Runners and riders

One day they are here, the next day they are gone. Resellers running off when times get tough, and leaving behind them a string of bad debts, continues to afflict the Middle East IT channel. Resellers can only ride the channel credit system for so long. Eventually the credit 'riders' are forced to become 'runners'.

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By  Stuart Wilson Published  April 10, 2004

One day they are here, the next day they are gone. Resellers running off when times get tough, and leaving behind them a string of bad debts, continues to afflict the Middle East IT channel. In the last week alone, a couple of Dubai-based resellers appear to have shut up shop (or warehouse) and disappeared — or ‘done a runner’ as some people prefer to describe it.

When this happens, reverberations are felt up the channel chain. Often these resellers have spent years building up credit lines with sub-distributors. When they disappear without paying this back there is a financial hit for the sub-distributor to absorb. The sub-distributor then faces its own cash flow issues and may even struggle to meet payment demands from the authorised distributor it buys product from.

It can be difficult to spot the resellers that represent a bad credit risk. Often they have been trading for years, kept up the appearance of a solid business model and built a level of trust with channel players selling to them. Frequently, the ‘runners’ are also the ‘riders’ of the credit system in the run-up to the collapse of their business.

Some will actually sell below cost to keep up appearances, maintain their cash flow and keep credit lines open — they will effectively ride the credit system. For distributors, checking the credit worthiness of resellers is a full-time occupation. Specialist employees constantly monitor the intimacies of the market, finding out what price resellers are selling product out at, and whether this could produce enough margin to sustain the business. At the first sign of trouble, credit is stopped and payment is demanded.

Where one distributor leads, others quickly follow — afraid to be the ones holding the bad debt when the inevitable collapse comes. The reseller is quickly forced into an impossible situation making the prospect of becoming a runner all the more tempting. These problems are often exacerbated by a lack of transparency when it comes to the financial health of channel players in the Middle East.

The runners and riders of the Middle East channel should not shoulder all the blame for their activities. Vendors must also bear some criticism in this complex channel scenario. Distributors under pressure from vendors to push a certain volume of stock — possibly to qualify for specific rewards — will dump stock on to sub-distributors, grey market players and traders at a cheap price. The impact of this stock entering the market wreaks havoc on pricing. It is also a great way to breed disillusionment among committed resellers buying from authorised channels at recommended prices. They can be left holding stock that can only be sold below cost. At this point, they are forced to become a credit rider because of the actions of unscrupulous distributors, and the vendor policies that sometimes prompt them.

These resellers are likely to seek out a more responsible vendor partner that keeps a closer eye on the actions of its distributors. Having said that, this is the point where the power of the vendor’s brand equity comes into play. Many resellers are riding on the back of power brands’ sales and marketing activity to drum up demand and may be wary of switching to a vendor that is a harder sell. It is a conundrum faced daily by many channel players in the Middle East market.

Unfortunately, there are no easy answers to all these problems. The channel is a sales engine and credit provider. Vendors use it as such and pump as much product through as possible. While new runners and riders emerge at reseller and sub-distributor level to replace those disappearing, the channel churn will keep going. It is a painful process, but also a necessary one in rapidly maturing markets. To place all the blame on the runners and riders themselves is shortsighted. The conditions required for runners and riders to flourish are produced by the channel as a whole and the vendors selling into it. The situation will improve, but it will take time, and plenty more runners and riders are lining up for the Middle East IT channel race.

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