Global cooling
You know you’re in a globalised economy when domestic sales are down because some people in another country can’t afford to service their mortgages.
In its unceasing desire to increase profits, the US mortgage market has made it easier and easier for people with low incomes and/or dodgy credit histories (euphemised as ‘sub-prime’) to borrow money. When, inevitably, these people started defaulting on their loans the fallout should in principal have been limited to those US companies who lent them the money, but it’s not as simple as that.
You see, nobody really knows who holds the debt that these sub-prime punters are defaulting on. Today’s murky financial environment of hedge funds, structured investment vehicles and debt repackaging allows that a chunk of debt to be chopped up and the bits resold in the global market as soon as it’s acquired. This ultimately makes it very difficult to work out which lending institutions are most exposed.
Another feature of the global financial system is that banks are constantly lending each other vast sums of money. These usually short term loans are considered low risk because they are confident in each other’s ability to repay. But when faced with uncertainty over which banks might be about to go bust due to over exposure to US sub-prime loans, the banks are understandably reluctant to lend to each other until the situation becomes clearer.
Many financial institutions are heavily dependent on this inter-bank lending and are unable to lend to consumers and businesses without it, so what we’re left with is a drying up of credit for everyone – a credit crunch. This is what happened to Northern Rock and only a huge loan from the government saved it from bankruptcy.
On top of that, the natural economic cycle is due for a downturn. House prices are finally starting to level off after years of supposedly unsustainable double digit growth and the level of consumer indebtedness means that most people would hesitate to borrow more even if there wasn’t a credit crunch.
But how will this affect the UK technology channel? Well, we’ve already seen that Christmas figures were poor for a lot of high street retailers and the chances are we will see further consolidation in the vendor and distribution sectors. On the flip side, online sales were up again and the technology industry itself is on the cusp of dramatic change as the continued convergence of the IT and telco industries means that long awaited convergent applications like The Digital Home and Mobile Internet finally become a reality for the masses.
As the channel insiders have all stressed in our Channel Voices feature, there are still plenty of opportunities in a downturn, you just have to look a bit harder for them and work a bit harder to exploit them. There will be consolidation as less competitive businesses fall foul of the tougher trading conditions, but the best run companies will continue to thrive.
For example the desire of giant retailers like Tesco and Walmart to dominate the consumer technology market as they have so many others could be seen as a huge threat to everyone else, but this also creates opportunities. Who will offer the technical support the purchaser of a £300 laptop will inevitably need? Who will assist the bemused technology consumer in making the right purchase for their needs? Who will offer a PC designed to offer the best ‘bang per buck’ at a number of price ranges? If you don’t someone else will.
HEXUS.channel has been created to try to help you, whether you are a retailer, technical support provider, system integrator, SME reseller or even a distributor or vendor, to stay competitive by providing you with unparalleled insight into the products, people and events that shape the technology channel.
