Tech Data boss criticises excessive credit lines

Adnan Al-Falah, managing director at Tech Data’s Middle East operation, claims that the excessive amounts of credit extended to the runaway resellers by the distribution community was the driving force behind the financial crisis that has gripped the Dubai-based channel in recent weeks.

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By  Stuart Wilson Published  June 14, 2006

Adnan Al-Falah, managing director at Tech Data’s Middle East operation, claims that the excessive amounts of credit extended to the runaway resellers by the distribution community was the driving force behind the financial crisis that has gripped the Dubai-based channel in recent weeks. “When a distributor is giving credit to a reseller and benchmarking that against another distributor’s credit level without double-checking the figure, then they have no one to blame but themselves,” commented Al Falah. “Yes, we can go and blame vendors to some extent for doing certain channel programmes but the amount of credit extended to these resellers lies squarely on the shoulders of the distributors. I was gobsmacked by the size of some of the credit lines that I have heard about.” As one of the few distributors in the market with credit insurance, and a relatively conservative stance on credit compared to some of its peers, Tech Data claims to have suffered less than some other distributors in the market. According to Al Falah, it is imperative that everyone in the channel responds calmly to the present financial problems and examines the various improvements in processes and systems that need to be implemented to avoid exacerbating the current problem and prevent this type of painful episode from happening again. “There are a lot of people spreading rumours at the moment. There are personality clashes and there are territorial clashes where certain resellers compete in a given country and deliberately spread rumours about each other,” Al Falah added. The sheer magnitude of the credit crisis will impact every layer of the channel according to Al Falah. The prospect of a distributor going under or reducing its trading capacity with resellers will invariably have a knock-on effect to the vendor community. “On the total credit lines extended to MID-Fortex, MST and Micron by distributors, even if we are looking at a conservative estimate, we are talking tens of millions of dollars,” he explained. “You then have to consider their interlinking with smaller resellers and traders that were behaving in a similar manner and you could be looking at a total risk of US$100m. Vendors could be impacted, not in terms of losing money, but in terms of medium-term business prospects and their ability to hit targets in the region.” “The distributors have to work together now because at the end of the day some of them are in deep trouble,” Al Falah continued. “This impacts the entire channel regardless of what you sell. The component distributors don’t just sell components and these resellers were also trading other products. It is important that distributors learn from this in terms of how to give credit. One of these resellers had a US$4m credit line with one distributor — that is just crazy.” Al Falah has also defended Intel’s role in the credit crisis, claiming that the distributors should bear the bulk of the responsibility, followed by the vendors and finally the runaway resellers themselves. “I would generally say that the distributors should take the bigger percentage of the blame,” he added. “If you are sat in your house and someone knocks on your door and says give me a million dollars so I can go and do this, you don’t just hand it over.” "I was astounded by the credit limits that these resellers had in the market. I have protection in the form of insurance and my limit was nowhere near what others were providing," Al Falah commented. "How can a distributor justify extending that size of credit limit?" Al Falah believes that the channel as a whole needs to respond in a positive manner to ensure that more resellers do not leave the market. “People need to keep their business sense and work in the right way. If the vendors, distributors and resellers don’t take action today, we will see more go and it has the potential to be an almighty crash.” While the sheer scale of the latest credit crisis has shocked the channel into a response, Al Falah believes that similar events in the future cannot be ruled out. “At the end of the day we are in distribution and when there is the opportunity for people to do this sort of thing, they will do it,” he explained. “It is a question of intent. Resellers that have done it do it over a cycle of one year to 18 months. They want to do it, make a killing, leg it and disappear.” Echoing the views of the Technology Distributors Association (TDA), Al Falah hopes that the latest crisis will drive forward the adoption of stricter financial regulation in the local market. “There are implications for financial controls,” he said. “Even making it mandatory for companies to file accounts and ensure that auditing is of a high standard. I have seen company accounts that are not right and have been produced for a specific purpose — professional accountants should not do this.” “Too many resellers are thinking about turning cash rather than looking at the fundamentals of their business. All they are doing is trading in multiple business areas. If you are trading and you move your money all over the place and something goes wrong in one of these areas then it is goodnight Vienna,” Al Falah added. “There are many good people who earn their living from the channel and run their businesses in a right and honest way. There is light at the end of the tunnel if people are prepared to work together and do the right thing and move on. Not just moving on for the short-term, but really looking to cure this disease that exists in the channel,” he concluded.

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