Captives in IT which picked up
business from cash-strapped customers during the downturn are
predicting continued high business volumes as companies return to
liquidity. Claire Hack reports.
Go deeper with GlobalData
For companies like Cisco Capital, and its channel partners,
the recession provided a window of opportunity during which it was
able to introduce new customers to financing options.
This helped form a solid platform for new
growth, underpinned by inroads made during the height of the
crisis.
It would appear, moreover, that while the
recession afforded companies a larger client base – as those who
would not otherwise have used financing models began turning to
leasing in order to remove the burden from their balance sheets –
there are other factors at play.
HP Financial Services (HPFS), for example, said
its “improved value proposition” has also helped.
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By GlobalDataHPFS vice-president and managing director for
EMEA Paul Sheeran said: “On a worldwide basis, HPFS has done, and
continues to do, very well. The EMEA business makes up 40% of the
worldwide business and there has certainly been an increase in
penetration over the last 18 months. You could put it down to a
number of things – the recession has helped, but a lot of work has
also gone into our value proposition.”
The key, according to Sheeran, is in making
sure clients are offered a complete solution, including asset
management and disposal at the end of an agreement.
Rising business volumes
Illustrating his point are HPFS’ rising
business volumes, up 30% in 2009 compared to the pre-recession
period in 2006, at $5.2bn (€4.1bn).
Year-on-year figures have also been on a marked
incline, rising 10% from fiscal 2006 to 2007, 11.3% from 2007 to
2008 and still managing a 6.1% increase between 2008 and 2009, at
the height of the economic crisis.
The first half of 2010 has also seen a solid
performance, already standing at almost 54% of the total for fiscal
2009.
“It would be unfair not to give some credit to
the downturn in terms of increased penetration rates – the whole
range of our customers are conserving cash for various reasons,”
Sheeran said.
“I would like to think it is not just the
recession though – it is also how we have gone to market, targeting
large strategic corporate customers.”
Captives, he added, are also well-positioned
compared to smaller independent companies, who lack the support of
a strong parent company and therefore continue to struggle for
capital.
“We have a sales team linked in very closely
with HP’s sales team, talking with customers every single day,”
Sheeran said. “We offer them the flexibility of a financial
solution and certainly, a lot more of them are now using HPFS.”
It is this close relationship with customers
that will help to secure business in future, as access to capital
improves, Sheeran believes.
He said: “It is not just about liquidity issues
– it is also about what we can do in terms of managing assets over
the whole lifecycle.
“Some of the developing markets are coming back
stronger – Russia would be an example – and I believe our
penetration rates will continue to increase as people understand
our proposition.”
Its geographical span, furthermore, will also
be an advantage according to Sheeran, as well as HP’s recent
acquisitions of 3Com and EDS (see Leasing
Life, July 2010).
Cisco Capital, on the other hand, has said its
0% finance offering, possibly to be extended into the next fiscal
year – known as ‘Easy Lease’ and available to SMEs – has been a
major factor in both attracting and retaining customers.
According to the company’s own research, 82% of
Cisco’s partners “rate 0% finance as their top sales enhancer”.
“Financing has become far more relevant to
customers,” said Tim Shockley, general manager of Cisco Capital’s
European arm.
“Everybody is very well aware of what the
climate has been over the last 18 months to two years –
fundamentally, there have been big shifts in the way partners are
having to sell to customers.”
But while economic circumstances may have been
one of the main drivers behind making these changes and introducing
clients to the concept of financing solutions, it is not the case,
according to Cisco, that the company is reliant on continued
economic turmoil to support its financial services arm.
Indeed, its vendor finance partners remain
bullishly confident it will be possible both to maintain and to
increase volumes even if access to capital becomes less restricted,
as financing offers such an attractive alternative to capital
expenditure.
Alison Moore, operations director at
Birmingham-based Interactive Telecoms, said: “The point is
providing choice. As things pick up, there may still be something
else clients need to invest in.
“A lease is three to five years and they are
going to be tied in to that, but it also gives them the facility to
upgrade easily.
“I would be surprised if any of our customers
would think, ‘things have picked up – I’ll not bother with leasing
anymore.’ From my perspective, it is a no-brainer.”
As well as propositions such as Easy Lease, the
extension of which is still under review with a decision expected
at the end of this fiscal year, the need to refresh equipment on a
regular basis as technology continues to advance will also play a
part in continued growth.
Cristina Berenguer, chief financial officer of
Spanish partner Unitronics, said: “Technology is going to change
faster and faster in the next few years. The need to have the very
latest is going to continue and I do not see there is any way we
will go back to a traditional way of selling.”
Cisco Capital is also working with heads of
finance at end-user organisations to help train resellers on what
customers are looking for, as well as reducing the minimum
requirement for a project’s content of Cisco products and services
from 70% to 60%.
The focus for funders, therefore, is on
extending growth in the light of new economic conditions, rather
than depending on continued capital constraints to support
business.
