Tech Data Cuts Deal to Expand Global Growth
Tech Data Cuts Deal to Expand Global Growth By Richard McCaffery Staff Writer Tech Data Corp.'s pending purchase of Computer 2000 marks a dramatic shift in strategy for the second largest distributor of computer products. Having grown swiftly through internal means for several years, the Clearwater, Fla.-based company's move to add the $4.9 billion European distributor marks a strategic decision to go global in a
Tech Data Cuts Deal to Expand Global Growth By Richard McCaffery Tech Data Corp.'s pending purchase of Computer 2000 marks a dramatic shift in strategy for the second largest distributor of computer products. Having grown swiftly through internal means for several years, the Clearwater, Fla.-based company's move to add the $4.9 billion European distributor marks a strategic decision to go global in a big way. "This business is becoming global," Steven Raymund, Tech Data's chief executive officer, told Washington Technology last week. "Companies that aren't are at a competitive disadvantage."
Tech Data's state and local business grew 83 percent in 1997 and now accounts for 52 percent of its government revenues, said Reavis, who expects the strong growth to continue. Overall, Tech Data's government revenues jumped 48 percent from 1996 to 1997. Government sales totaled about $526 million last year and represented about 12 percent of Tech Data's total domestic sales, up from about 10 percent in 1996, Reavis said. Government revenues have nearly doubled since 1996, when the company formed its government unit. "I'm not predicting any slowdown in our government business," said Reavis, who forecast 35 percent to 40 percent growth in 1998. "We expect to continue to outpace the market. "A lot of our resellers are now aggressively pursuing state contracts," he said. "It's amazing the shift we have seen." Reforms are driving this trend, pushing IT dollars to the states as the federal government looks to decentralize responsibilities for welfare and other social services, Reavis said. "Distribution has become the natural vehicle to support this," he said. There are varying estimates for the growing state and local information technology market, but the growth curve is clearly upward. Market research firm Federal Sources of McLean, Va., for instance, predicted annual growth of 10 percent from last year's spending level of $46 billion. One Tech Data customer, Management Systems Applications Inc., a systems integrator in Virginia Beach, Va., has profited from the shift, which is sending billions of dollars to the states, particularly through federal initiatives aimed at bringing computer technology to schools. The company is providing personal computers and network services bought from Tech Data to public schools in Portsmouth, Va. Management Systems Applications is now bidding on a related contract and declined to disclose the original contract value. It also is bidding on a contract worth up to $100 million to bring networking tools to five public school systems in the Virginia Beach area. "It's hot. This market is on fire," said Bill Boerner, director of strategic business development for Management Systems Applications. Tech Data, a Fortune 500 company, does not sell products directly to end users, but to resellers. It carries everything from software and hardware to mouse pads and digital cameras. Founded in 1974, Tech Data sells more than 45,000 computer products to over 70,000 resellers worldwide. As competition continues squeezing profit margins, the distribution industry will continue to consolidate, Thiese said. Despite strong growth, competition and consolidation has forced Tech Data to make adjustments. "Several years ago you'd sell a system and make 12 [percent profit]," Reavis said. "Today you make two to four." As a result, the company is more focused on profitability. "If it means slower growth, we're willing to do that," Reavis said. Electronic commerce is one way the company has cut costs. More than 25 percent of its sales are completed electronically, up from less than 5 percent in 1992 when the first electronic commerce tools hit the market. In many cases, the company's salesmen never have to talk to customers, Reavis said. Customers can log onto Tech Data's Web site, locate products and complete the sale online. "It's driving costs down, and it gives us the ability to pass savings on to our customers," he said. These adjustments have paid off. Tech Data's overhead, or its sales, general and administrative costs for the fourth quarter 1997, were at an all-time low of 4.13 percent of total sales, Reavis said. This is down from 4.35 percent for the fourth quarter of 1996. Fortuna said the company's low overhead gives it an edge over many competitors. "It allows us to be more aggressive," Reavis said. Tech Data's government unit has grown to 125 employees, up from about 90 in 1996. The number of government resellers to which it channels products has grown about 30 percent, from about 4,200 in 1996 to about 5,000 today. Also, its number of government resellers, or resellers that do at least 50 percent of their business with federal, state or local agencies, has jumped from about 450 in 1996 to about 700. |
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