Key interview with force behind fast-growing distributor, driving higher margins and big dividends; why global distributors fail in CEE While it has become easier to name large IT companies led by women – HP, IBM, Xerox etc, the channel has been behind the rest of the industry. But there is currently one woman CEO of a large distributor: Ilona Weiss (below) of fast-growing Poland-based ABC-Data. She stands out among other CEOs gathered, for example, at the recent GTDC European conference, and not because she is an accountant by background – there are plenty of those in top roles.
The company she runs also stands out because it claims one of the highest margins, is expanding into other parts of Central and Eastern Europe, and has a huge product range – nearly 200,000 lines. More than 85% of its transactions are generated through InterLink, which is the e-commerce platform of ABC Data and working the region with nine languages.
Poland is a central and core part of any plans in CEE, being the largest market, so it is not surprising that it all started there: “In 2012 I was appointed COO, then rose to CEO as the need for change became clear. My first task was to prepare a strategy which took me a few months, working with my team. Then we had a discussion with the supervisory board -including a presentation over eight hours. Then they voted 100% in favour of it. The whole idea is a strategy which can go on one page.”
“I changed the mindset that we are not a product company selling goods, we are selling services. This is a big shift in thinking and in managing all the dimensions of the group. I said that as distributor we provide services to vendors and have value propositions on channel penetration and financing. For the channel we have a wide portfolio of goods – almost 200,000. The main services include logistics, and we have to be good at this; we also offer finance to the channel and vendors. Changing that way of thinking allows me to put the best value proposition to each customer. And internally we have to offer excellent service – this became immediately visible to partners.”
This was about a mindset and changing behaviour, but how does it differ from the traditional broadline model, and competitors? “The most important part of development strategy are new services and products – and the what, how and where,” she says. She convinced the board that the best way forward was to become a big player in this part of Europe.
Big Western European distributors are struggling to compete in CEE. Why? Because lots of businesses are too risky for them. It is different here. We know the customers’ behaviours and businesses practices in CEE, we’re from here. That helps us to counter-balance the global strength of Western players. Non-standard business means longer decision-making process. It takes few days for them, in ABC Data it’s often couple of hours. In this business quicker and more flexible often takes the deal. At the same time we are very strict on managing our business; being public company listed on a Warsaw Stock Exchange imposes strong compliance and reporting requirements.
“I was able to assure the owners of ABC Data that it makes sense, we started in 2015 and each year and each quarter, we deliver. Now, when we are compared with other Polish distributors, we have different views. Each of us have different focus and profile even though we’re big broadliners in our hearts and souls. Our agenda is to go regional and develop various e-commerce models.
Through growth and acquisitions it aims to get to €150m of the market capitalization by 2018. The majority shareholder owns 62% of the company and has been in place since 2007 – a long time for equity investment. They might consider an exit when the value is maximised, but the buyout price will not be cheap. “ABC Data pays one of the highest dividend, and has inancial background, which helps in driving the company. There is not any room for mistakes in low margin, high volume business. We have to be careful, but also quick and smart.”
So her aim is to build the leader in the CEE region, knowing what the business strengths are and knowing the market. This will change the shape of the European market, she says. Today more and more vendors prefer simplify their present models of cooperation with distributors. In practice, this means a replacement of many small players by few big partners. Similar trends have already happened on resellers’ side.
“When ABC Data started to be one of key players in Romania – number three, we were seen as important because we could give guarantees and approach the market replacing two smaller ones with a single distributor. With an umbrella financing agreement of the whole region, ABC Data can offer better terms, so it is attractive. I started to overcome their objections, so in Romania we grew 80%, then 40% in Hungary and so on. In the Baltic countries we doubled the number of customers.”
One of the strategies is to add and accelerate through acquisition, and the company has a strong balance sheet which will support this. So it has a growth plan that will use M&A as well as using technologies such as e-commerce based on its own InterLink platform to spread. “We have launched new search engines for customers, which are needed when dealing with almost 200,000 products in nine languages such as Polish, English, Czech, Slovak, Lithuanian, Russian, Romanian, Hungarian and German."
So there are plenty of dimensions, and it all needs to be updated every morning depending on the exchange rates. “We are getting huge numbers of requests from resellers for pricing and this is automated. The search engine responds with currency fluctuations and pricing changes.” Then there is mobile, IoT, working with telcos and other adjacent markets to consider: “Since we have changed the business model ABC Data has won big part of the IT business with telco operators in Poland –. We also have more than half of Apple products in Poland.”
Would you go into Western Europe ? “The key point is how long it takes to build a position in the top three or four. We closed the German operation, moving fulfilment back to Poland. We lost just 5% of that business, but doubled the margin. So it looks like a big market requires a big investment and takes a long time. We have done some transactions in the UK, Italy and Netherlands, but today our priority is to strengthen our position in CEE, where we are directly. This region will grow 20% by 2018, while the western markets just 5%
The final part of her story is the creation of solutions – so part of the investment has been in the competencies-building. “We have been able to offer hardware and services, and are adding cloud. Soon there will be an e-commerce platform where we can offer cloud as well. This advantage here is that we will be able to offer cloud invoicing – single billing for customers. This will all be integrated, and there will be savings for customers and vendors.”
This is part of the value of distribution in the cloud, she says. “Vendors are very interested in this because it will be in the eight countries and in eight languages etc, with a big market reach. Big vendors are already asking about when this will be ready.”
But is the total market she aims at in Central and Eastern Europe able to deliver the volumes at a profit? “Yes, it is more difficult to do business in the smaller countries, but this means a higher margin for those who can deliver. We have one of the highest margins among distributors; That’s possible as we take advantage of all our strengths in logistics, finance and marketing services. Our trump is also the reach and creating new platforms of cooperation. I’m saying this literally. We’ve been working on a cloud platform to offer software or apps as a service. Global and local vendors, we are talking to, are really interested in this project.
“ We are focusing on CEE, except Russia and Ukraine. In CEE there is enough room to grow and we aim to be the leader in this region by 2018.” Not that all the plans are cast in concrete: the IT market is changing – the internet business is building and hard to plan in full detail in a 6-8 year plan. “The cloud and digital transformation has been rocketing this year, so our plans have been refined,” she says.
The global market obviously has an impact: “while the resellers are able to buy on the global market, we have a financing offering which is attractive and the vendors are able to somehow make it harder for resellers to buy outside their own region. Local contracts means that they are encouraged to work through local channels. Of course there is till the right to be able to sell and buy throughout the EU, but somehow it doesn't happen very much. “
For the vendors our proposition is very clear – access to big and loyal reseller channel is what all hardware, software and services vendors value the most. It is relatively easy to buy big retail account that is price-driven and cost of changing the suppliers is neglectible. Smaller customers are tougher to win, but staying with them means more profit and better market coverage.
And the prospect for more competition? The western European distributors have made several attempts to enter CEE, but it has not worked, she says. “My financial results show that it is not as risky as they think. I know the risks. Even the global economies of scale do not work for them. Recently I went to Wall Street, where I was presented as a high flyer and I presented how ABC Data is moving into a leadership position and will be more successful. I have tripled the value of the group since I joined. When the Polish stock market fell 22% in the last year or so, ABC Data in fact rose 19% (excluding dividend cut-off) . And ABC Data pays a 11.5% dividend, which is interesting for Wall St!”
What's limiting the company now? “Just the fact that the day has 24 hours – I have so many ideas, and can't execute on them all. I can foresee some changes for example we planned for the changes in the Schengen Agreement such as the likely slowing of cross-border traffic. When you check our strategy and results, we are just well prepared.”
Her motto here is to think global and act local. “I know how the markets works. I have worked for global organisations and now I will go to the next GTDC conference to meet the global leaders of distributors. My perspective is starting to have an influence at a regional level,” she concludes.