Going Up?

Vendors are pushing new channel models, with the emphasis on less partners, more focus. But does the region have the mass to support vertically-focused partners?

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By  Mark Sutton Published  January 2, 2002

I|~||~||~|Channel business in the Middle East is undergoing a major change. While the smaller traders have found themselves under increasing pressure from an over-full market and low margins, it is only over the past six months that the multinational companies have started to feel the squeeze too. With the US in recession many companies are re-examining their commitment to the region. The channel is under more pressure than ever before.

The biggest indicator of this is the demands that vendors are putting on the channel. After years of agency agreements, and proliferation of resellers, the vendors have said ‘no more’. The drive now is to rationalising channels, improving partner’s skills, and above all, asking resellers to focus on vertical sectors. Over the past year Cisco, Sun Microsystems and many other vendors have announced schemes to restructure their channels. They want less partners, with better skills, more investment in support and services and focus on specific vertical sectors. The broadbase reseller is no more.

Sun was one of the first vendors in this region to set out its stall in terms of getting partners into vertical sectors. In July, Manuel Makki, channel & marketing manager for Sun revealed the company’s new channel strategy. “We expect our partners to develop value-added supply chains, skills and competencies in certain industries,” he explained. “Unlike the traditional distribution model, where every partner within a certain geography was selling to all industries, [we expect] the partners will start focusing on what they do best, so you will see partners for government, oil & gas, banking. The focus will be on solutions on a regional base.”

Cisco has also been aggressively repositioning its channel. As part of a wider scheme, the networking vendor has been trying to get partners to concentrate their efforts, either on a specific industry or an area of technology. As the complexity of technology increases, so it is becoming more difficult for resellers to have adequate knowledge of many technologies, so Cisco wants its partners to choose one area and stick to it. “The technology is moving so fast that it is difficult to have one person trying to be expert in absolutely everything,” said John Saunders, regional sales manager for unified channels, Cisco.

Alongside the technological demands, vendors say their customers are also asking for expertise from the channel. Compaq is also changing its channel—it has just launched its Compaq Solution Alliance, that will cover a small number of the best partners from across the region. “Three to four years ago, resellers were hybrids, now they need to be specialised in their offerings,” said Samer Karawi, enterprise solutions manager, Compaq. “We are looking at channel partners who can provide creative solutions and skills in specific areas, whether it is development, system integration, banking, oil & gas, telecommunications—bankers won’t speak to someone that doesn’t speak banking language.”

||**||II|~||~||~|So how does a reseller without expertise get into a vertical sector? Software developer Systronics has a number of industry-specific applications, for education, manufacturing and construction, based on ACCPAC accounting. Zareh Tutunjian, managing director, believes that Systronics faced three main hurdles to selling into verticals—reputation, education and distribution—all of which can be overcome by working with a brand name vendor.

“If you are a small company, without a reputation, trying to get into a market in the Middle East, then nobody will trust you initially. To build that reputation, you have to go with the big boys,” said Tutunjian.

ACCPAC and other vendors such as Microsoft help build reputation by a number of means—ACCPAC produces a business solutions catalogue that lists their partners by speciality. Attending vendor events also helps build reputation through association, and addresses the problem of education. “We need the market educated about our products, which is something we cannot start to do ourselves in serious volumes, so while they are in the process of selling and marketing their product, we can piggy-back our vertical solutions with them, and do joint, focused presentations on vertical markets,” Tutunjian added.

An international vendor also provides a much further reaching channel for distribution to a vertical market, which becomes a serious concern when dealing with a vertical that may not have much business in your immediate geography. “Unless we get the distribution to sell our product, we won’t sell it, we won’t be able to improve on it, and if we stick to the Middle East, we won’t get the critical mass.”

Vendors are also very keen to get vertical deployments of their products. Marc Van der Ven, regional manager of ACCPAC Middle East explained: “The first and only question in the customer’s mind is ‘do you have any other customers in my industry?’ Our main product is accounting, and accounting rules don’t change whether you are a hotel, a tyre manufacturer or in shipping, but customers want to know that you have other customers like them to be able to understand them.”

Getting the expertise to operate in a vertical is vital. Key Information Technology (KIT), another ACCPAC partner, has a whole division focused on the hospitality industry, mainly selling the Fidelio management system. Fidelio is a good example of how industry experts can end up in IT through vertical solutions—it was developed by a hotelier in Germany who spotted a need in the market, twenty years ago. Naturally partners look to their focus industry for expertise. Out of 55 staff in the hospitality division of KIT, 50 are from the hotel industry. The expert staff provide insight into the industry—as hotels operate 24 hours a day, KIT has to provide support around the clock too.

Experts can also be useful to drum up business. Quest, part of the Al Moayyed group of Bahrain, sells its own brand hospital information system throughout the Middle East and India. The company was initially contracted to write a healthcare applications, which it did, then when it won another healthcare contract. The company employed a consultant for his knowledge of the industry, and to broker the solution to other healthcare providers. Today the company employs four medical doctors to consult on product development. The earlier projects also gave Quest another important factor—a reference site. After spending three years developing a healthcare application, it was deployed at the Welcare Hospital in Dubai. Not only did this give Quest an important boost to its profile, but it allowed it to learn from its mistakes, and to work towards its next version of the system. “You can only get this sort of experience through reference sites,” said CV Ramanamurthy, CEO and GM of Quest.

||**||III|~||~||~|But even with expertise and strong partner support in place, there are still hurdles to overcome for vertically-focused businesses. Building a reputation, solutions, and the other parts of the business takes time. With the size of the customers in vertical segments like oil & gas, just the tendering process may take months and involve teams of people, which puts the business out of reach of the smallest operators. Investment in skills is costly.

Middle East markets are also not as large as the European and US markets where the model has developed. “We don’t have the critical mass in the Middle East in order to have one partner by industry—ideally we would have one partner for the whole of the Middle East, but in the transitional phase we have to give them the flexibility to move without losing market share,” said Makki.

Gilbart Lacroix of Intel agrees: “The UAE is the one country [where vertical focus is possible], apart from Saudi; all the other countries in the Gulf are too small for one particular vertical focus.”

Although Intel provides horizontal solutions, it has restructured to include vertical business units that provide support to their vertically focused partners. There are opportunities to grow outside of local geography, which can leverage true economies of scale, but not every vertical solution is suitable, Lacroix explained.

He recalls working on a pharmaceutical application that took three years to develop, at great expense, but that had an installed base of 70,000 users once it was finished. However, because the application was specifically designed for the French market, taking into account legal requirements and state-funded healthcare, it was unusable elsewhere. “It wouldn’t work in the UAE, there is no economy of scale to make it worthwhile,” he said. “If you want to cover several countries, there are problems with regulation, administration and so on if you are creating a complex solution. If you are talking about something simpler, like hotels, then the functions would be 70-80% the same across the world—that is why Fidelio was developed in Germany, but you now find it everywhere.”

There are also problems with the scale of many of the companies here. Smaller companies simply don’t have the staff to operate dedicated divisions for vertical industries. Even the larger resellers will only have one or two people for an industry. “The big resellers might have a sales representative or consultant who is active in an industry, but they basically work as a spear-head into that account,” said Lars Jeppesen, MD of Valuevad. “Their portfolio of products is normally very wide, so they can drag in expertise from their company to solve certain issues.”

Jeppesen believes that distributors such as Valuevad, that has a vertical technology focus on specific technology, may be the answer to the lack of scale of the resellers. The distributors need to be able to understand the technology they are selling, to aid the resellers who can put together solutions based on their expertise. The answer lies in co-operation between smaller partners to bring together enough expertise to meet industry requirements.

“The technology vertical distributor is probably more important here than in Europe or the US. You cannot have within a reseller a special group to deal with different kinds of vertical applications. You can have a reseller who understands the client, but he doesn’t understand the technology. If you also have a distributor who doesn’t understand the technology and only sells the box, then you have an issue. This is where the market needs the VAD,” said Jeppesen.||**||

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