Will vendors trust channel development to third parties?

Readers may have noticed the emergence in recent months of a new type of channel partner—the third party channel development company.

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By  Mark Sutton Published  March 22, 2003

Readers may have noticed the emergence in recent months of a new type of channel partner—the third party channel development company.

While there are only a few companies operating this model at the moment, mostly based in Cyprus, the model is certainly of interest, and as the PC markets in this region ramp up while the political situation remains unclear, these third parties have a fairly persuasive business proposition.

The idea of these channel development companies is to handle the establishment and management of the channel for vendors that either cannot afford the investment in financial and human resources to set up the channel themselves, or want to tap local expertise in setting up their channel.

The channel development companies, have the local knowledge, so they say, a wide understanding of the local market, and the capabilities of the partners in it. They can tell a vendor if their product is suitable for a market, whether there will be demand for it, how to support the market and which partners to use to push the product.

There are certainly some companies that could use a hand with breaking the market. As a reporter, I lose track of the number of companies that appear in the market with a big bang, spend a fortune on marketing, promoting themselves to the press and to partners and then promptly disappear, never to be heard of again.

The same goes for some established companies who, regardless of the strength of their products, just seem to have trouble with the culture of the Middle East. Too often I meet visiting executives from vendors who seem to know nothing more about this market than just what their distributors tells them—which is fine if the distributor is doing its job properly, but unfortunately, isn’t always the case.

The other prospective client is the company that already has a channel here, but that has not gotten the results it wanted. Again, far too often vendors come into this region and partner with the very first distributor they find, often getting themselves locked into long running contracts that they can’t then get out of once it is clear that they are mismatched with their new bedfellow.

For these sorts of companies, the idea of being able to hand over the set up of the channel to a third party is an attractive prospect. For a set fee, these companies say they can find exactly the right partners and manage them.

This saves on the human resources investment, travelling time and cost and on the headaches of getting channel development wrong. Especially at the moment, even companies that could manage their own channel are considering the third party approach, because they are reluctant to travel or to place staff in the Middle East.

Of course, the question is, whether a third party can have a close enough touch to really drive the channel—most of the services they offer could easily be filled by a master distributor, assuming that the right master distributor could be found. While some of the channel development companies are incentivised with bonus payments for the handover of a complete, successful channel, the master distributor has more to gain over the long term from getting the channel right.

It also remains to be seen if many partners will like the idea of working through a third party, rather than direct with the vendor. In a market where personal contact is still vitally important, and where outsourcing has not been embraced in any major way, the channel development companies could face cultural barriers in some quarters. Whether they can tackle this or not we will see, but it is interesting nonetheless to see that the channel is still finding new ways to operate.

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