Paul Golden speaks to markets leaders in the office equipment finance market and finds growth is on the horizon again
After a tough 2013, market participants are generally optimistic that the European office equipment lease market will experience at least modest expansion this year.
Leaseurope data suggests growth in IT and office equipment leasing across Europe during 2012 (the most recent year pan-European figures are available) was rather patchy, with significant expansion in some countries and a notable decline in others.
For example, while the Netherlands and the UK enjoyed increases of 12% and 11% respectively and the French market grew by 1.3%, there was a 4.6% reduction in Germany and a 17% decrease in Italy. A possible explanation for the decline in the German market is that the country recovered earlier than other markets, but then stagnated.
A study from research firm IDC found the Western European printer market was flat overall last year, albeit with momentum growing towards the end of the year in terms of sales volume, which increased by 5.5% in Q4 compared to the same period in 2012.
"These results show that many companies are continuing to invest in their printing and imaging requirements as confidence in the overall economy improves," notes Phil Sargeant, programme director of IDC’s Western European imaging hardware devices and document solutions group.
"There are pockets of opportunities for many manufacturers and channel partners and 2014 is most likely to see the overall market increase [although] growth is likely to be steady rather than spectacular."
German market research firm GfK observes that third quarter 2013 sales in the Western European office equipment and consumables market were 4.9% down on the figure for 2012.
Audrey Joulia, strategic account manager in technology solutions with BNP Paribas Leasing Solutions, describes the office equipment market in Western Europe as a mature market characterised by a high penetration of leasing.
"As consequence, it is stable, mature and competitive. We assess the financeable size of the office equipment market in Europe to be approximately 7bn, a total which changed little last year although it’s expected to grow by 2% in 2014. The major changes have been in terms of market share and the financial situation of the market players."
While noting that in France and Germany the office equipment market showed no growth in 2013, she says the UK market did grow modestly (2%).
Competition heating up
Steve Riggs, president of the office technology business unit of De Lage Landen says the European office equipment leasing
market is returning to growth after a number of difficult years.
"There is less concern about the economies of Greece and Portugal than there was this time last year and we continue to do very well in Italy – our number one market in Europe. We are not the only player in this market to feel this way – the competitive landscape is heating up because margins are good and vendors are investing in Europe."
Christian Bernhard, GE Capital international head of business development for equipment finance, refers to an uptick in the overall technology finance market reflecting a broader increase in confidence towards the end of 2013.
"We expect 2014 to be a year of growth in EMEA as many companies which may have been holding back from investing as a result of macro uncertainty are now prepared to renew their equipment," he says.
In the pure technology arena, overall the office equipment market is not growing – that is the view of Pedro Galvao, European general manager at Xerox Financial Services. "However, there are segments that are expanding, such as managed print services, whose development and related services have been the most significant developments in this market in the past 12 months," he says.
BNP Paribas’s Joulia explains her company has made a number of refinements to its offering over the past 12 months.
"We have developed value-add capabilities with our partners, such as bundled offerings with collection and reversion of the service elements on behalf of the partner and the ability to consider software financing as a standard intangible asset.
"We have also launched a ‘rent per use’ offer with flexible invoicing upon usage. It should be noted that the ‘asset as a service’ approach is developing in the office equipment market as in other technology markets."
Her colleague and head of partnerships with the technology solutions business line, Richard Gendreau, says the company is
satisfied with market growth in Europe during 2013.
"The office equipment market represents one of the main markets for BNP Paribas Leasing Solutions. We have been active in this arena for 30 years and have more than half a million active contracts under management."
When asked how market share breaks down between bank-owned, independent and manufacturer-owned lessors and whether this balance has changed in recent years, he observes that the competitive landscape has changed in the technology vendor finance business, most notably with US players closing their business in Europe.
"The question is not so much whether you are a bank-owned company or an independent player. It’s now crucial for leasing companies to be financially stable, secure their access to funding, be able to abide by the new regulations, monitor properly the risks and have in place the right tools and processes to develop with a long-term view."
Gendreau adds that the economic crisis means customers have to be better able to control and reduce their costs.
"Therefore we have seen an increasing volume of requests for the financing of managed print services solutions.
"In emerging countries (Turkey, for instance), we now see a growing numbers of requests for leasing where office equipment dealers used to fund the business on book."
Joulia claims that while there was a trend towards manufacturers offering their own finance during the financial crisis, the market is now moving in the opposite direction.
"It seems that the trend is now to outsource the financing again with the intention for vendors to limit the impact on their balance sheet in order to focus on their core business," she says. "The financing of the office equipment market has been confirmed as a core business by our group."
"One of our key value drivers is to continuously improve vendor satisfaction, which is why we have launched annual partner
satisfaction surveys to inform our actions in this market."
De Lage Landen’s Riggs says there are relatively few independent lessors in Europe and that they are most active in the small-ticket space.
"The market is dominated by bank-owned and captive lessors. We have spoken to a number of captives to get a sense of their strategy and how we could perhaps work with them.
"In cases where the manufacturer is struggling with its competitive position, the captive is often the first thing to go.
Partnering with them makes sense since they are already equipped to bring the service that completes the offering to their end-users."
He says that within the office equipment market, many players look at the integration with IT systems to create new, value-added solutions. This is one of the reasons why he says his company is particularly enthusiastic about the prospects for the copier market.
"We have just completed a study of the copier dealer market in Europe and we are making a significant investment in this area, since we have a strong position in both the copier and the IT market.
"That is why we are adding to our sales team in five countries to exploit opportunities in a market that continues to generate considerable lease volumes. We have done most of our business in Europe in the wholesale market but we will be focusing more on the retail market."
GE Capital sees the most significant development over the past 12 months as the continuing push for managed print service and general solution-based financing requirements.
"Usage-based models with flexibility across many different variations continue to be critical," observes Bernhard.
"End customers are interested in solutions rather than paper copies. It is exactly in this area where original equipment manufacturers can achieve interesting margin, including consulting services. In addition, we see a trend towards convergence between IT,
telecommunication and office print solutions continuing, moving away from ‘box shifting’ towards ‘solutions selling’. Cloud-based hosting solutions will be the future of this market."
He says the European office equipment market breaks down roughly 40% for manufacturer-owned lessors and the remainder split equally between bank-owned and independents and refers to the trend for manufacturers offering their own finance in this space moving both ways.
"On one hand, captives may find the regulatory environment a challenge, particularly in what is considered a ‘non-core’ business line.
"On the other hand, independent and bank-owned companies are looking to develop financing solutions which are more geared toward a manufacturer, for example, in the digital print sector."
Bernhard describes the key factors affecting the major European markets as including reduced hardware prices, increased level of soft costs and the push towards managed print solutions with variable billing.
He says: "GE Capital has developed a number of bespoke billing solutions (as well as managed print solutions) to simplify processes for our customers significantly. We provide solutions for manufacturers and resellers to secure flow business while also supporting very strong deal-structuring credentials for large, global deals.
"We have also developed products to support and finance reseller stock and showroom financing.
"More broadly, we have rolled out our ‘Access GE’ campaign to our customers, which enables customers to gain access to experts from across our industrial businesses in order to help solve their major business challenges."
The biggest recent developments in this market have been caused by funders who have changed or adapted their stance recently, according to Kim Carter, vice-president of leasing at Ricoh Europe.
"At a high level the banks are less engaged. Certain vendors are no longer operating within the sector and, in addition, some independent vendors are less active, which could mean the manufacturers have a more significant role to play."
She says her company is helping businesses to improve their efficiency and productivity to ensure they have the right tools and processes in place for future success by remaining an alternate source of funding.
"This includes offering the flexibility to upgrade solutions by swapping the product during the lease period," says Carter.
"Customers can also benefit from the convenience of managing their entire document solution (including service, software and financing) with a single partner. In addition, Ricoh Capital is taking an aggressive approach to the underwriting of its customers to support the growth of our direct sales organisations."
With even more technology-led change on the way, Carter says she’s confident there are opportunities on the horizon for European businesses.
Given his role at Xerox Financial Services, it’s perhaps inevitable that Galvao feels captive companies are better positioned and equipped than bank-owned or independent lessors to support the manufacturer in structuring the managed print service offer, and tailor it to specific customer needs.
"Given that this segment of the market is growing, I believe we will be able to assist movement in terms of market share, albeit always limited to the relative size of the captive market," he says.
He describes the ability to play the role of a business integrator following the market trend on managed print services as the major opportunity in the European office equipment leasing market and says he’s optimistic about the prospects for the market in 2014.
"In addition to the opportunities mentioned above, I am hopeful that the European economic environment will improve overall and that this will be translated into new business," Galvao concludes.