By setting up its own manufacturing plant in South Africa, producing desktop machines in conjunction with black empowerment partner
According to Gary de Menzes, commercial channel manager for HP South Africa, the project has been attempted here and in Poland. The Polish version “didn`t work too well”, admits De Menzes, while the South African operation has flown. So much so, in fact, that HP is looking at rolling out manufacturing plants in countries with similarly high costs of transport and taxation.
De Menzes attributes HP`s success over most competitors in the latter part of last year to the locally manufactured machines, keeping HP above arch rival
“With the production of our locally produced HP desktops, we`ve almost entered a new category, certainly from an HP perspective,” says country manager Henry Ferreira. “We now address a new category that previously we certainly did not, both from a price-point perspective, as well as from a South African customer loyalty perspective.”
Public sector win
The locally manufactured PCs are endorsed by government, and have been included in the Proudly South African campaign. HP now has the advantage of selling not only on price-point, but also on an emotional sell, says Ferreira.
Currently there are two models available from the local plant: a Celeron and an
In December, Matomo announced it had shipped 15 000 machines in its first half-year of business.
“The local assembly line is playing a major role in building HP`s profile in markets that the white box manufacturers have dominated to date,” says De Menzes.
Ferreira says the branded machines have always been “fairly strong” in the South African market, “But we must not overlook the fact that the white box manufacturers still occupy a fairly significant share of the market.”
Still expensive
Although the local manufacturing plant does help Ferreira keep his overheads down on the entry-level PC side of the business, HP`s range of product is significantly broader than two desktop models.
“The costs of doing business would vary from country to country based on local country costs as well as various external factors, such as duties, taxes and so on and so forth. Clearly, if you are far from the manufacturing facilities, there are things like freight costs involved. Obviously, those additional costs translate into additional costs for the customer on the ground here. But that is a factor for any company doing business around the globe.
“But in the end our business model is based on the local country costs, such as local labour costs. So if one takes a swings and roundabouts view, while it perhaps costs us a little more in freight to bring the product in here, you may well find in dollar terms salaries are lower because of the softness of the rand vis-à-vis the dollar. So it balances out into what I would consider a very competitive business model.”
Global goals
In typical global fashion, product gets shipped in from various corners of the globe, including Scotland, Ireland, the Czech Republic, France and Germany. Likewise, HP`s customer base also tends towards the global, with Ferreira estimating the number of global customers serviced by HP locally to be in the hundreds.
“When you think global customers, you tend to think of the most prominent ones – the ones that are in your face every day, such as petroleum companies where we top up our tanks every day. But there are many more. There are the pharmaceutical companies, major insurance companies, major banks, major manufacturing organisations, advertising companies, legal firms ... one loses sight of that. Many are global companies.”
These international relationships are typically handled by one relationship manager based near the customer`s head office, “but the actual delivery and on-the-ground operational duties are carried out by local country teams”.
Customers have quite a number of options when it comes to interfacing with HP.
In what it calls a “blended channels” model, the customer can go direct or through a partner. Typically, a channel partner provides order fulfilment, but with Dell`s direct model breathing down HP`s neck, it`s not surprising that there is some direct component to the offering.
For HP, this is a bit of back pedalling. For years it insisted it would never go direct, even when the US started its direct model. But after losing the top spot to Dell, a change was inevitable.
“It really boils down to customer choice,” says Ferreira. “Having said that, however, our focus is still very much geared through and with the channel. We believe the channel adds significant value to most areas in which we operate. We will continue to drive and support that process for as long as it adds value. So I think when one talks about direct, sometimes it can be misconstrued. For us it means accessing the customer in a way he or she prefers, in the most cost-efficient and efficient way. To date, the channel certainly has provided us with that facility.”
Direct involvement, direct accountability, and being involved in the relationship is what Ferreira believes customers want from HP, particularly in the corporate account space. “If you go onto HP`s e-procure, you can buy online, and specify your partner of choice or mode of delivery.
“We think we`ve brought together a blend of efficiency, transparency and cost-effectiveness by combining the resources and infrastructure of HP with the resources, infrastructure, capabilities and relationships of our channel partners. And that really brings the best-of-breed procurement situation to bear on our customers.”
Common culture
While South Africa has embarked on some projects specific to our country – most notably the local assembly plant – Ferreira believes the culture of HP South Africa does not differ much from that of its international counterparts.
“Apart from whatever idiosyncrasies us South Africans may or may not have, and some people say we`ve got a few, including what they believe is a strange accent, I would say that the culture permeates throughout the company. It`s a very similar culture, a very people-centric culture, a very community-focused culture and a very customer-oriented culture. You could go from subsidiary to subsidiary or to headquarters and you would see pretty much the same type of culture.
“Culture in many ways is attitude – your attitude to business, your attitude to the way you do things, your attitude to life,” Ferreira continues. “And you find that HP employs a very similar type of person, and you either blend in with the culture and add to it or you don`t, and then you wouldn`t work for HP.”
The recent merger with Compaq has shifted the culture somewhat, as the two fairly disparate cultures combined to form what is still frequently referred to as the New HP. “I think one of the things coming out of the merger was really to blend the two company cultures as quickly and as effectively as possible. You can`t mix two cultures as big and as strong as that of Compaq and Hewlett Packard without some change. So certainly the culture in the New HP would be different – even if slightly so – from the pre-merger HP.”
Ferreira says the year has been tough on HP. “It`s been a tough year economically, and in particular on the IT industry. Customers have looked more carefully at their spend, and certainly most of the customers I`ve spoken to have had a keen focus on containing expenditure where possible and improving efficiencies all the way. They`re looking more closely at return on their IT investments.”
The South African contingent has had a relatively flat year, “and normally for us a flat year could be viewed very negatively, but a flat year for us in this context has been viewed in a very positive light”. Ferreira believes the flat growth translates into a growth in market share in a dipping market.
“Also we managed to go through the biggest IT merger in history without it having a negative impact on us with our clients.”
The New HP is starting to prove itself once again in the South African market, despite scepticism over the recent merger. Initiatives like the local assembly are helping it re-prove itself in the eyes of a proud, if somewhat disillusioned, IT market.
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