Working Together - will the channel collaborate on projects?

Increasingly complex technology means that channel companies need to work together more than ever—but will they?

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By  Mark Sutton Published  March 31, 2003

Introduction|~||~||~|With the growing complexity of IT products, the channel in the Middle East has slowly shifted from simple hardware distribution to a more advanced solutions and services model. With this shift has come a whole new set of requirements for resellers and distributors, for certification, skills and more responsive approach to customers.

One of the key points of the value addition model is the need for closer ties between all members of the channel, in part a situation brought about by the nature of the regional market. Where resellers and distributors in the US are able to operate over the whole of North America, unhindered by country boundaries, cultural considerations or local agency agreements, the Middle East is better defined as a set of much smaller, subtly different markets. Even with customs union removing some of the barriers, it is still much more difficult for companies to have enough market share to be able to afford to provide all of the services and expertise needed in-house.

The answer to this situation is to co-operate with other companies in the channel—either value added distributors, vendors, third party service providers, or even in some cases, competing companies. At least, that is the theory of the value add model, but it overlooks one important factor—the reluctance of companies in the Middle East to outsource business. So will the channel co-operate in this region?

||**||Distributors offer services|~||~||~|The situation can be broadly split between the distributors and the resellers, in terms of companies that are offering services and those that might use the services. For the distributors, the value-added distributor model, that requires them to be the repository of expertise and skills, is being driven by a number of factors.

“We look at the changes happening from the vendor’s point of view and the reseller’s point of view,” said Malcolm Noronha, Cisco product manager for Mindware. “As far as the vendors are concerned, most of them today are looking at business process outsourcing, as part of that they are looking at downloading a whole lot of responsibility to the distributor. From the resellers point of view, they are looking at the distributor as a direct representative of the vendor. The role of a distributor, as being a link, as part of distribution, is changing completely.”

Mindware offers a range of different skills and services to its resellers, in part through its own initiative, and in part due to vendor demand. One of the most obvious areas is in providing technical expertise to reseller partners. With vendor partners including Citrix, Cisco and Veritas, Mindware’s portfolio contains some high-end solutions, which naturally require trained and certified staff to sell and deploy. Especially with new technologies, even the most technically adept reseller still needs some assistance from the distributor, Noronha said.

“With newer technologies coming in, it is becoming more difficult for partners to invest in training, to keep their engineers abreast of technology, and this is where the VAD comes in,” he explained. “We can distribute our cost of training across a large area, which a typical reseller operating in a [single] country cannot. We spread our costs across the region.”

In a usual instance, Mindware will find itself involved with a project at a fairly early stage, according to Noronha. The reseller will often simply send them the entire tender document, and ask the distributor to provide a network design. This is not ideal, as the company prefers to work with partners that can at least handle the basic network design themselves, but Mindware does try to train partners too.

The decision on whether or not to work with a partner on a certain tender can have many different elements, Antoine Noujeim, solutions business unit manager at Mindware explained. “Sometimes you have a reseller that is politically strong, and connected, and can even cancel the tender if he is not winning it. We also look at the financial position—if we go with him, will he be able to pay us. We look at will they be able to deliver—if they don’t have people certified, will we end up doing the job?

“It varies also from one vendor to another. Some vendors do not give you the freedom to decide [which reseller to partner with] on an account, some vendors give you the full freedom, as long as you get them the business,” he added.

When partnering on a deal does work, the benefits can be considerable for the parties involved. Noronha recalls a project with a large reseller partner, deploying some new hardware for a major financial institution in Dubai. The customer had been having problems with its network for a long time, but had not been able to diagnose the cause. The partner had also failed to find the problem, so Mindware suggested using another product from its portfolio, Network Associates’ Sniffer to analyse the network.

“Our engineers took the Sniffer equipment into the customer site, analysed his complete network for him and told him what was wrong,” Noronha said. “To date, the customer has bought almost $100,000 of Sniffer products, just by us adding value to the deal.”

The major sticking point from the distributor’s side is still cost however. Too many partners and customers still either believe that installation and services should be included in the hardware price, or don’t see the value of services. “In some cases you have a guy who wants the money to be rolling in before investing in services. We are asking those that want to sign up with us, on the services side, to certify their engineers, but sometimes it is a little difficult to find the right commitment from the resellers. A reseller can be very good at moving product, but they are not always set up to do solutions, this is where we really have obstacles,” Noujeim said.

||**||Resellers driving deals|~||~||~|From the reseller’s side of the deal, co-operation with other companies is not always straightforward, even when the reseller concerned has been operating on the value-added model for sometime. Mehboob Hamza, director of Seven Seas said that there is still a lot of resistance to the idea in the region.

“I think that really the attitude reflects on the maturity of the marketplace. We believe that at times co-opetition is better than competition. We have no qualms about tying up with a principal, with a competitor on a project, or a loose arrangement with a company that has relevant skills, to put a deal together. Having said that about us, I can’t say it really reflects the modus operandi of others,” Hamza said.

Seven Seas works with a variety of different partners, said Hamza, including distributors, vendors, third party consultants and even, on occasion with its competitors. This idea of ‘co-opetition’, working with companies that you would normally compete with gained some favour in the US a few years ago, and while it is by no means common, sometimes it is the best way to gain the business. Often a vendor or distributor will call the shots on who should lead the project on a tender, either to suggest a partner to a company that has won a tender but doesn’t have the expertise, or to protect the interests of a company that has invested a lot in a customer or skill set.

Seven Seas, has completed one co-opetition project to date. Although it won the project, a competitor was already working with the customer. In this instance, it made sense for Seven Seas to work with the competitor to complete the deal. Hamza explained: “It was a case of either putting the whole thing together externally or work with somebody who had already got a team and was able to start from day one. It was a win/win situation for both.”

In all partnership deals, it is important for companies to be totally clear with the customer exactly who is leading, and who has final responsibility, but so long as this is transparent, there should not be a problem. This may not be necessary when minor functions are outsourced, but otherwise it is important to make sure the customer is still comfortable with those involved in the project.

The complexity of the project will determine when Seven Seas will consider partnering, said Hamza. For high-end projects and complex tenders, it will usually bring in consultants from the very start of the tender. This might be done either because the company is lacking in niche expertise or requires skills that are outside of its usual core business activities. “If you are looking at a large-scale call centre or customer interaction management solution, you have to start looking at business processes as much as the technology, then you need to outsource to a company that specialises in a particular area,” he said. “For example—training—we don’t have training skills. We have good experts who can give training, but it is not a core business, so why tie up that resource when we can outsource it and build the cost into the bid?”

The problem with this is that there is often a lack of expertise available in this area. Finding even fairly common skills, by US standards, can be a time consuming, expensive process, but it is an economic decision on whether or not to bring the skills in-house.
We work out the economics, whether it is feasible to keep a full time resource, or if it is better to outsource,” Hamza said.

There are certain niche activities, such as structured networking and software development that Seven Seas will outsource, because the resources are readily available. In the UAE, there is a pool of small companies that provide these sorts of services, and because they don’t go direct, they tend to have good relationships with most of the partners.

This is not to say that every function of the company would be outsourced however. For Seven Seas it is important to retain the ability to think in technical, commercial and business terms to be able to provide solutions, Hamza said.

At the same time, there is the issue of retaining customers. Many companies do not want to be bypassed by competitors or partners, and prefer to be seen as key to IT solutions. “Like every business, we like to have mind-share of our customers,” Hamza said.

And of course, reluctance of some companies to pay for services still means that outsourcing is not a popular option, particularly among the large state-run companies that still rely on huge internal departments to manage their IT.

However, as the solutions continue to get more and more complex, so the need for the channel to collaborate on solutions is going to keep on growing. “A few years back, you would buy a mobile phone because of brand, options, price and service,” said Noujeim. “Today, if you look at the ads, you find all of those plus accessories, membership schemes, software, door-to-door delivery. It is true that we are selling software and hardware and solutions, but at the end of the day it is a service, and if we don’t continue to improve and invest, we will die out.”||**||

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