Economies of scale

The Middle East distribution landscape will face increasing consolidation pressures during 2004.

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By  Stuart Wilson Published  January 24, 2004

The Middle East distribution landscape will face increasing consolidation pressures during 2004. Until now, many national distributors have balked at the prospect of fully-fledged merger and acquisition (M&A) activity, preferring instead to maintain full control of the business they often built from the ground up.

For those distributing commodity IT products, the need to build genuine economies of scale increases daily. The maturing distribution landscape will witness mergers between local companies as well as the arrival of new global distribution giants to the region.

The largest IT vendors in the Middle East realise parts of the existing distribution channel still suffer from inefficiencies and high overhead costs. For now, there is still enough margin to be made to accommodate these inefficiencies – but only just.

As margins continue to shrink on fast moving IT kit, it will be the distributors with sales volume, lean and mean infrastructures, cutting-edge logistics, high levels of stock turn and the ability to supply strong credit facilities to the channel that will prosper. These are the distributors the largest vendors will want to work with in the long-term as they look to reduce the number of logistics partners they supply product to.

Global distribution giant Ingram Micro teamed up with Aptec Partners in October 2003 for the launch of the latter’s new components division. This move was testament to Ingram Micro’s growing interest in the Middle East, which will only intensify still further as the market matures. Many distributors assess the opportunity to enter new geographic markets by comparing the risks with the potential rewards. The deal with Aptec Partners shows Ingram Micro is already dipping its toes in the water and may well take the plunge during 2004.

Canny distributors in the region need to get their game plan figured out as quickly as possible: be it courting internationals interested in the region, talking to competitors about the benefits of combining forces, specialising on a niche market or moving into value-added distribution activities. Each path represents a solid business opportunity and reflects the maturing needs of the Middle East customer base. Those distributors seizing the initiative now still have the chance to claim significant first mover advantage.

If you have any views on the future of the distribution landscape in the Middle East, please do not hesitate to get in touch.

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