Balancing cost and coverage

Finding the optimum number of distributors to work with remains a tough call in the Middle East channel. Vendors are constantly striving to strike a fine balance between coverage and cost.

  • E-Mail
By  Stuart Wilson Published  July 14, 2004

Finding the optimum number of distributors to work with remains a tough call in the Middle East channel. Vendors are constantly striving to strike a fine balance between coverage and cost. From the largest vendors through to the very smallest, a complex set of issues needs to be tackled in pursuit of the optimum distribution model.

Appoint too few distributors and a vendor ends up with patchy market coverage. In this scenario, the very few distributors in place — aware that there is not much competition in the market — can take it easy and not worry too much about promoting the vendor’s products. After all, there is probably no other viable source to buy from, so why waste the effort?

Appoint too many and the dreaded channel monster of over-distribution rears its ugly head. In this scenario, competition between the distributors becomes so fierce that they end up destroying each other’s margins and wind up being unable to make money on the over-distributed vendor’s product line. If you can’t make money on it, there’s not much point being pro-active in building up that vendor’s product in the market.

Do not be surprised to see Cisco appoint another distributor to serve the Middle East market in the coming months. Dubai-based Emitac is high up on the list of likely candidates should the networking giant take the plunge and add another regional Cisco Distribution Partner (CDP) alongside Tech Data and Logicom. Cisco had been working with three CDPs up until the decision to terminate its contracts with Mindware and OnLine Distribution in early 2004. Cisco subsequently appointed Logicom as a replacement taking the number back up to two.

Emitac is keen to boost its product portfolio and add new vendors that complement its HP-focused hardware distribution activities. Even if Emitac is brought on board, Cisco may still need to put extra effort into building up its distribution coverage in Saudi Arabia. Neither Tech Data nor Logicom have a meaningful presence or stocking point in the Kingdom at present. Logicom is currently in the process of setting up a stocking point in Saudi Arabia.

While there are efficiencies of operating a centralised distribution model from Dubai — especially in the case of high-end networking kit where product lead times are less of an issue — a distributor with feet on the street can play a much bigger role in channel development at a second-tier reseller level and below.

CDPs in the Europe, Middle East and Africa (EMEA) region have been dropping hints that Cisco is ready to appoint again. The networking giant recently gathered all its CDPs in Sweden to run through its plans. When Cisco introduced its CDP model, the plan was to drastically cut stocking points, reduce the number of distributors with direct buying rights and drive efficiency into the supply chain. The real trick is achieving these goals without weakening market coverage.

In the developed markets of Western Europe and the US these are all admirable channel sentiments to pursue. Europe is currently served by five CDPs: Comstor, Ingram Micro, Tech Data, Algol and Scribona. In developing markets such as the Middle East, there are a different set of factors that need to be considered.

It is important to appreciate the dual role that many distributors are still expected to provide in the Middle East, combining product fulfillment and channel development. We’re not yet at a stage of channel development where those two functions can really be treated as separate entities. Instead, they remain intertwined to such an extent that distributors need a variety of skills to perform all the functions expected of them by vendor partners.

Appointing a third CDP in the region would make a great deal of sense for Cisco. The Middle East is a region that still needs to be addressed on an individual country-by-country basis in terms of true channel development. Theoretically, stocking and supply can be centralised in Dubai but vendors selling complex technology are missing a trick if their distributors are wiling away their time at Jebel Ali and not getting out and about in the wider region.

To fill the current black hole in Saudi Arabia, deeper relationships with in-country distributors such as Al Jammaz Telecom and AIME may also appeal to Cisco’s channel team. It is also worth noting that the Middle East now represents a noteable blank in Cisco’s global array of distribution partnerships with Datatec — the parent company behind Westcon, Comstor and OnLine Distribution. It is not beyond the realms of possibility to suggest a link could be re-established with Datatec in the Middle East, although not with OnLine Distribution, but rather through a new venture or the expansion of one of Datatec’s other Cisco distribution operations.

As the Middle East IT channel matures, vendors will constantly reassess what represents the optimum distribution model for them. Channel structures are never set in stone and are in fact constantly being tweaked, analysed and developed by the vendors. As the total value of the IT market increases, certain trigger points may be crossed that justify the appointment of more distributors. Conversely, as logistics improve and the movement of goods within the region becomes a simpler process, vendors may feel more comfortable working with fewer distributors. The optimum distributor number also depends on the type of product. It’s really not a simple process.

It is important to never forget that running a channel costs money. The average channel manager is torn between a desire to improve market coverage and at the same time cut costs. The ability to reconcile these conflicting factors with one another is the mark of a true channel champion.

What is the optimum distribution model for the Middle East? What characteristics mark out successful distribution strategies? E-mail your views and opinions to Channel Middle East. Your feedback is greatly appreciated.

Add a Comment

Your display name This field is mandatory

Your e-mail address This field is mandatory (Your e-mail address won't be published)

Security code