TDA calls for 'decisive steps' to end hit and run horror

The Technology Distributors Association (TDA) has called on the UAE government to take ‘decisive steps’ in the wake of the latest credit crisis to hit the IT channel, which has left distributors and banks facing tens of millions of dollars in bad debts.

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By  Stuart Wilson Published  June 7, 2006

The Technology Distributors Association (TDA) has called on the UAE government to take ‘decisive steps’ in the wake of the latest credit crisis to hit the IT channel, which has left distributors and banks facing tens of millions of dollars in bad debts. The TDA, a trade body made up of leading distributors within the region, has been quick to express its concern over the ability of company owners to leave the UAE leaving behind unpaid debts. The TDA issued the following statement regarding the current situation: “We call on the UAE government to take decisive steps that would protect the reputation of the UAE as a safe place for business. Some actions may involve: active pressure on Interpol or on police forces in other countries where runaway suspects are known to flee to in order to bring the culprits to justice; instruct the courts to fast-track the cases against runaways; to order an inquiry or to establish a body that would investigate the recent events, recommend actions and ensure legislation that would protect honest businesses operating in the UAE; in the absence of reciprocal agreements, approach the governments of countries where runaways are hiding and request co-operation; help in tracking cash transfers made by indebted runaways.” Logicom — just one of many Dubai-based distributors hit by the crisis — is facing credit exposure to the tune of US$6.1m spread among three resellers, indicating the sheer scale of losses the channel faces. Conservative channel estimates put the total amount of outstanding payments linked to the current crisis at US$50m. The TDA is arranging a teleconference during the next week to discuss the situation with distributors hit hardest by the latest spate of runaway resellers. The organisation has also called for a formal credit circle to be established, allowing distributors to share information and identify credit risks in the market. “The recent events of a number UAE IT companies defaulting on their debts and leaving the country for another where the creditors and the law could not reach them has caused a serious crisis in the IT supply channel,” explained the TDA statement. “The situation will undoubtedly cause losses to some distributors, result in a clampdown on credit by some vendors to distributors, by the distributors to the channel, by lenders and banks (and an increase in lending rates charged), and will most likely increase the cost of credit insurance too. It is time for distributors and vendors to have cool heads and to avoid aggravating the problem by overreacting and forcing more resellers out of business.” “Distribution’s most senior decision makers must get together quickly to agree on how to manage the immediate dangers that may result from an overreaction and to agree on introducing a UAE credit circle to help minimise the risk of recent events repeating themselves in the future,” the statement continued. The TDA has been keen to point out that a vast majority of resellers are running ethical businesses and it is the few players that do not fall into this category spoiling the market for everyone. The impact of runaway resellers dumping stock in the market has created serious problems in terms of the ability of those remaining to sell product at a decent margin — in turn impacting their ability to service their own outstanding credit lines. The TDA issued the following advice to resellers in this situation: “It is vital to communicate with your creditors and financial partners at all levels, to keep them informed, and ensure you do not default on a promised payment. It is much better to say that you will be late in a payment than to hide, avoid calls or, worse, bounce a cheque. Give clear and honest reasons — after all, your creditors and other financial partners would rather see you succeed in business than fail and owe them money.” “Resellers must join distributors in raising the standards of credit assessment by agreeing to provide information that would help raise standards of due diligence and minimise the chances of runaways. Resellers should view this as a long-term benefit. Resellers should raise alarm bells to distributors and vendors when they see signs of product dumping in the market,” the advice continued. The TDA also highlighted the role of vendors in limiting the potential for credit problems to occur, calling on manufacturers to focus on, ‘stable, profitable business over the long-term, rather than a short-term focus on achieving a particular sales quota’. “Vendors should recognise that there is an immediate credit squeeze in the channel as a result of the loss of cash and therefore, collecting cash from the market is taking longer,” explained the TDA statement. “We advise vendors to avoid overreacting by not shrinking credit to distributors in the region and to work closely with the affected distributors until the situation stabilises. Vendors should also become more active in policing rebate and joint marketing activities.” The TDA statement continued: “We would also call on vendors to become involved in discussions with credit insurance firms in the region with a view to financing credit insurance. The vendor is benefiting tremendously from this high growth region and must help in keeping it a low risk region. Today, the vendor is expecting the distributor to carry the credit risk, but it is becoming clear that the standard distribution margins offered by vendors do not cover such risks.”

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