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The rand vs the channel

Rapid fluctuations in the rand/dollar exchange rate can end up cutting into the channel’s margins, if they aren’t wary. 

Gail Holt, Hardware.com

“Everyone’s in the same boat,” says Gail Holt, MD of Hardware.com, “the rand has been in freefall. If we receive an order, we have to honour that purchase price, regardless of what the rand is doing. This puts huge pressure on our margins. It can be very tricky to manage. Do you accept the order but only give the final price once the kit arrives? As the distributor, we carry all of the risk. Some clients ask us to fix the rate, but that’s not really feasible as you can end up making a loss.”

Holt says that as much as this is true, there’s also huge opportunity for businesses such as hers, which specialise in refurbishing and supporting end-of-life networking technology. She continues: “Having said that, the current economic conditions pose great opportunity for us to sell our services, because businesses aren’t upgrading the way they used to. It’s so expensive to buy new kit, so there’s a great opportunity for us to help maintain those legacy networks.”

In the beginning…

Hardware.com South Africa started trading in 2002 as Glue Networks. Initially, the company focused on the distribution of third party Cisco-compatible components such as memory, cables and GBICs, filling a big gap in the market at the time. In late 2003, 50 percent of Glue was bought out by its UK supplier, Zycko. In 2007, the international holding company, Simian Group, decided to split Zycko into two distinct entities – Zycko (focusing on official distribution) and Hardware.com (focusing at that time on independent Cisco supply).

As Zycko SA’s independent Cisco distribution sales grew, the company became less and less aligned to Zycko, and so in January 2014 the local operation was officially renamed Hardware.com. Commenting on the journey from Glue Networks to Hardware.com, Holt says: “Along the way it’s been great to have strategic input at a higher level from the UK, which has helped grow our business. Even though we’re a small business in South Africa, we enjoy the benefits of being part of a big international group.”

The offerings Holt explains Hardware.com’s business model: “We provide resellers with new and refurbished networking solutions for enterprise, small and medium businesses and internet service providers. Our speciality is in sourcing end-of-life products to ensure the sustainability of legacy networks.”

In addition, Hardware.com offers value-added services such as service level agreements and board level repairs to networking products. It also refurbishes products that can be re-deployed back into the field.

“There’s been tremendous growth around the services side of our operation over the past three years. We’re still moving physical tin, but we wrap services around it.”

The business differentiator

Internationally, Hardware.com is an $85-million company with over 200 employees, 17 of them in South Africa. Holt says: “We work closely with the international offices, especially from a strategic viewpoint. We also have to align with the international corporate identity. The group is strong on corporate and sales governance, so our systems are all completely aligned when it comes to CRM, for instance.”

A core differentiator for Hardware.com, according to Holt, is that it supports end-of-life or legacy Cisco networks. She says: “Our offering means the client doesn’t have to invest in an expensive upgrade, but instead can have his existing network supported in the meantime until he has the budget available. We provide a proper SLA maintenance agreement that our customers can sell on to the end user.

“Our support portal is easy to use and the support SLAs are absolutely adhered to – any replacement product is shipped out either to our customer or directly to his customer. The call centre is manned by Cisco-qualified engineers.” Holt carries on: “We train our customers on how to use the portal, log calls, manage the swap outs, etc. In fact, the portal becomes an asset management tool, as such. If something is swapped out, you can go into the portal and see a new serial number replaced the older serial number, and on which particular date. This is especially valuable if you have a nationwide network, you can drill down and see which equipment is where. What’s also useful is that you can maintain different locations internationally under one contract.”

Where the opportunities lie

Asked to look to the future, Holt says: “While hardware is still a big part of our business, there’s a massive drive towards focusing on services and maintaining older networks. We provide training, installation, logistics management on the Polycom line, as well as pre-configuration and delivery of products to customer sites anywhere in the world, except for North Korea or Syria. “For example, a customer in Namibia needed two routers delivered to a Point of Presence in Lisbon and one in Amsterdam, respectively. He bought the kit from us, we pre-configured it at our TechOps centre in the UK, installed the modules for him, loaded his specified configuration and IP address on the router, shipped them to Amsterdam and Lisbon, and one of our engineers installed it for him. We believe this is a truly unique service.”

Hardware.com

* UK founded in 2003

* $85m global revenue

* Six offices: Two in the UK, one in the US, one in Norway and one in South Africa

* Group staff complement: Approximately 200 people

* Brands represented: Avaya, Nortel, 3COM, Polycom, Cisco, Prolabs, Juniper

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