The next level

The Middle East and Africa (MEA) IT channel will mature faster than other regions in the world have. With vendors pouring investment into one of the few global growth bright spots, the pressure is growing daily for distributors and resellers to redefine their business models and start adding genuine value.

  • E-Mail
By  Stuart Wilson Published  October 13, 2004

The Middle East and Africa (MEA) IT channel will mature faster than other regions in the world have. With vendors pouring investment into one of the few global IT growth hotspots, the pressure is mounting daily for many distributors and resellers to redefine their business models and start adding genuine value.

HP’s plan to establish a regional logistics hub at Jebel Ali Free Zone serving vast swathes of the MEA market will send a shiver down the spine of some distributors, sub-distributors and even resellers that are holding HP stock at Jebel Ali and adding no real channel value.

For many of these companies, a large proportion of their business transactions are transfer of ownership deals occurring within the confines of Jebel Ali. This means that the product is signed over at Jebel Ali to the customer or its appointed freight forwarder. In this particular type of transaction, the distributor is acting as nothing more than a stocking point.

If HP has its own warehouse at Jebel Ali, the pure stocking distributors currently providing the warehousing facility become a superfluous part of the channel chain. Why would HP need to transfer the stock to another warehouse at Jebel Ali if that distributor merely passed it straight on to a third party customer within the confines of the free zone? Admittedly, some allow customers to pick up orders with product from multiple vendors and provide a level of financing, but this may not be enough to safeguard their position.

It is important not to oversimplify the issue here but HP’s planned move marks a fundamental step down the path to channel maturity in MEA. This act will force distributors to start adding even more real value in their everyday function to survive. That means really providing financing, regional logistics expertise, local stocking points in-country, actively promoting genuine channel development and building reseller breadth.

Those that do not do this, preferring instead to continue supplying national distributors, sub-distributors and brokers coming to Jebel Ali to pick up goods, will find themselves being slowly disintermediated. Distributors with foresight and sound business planning have already started adding value to their operations by reaching out into the wider region.

Drop shipping to distributors throughout the region has been a tough challenge for vendors to date. This has fuelled the growth of the re-export and sub-distribution channels in MEA. HP hopes that locating a logistics hub at Jebel Ali will encourage distributors from across the MEA region to move closer to them enabling a more direct relationship.

Effectively, the tide has changed. The non-authorised channel has served its purpose in taking the MEA market to a critical mass. Now the vendors have the scale and the resources to start monitoring product flows and promote authorised channels.

Cisco is another vendor driving channel evolution in MEA. It is now nearing the end of ‘Project Sandstorm’ — an internal initiative that has been ongoing this year to clean up, reshape and redefine the vendor’s distribution strategy across the MEA region.

With ‘Sandstorm’ nearing completion, Cisco has introduced the separate categories of Cisco Distribution Partner (CDP) and Cisco Authorised Distributor (CAD) to the region. The former has a direct buying relationship with the vendor and focuses on logistics efficiency, while the latter focuses on channel building and working closely with the reseller community.

Mark de Simone, Cisco’s new regional VP for MEA is promising to take a tough stance on anyone not playing by the rules: “We’ve done a lot of cleaning up of the house and now feel very comfortable with the behaviour of our partners and our sales forces. What I can say for sure is the moment we find any evidence of grey that partner gets completely stopped. It doesn’t matter how large or important a relationship is we will fire the distributor and stop anyone who is not playing by the rules. And I suspect that we will find more culprits as we dig.”

The channel is maturing fast and those who refuse to accept it and evolve accordingly will be left behind. The business models of yesteryear are being consigned to history as the market matures and channel structures evolve. If you work with A-brand vendors, the pressure to clean up any dubious business practice is growing by the day and this will be a difficult transition for some resellers to make.

Anyone who has been working in the Middle East IT channel for some time knows the tricks of the trade and the clever little ways to bend the rules to squeeze the odd bit of extra margin or fiddle an extra rebate here and there. Well, that is going to become a lot more difficult during the next year as ‘monkey business’ comes under intense scrutiny.

With vendors pouring more and more resources into the region, their ability to monitor channel activity is increasing. We’re moving to the next level of channel structure at lightning pace.

For some channel players, it is now time to clean up the act, stop the ‘monkey business’ and evolve the business model, or face the very real prospect of being frozen out.

Alternatively, there is always the option of developing some new tricks!

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