Question: Why does IT hardware cost more when purchased in Russia, Brazil, China etc…?
After wrangling with this question myself and speaking to as many smart people as I can in the IT infrastructure ecosystem, I believe I have a good idea why IT hardware typically costs more to purchase abroad.
Reason #1: Wholesale Pricing Tiers (a.k.a Profit Protection)
- When a network switch is sold to a distributor or VAR in the USA, let’s say it costs them $100 to buy from the manufacturer. The same exact network switch will be sold to a foreign distributor or VAR at 1.25x the cost to buy it in the USA. * Markups vary
- Whether a network switch is deployed in the USA or in China, it’s physically the same. There may be some region specific software or power cables/accessories for the Chinese version, but this can all be ordered & loaded in the USA.
- Foreign distributor and VARs can charge more in their local markets. The local market has accepted being treated as a captive audience in these international locations.
- The competition in foreign markets is significantly lower than in the USA. The competitive tension in IT hardware cost is lacking, thus you as the purchaser have little to no power when negotiating pricing.
Reason #2: The partners that you work with may not have incentives that are aligned.
- If you are looking to find out how to best support your international IT infrastructure needs globally, you will have a hard time finding anyone to speak with about centralizing your sourcing in the USA.
- Inevitably you will find either a consulting company, MSP or VAR that leverages international VAR partners. Many of these companies will have a few international locations. Large consulting companies will have many global locations.
- These primarily professional services firms are rewarded with larger profits when they funnel their client’s procurement needs through their pre-existing international VAR networks. Often times they will be taking a profit share from the manufactures on the back end.
- The existing subject matter players also charge project management fees. The more complicated the sourcing platform the more billable hours there are.
- What would you do in the position of these professional services firms?
- Sell and support the market accepted solution of buying IT infrastructure in foreign markets. In other words: manage a complex global platform of partners, re-sellers, and support teams across multiple times zones, languages, and currencies while charging more and making larger % profits.
- Centralize purchasing in the USA thus decreasing complexity, increasing competition between distributors/VARS and lowering project management fees. This would of course lead to less revenue with much smaller profit margins.
- This is what I call a conflict of interest. If a firm is selling you hardware and has any incentive to manipulate your purchasing strategy in their favor, they shouldn’t be asked to advise on the purchasing strategy.
Reason #3: Fear
- Because the market has succeeded in controlling/manipulating the client’s options internationally, fear of change is even higher than normally seen.
- It’s clear to me that smart procurement teams and global infrastructure managers have sensed for some time that they are being taken advantage of internationally. Most have even tried to ship hardware into global markets. Unfortunately, these attempts have not gone well for them in general. They have most likely worked with a freight forwarder or a FedEx/UPS type company. This will fail a large portion of the time (detained, returned etc…). You need the right partner that understand all of the requirements from dock to datacenter.
- The above has fed the fear loop and strengthened the market in keeping clients captive to their current sales model.
TL;DR – In the end this all comes down to the fact that IT hardware should be treated as the commodity that it is. Our goal is to disrupt the current IT hardware cost procurement model for our clients and enable them to buy the gear they want wherever it is the cheapest and help them deploy it anywhere on the planet. Welcome to the future.