have market reach. But on the other side, they tend to become less flexible and increase overheads as they grow.'
Brand believes the `local' and `relationship' aspects of the business still matter and said there is still space for players with specific capabilities and services, which are not easily replaced by processes.
`Smaller players will have the opportunity to focus on niche products and localised services. Others may be able to maintain a dominant role with only one or two vendors in their product range - on a very low overhead basis [which provides them with the necessary scale in that particular position].
`Local players may be well advised to watch their position and make sure that customers understand these values and are prepared to pay for them,' he concluded.
Tech Pacific's Cullen reflects the sentiments of many who believe the so-called mid-tier players are the most at risk.
But Tecksel's Kofahl argues to the contrary, stating that the large distributors will be the last to publicly reveal any problems because senior management can easily be shielded from the reality of the `shop floor'. He believes the smaller the operation, the more `in touch' managers are with the daily reality of the market squeeze.
As Verykios observes: `My advice to any distributor fearing obsolescence because of the overseas invasion is to put your hand on your heart and ask yourself whether your particular core competency set is in demand, defensible and hard to emulate, and therefore saleable.
`If not, well logic tells you that you will not make it in business anyway. If the answer is yes, then the choice is yours whether you want to sell to an overseas player or continue to beat them at a game they have all failed in, save via acquisition.'
This `invasion' he speaks of has seen the finger recently pointed at South African companies such as Datatec and Dimension Data.
The South African rand's free-fall and a history of a closed market has seen such companies seek like-minded cultures where they can offload some cash before it's too late.
Siltek's new Asia-Pacific division, headed up by former Agate boss Hugh Evans, is one such company, but Evans insists the company is still Australian in nature. He explained the danger in accepting international investment is adopting the global business models typically used by US companies. And running US-style businesses based on pure economies of scale does not account for the service levels required to operate here, he argues. `No matter what they say, we are uniquely Australian.'
At the time of Siltek Asia-Pacific's Australian launch and the subsequent acquisition of Prion, Evans touted the concept of supply-chain management as the way forward.
This, according to Evans, represents the com-pany's determination to offer vendors more than simply logistics outsourcing. And from a reseller's point of view, it hints at a stronger focus on partnering than fulfilment.
Evan's believes the philosophy works well with the fact that each Siltek-owned business, such as Agate and Prion, will retain separate public identities while sharing the economies of scale from a single IT and administrative backbone. `We're getting the best of both worlds because you have to be big, but you also have to add value.'
Express Data's Shein, however, is not convinced Siltek's supply-chain management philosophy is `the' answer.
`The Dell model says we should do all that.'
The value proposition distributors pitch at vendors should be their ability to handle logistics more efficiently than the vendors themselves, he said.
Just as US vendors outsource manufacturing operations, he believes it makes sense to totally outsource logistics.
The only way real supply-chain management can be achieved is if one distributor secures an exclusive vendor partnership, which can be difficult, Shein said.
CHA's managing director, Stephen Sampson, added that the concept is `one way, but I don't think it's what resellers want'.
Resellers are `naturally wary' of partnering with distributors, while retailers are also unlikely to want to partner with distributors to the extent they follow external marketing guidelines, he said.
Resellers, VARs and integrators themselves will undergo their own consolidation, and nationalise their operations as part of becoming more sophisticated.
`You are going to see a radical change in resellers over the next three years,' he commented.
Sampson added that the general feeling is that only the niche or large national distributors will survive, while large companies such as his will need to differentiate themselves from competitors.
And one of the key differentiators here is the difference between competing on either price or service.
The large players will continue to fight the price war, according to Verykios, while the smaller companies can attack the services space.
But the most important factor potentially overlooked in the planning process is the changing nature of the distributor's customer base - resellers.
`The buck stops with the reseller when it comes to ultimate customer satisfaction and the 'middle player' must recognise this and provide the means to eliminate a bad technology experience at the end-user level, via the reseller,' asserts Verykios.
Distributors must focus on providing a menu of channel service offerings that enhance a reseller's business potential.
TechNet Capital's Brand warns the take-home message for mid-tier distributors is they must work to become attractive acquisition targets or face a tough future.
`The distributor may have to redefine its role from being a 'revenue champion' to a 'supply-chain service provider' and 'fulfilment services' business for product vendors,' he said of the market overall.
Tecksel's Kofahl said distributors must realise resellers expect `a far better level of service and fair price'.
`The reseller is King at Tecksel,' he boasted. `Where is the small retailer going to go if their printer breaks down? The reseller on the corner.'