2005: The year ahead

2004 was a year of transition for the Middle East IT channel. With vendors boosting local staff, the channel is waking up to the fact that the business models of yesteryear are on the way out. 2005 is the time to focus on core competencies, stop the dodgy dealings and start adding real value

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By  Stuart Wilson Published  December 27, 2004

Objectives for 2005|~|Al-Falah,-Adnan.jpg|~|Adnan Al-Falah, managing director at Tech Data Middle East |~|With 2004 a fading memory, the local vendor and distributor community have gazed into their crystal balls and made their predictions on the channel trends that will shape the year ahead. The heavyweights of the Middle East distribution (D) sector lined up to express their opinions on the prospects for 2005. In 2004 the combined sales of Almasa, Aptec, eSys and Tech Data exceeded US$1bn in the Middle East and Africa. Mehdi Amjad, group managing director at Almasa Distribution; Ali Baghdadi, president and CEO at Aptec; Pavan Gupta, general manager at eSys Middle East, and Adnan Al-Falah, managing director at Tech Data Middle East shared their market insight. From the vendor (V) community, Rajeev Mukul, general manager at Maxtor Middle East and Ben Gale, general manager sales and marketing at Xerox Middle East also chipped in.

CME: What are your 3 main objectives for 2005? How do you expect your Middle East business to evolve and develop during the year ahead?

MEHDI AMJAD (D): Objective number one at Almasa is to achieve more than US$500m in sales. The second objective is to increase profitability. We grew profits by 70% in 2004 compared to revenue growth of 52%. The third objective is to move deeper into markets, get closer to resellers and improve the range of products we offer even further.

PAVAN GUPTA (D): eSys has its sights firmly set on 100% growth in revenue terms in the Middle East, Africa and CIS markets. To achieve this objective, our three-pronged strategy will be based on consolidating the existing distribution business, introducing new products in both our distribution and manufacturing portfolios and tapping into new and emerging markets in these three regions.

ADNAN AL-FALAH (D): In 2005 Tech Data will improve its service level to customers and vendors even further and we will develop our in-country activities. We are really looking to scale out our engagement in the market and also talk to the decision makers in government that can really help the distribution business evolve.
Cme: What will be the major industry shifts in 2005?

RAJEEV MUKUL (V): Vendors will sharpen their focus on individual product categories in their portfolio. The market will experience the emergence of specialist channel partners.

BEN GALE (V): With more offerings and more competition, there will be price pressure, forcing the channel to differentiate itself through the ways in which value-added services are delivered.

ALI BAGHDADI (D): The market is growing and a large number of new companies will arrive putting existing resellers under pressure. it is important that we continue to support the channel in the right way.

PAVAN GUPTA (D): The biggest growth will be in the broadband and wireless networking markets. The new technologies offer a greater quality of service and higher levels of enterprise security, which will in turn encourage an increase in market demand.

Cme: What levels of growth do you expect in 2005 and beyond?

ADNAN AL-FALAH (D): We expect the market to grow although it will vary by product and territory. I am convinced that serious double-digit growth will occur and we are planning for 20% growth. Profitability as a whole is tough right through from vendor to reseller and I do not see that changing next year.

ALI BAGHDADI (D): We are just completing our 24th year of business and have a tremendously experienced team. 2005 is our 25th year and we know how to be a VAD and how to be a ‘pile them high, shift them fast’ volume distributor. We are going to make something amazing during the next five years, so watch this space.

PAVAN GUPTA (D): We expect the IT market to grow at a rate of approximately 22% based on eSys research into market trends. However, this prediction could totally change if there were to be a drastic improvement in the Iraqi market scenario.
||**||Channel changes|~|Baghdady,-Ali-----APTEC----.jpg|~|Ali Baghdadi, president and CEO at Aptec|~|Cme: How do you see the vendor landscape changing in 2005?

RAJEEV MUKUL (V): We see vendors becoming more directly involved in marketing and customer support areas in relation to the degree of reliance on the channel to handle these areas. We also believe that vendors will increase their focus on training and customer education to bring the technology faster to customers.

BEN GALE (V): Competition is fierce with almost too many players. Xerox expects some consolidation and believes some vendors will attempt to enter new markets and broaden their market reach. This may mean a dilution of value as vendors strive to stay ahead by using price as a mechanism to stimulate demand.

Cme: How should resellers develop their business in 2005?

MEHDI AMJAD (D): It very much depends on the country. Resellers in the UAE will evolve in a different way to those in Iraq or Egypt. In the UAE I see consolidation occurring because of the credit issues. You will see some players actually disappearing from the market while other solid resellers will continue to grow.

BEN GALE (V): With the pressure in the market place and reducing margins in the volume business, resellers should look to vendors who can help them make new money. This can be by developing new services, broadening their product portfolio or simply looking at better ways of doing the same business in which they excel.

Cme: How will the role of re-export and grey change during 2005?

ALI BAGHDADI (D): I think the market will tighten up in some sectors although re-export and grey trade will still happen a lot in the supplies and components sectors where the product is not always traceable. You can sit with hard drive vendors who will say that the Middle East market can take three million drives. They shut their eyes to the fact that three quarters of these are going to India, the Far East or even to Europe.

MEHDI AMJAD (D): I hope grey will be less of a problem in 2005 because of product availability and vendors hiring people in this region. When they have a local team with quarterly targets, they do not want product coming in from other regions affecting their ability to meet their own sales targets.

PAVAN GUPTA (D): With countries across the region easing import regulations and vendors directly addressing their target markets, the volume of grey players in the markets will decline. The rate of decline will differ from country-to-country due to a complex mix of market scenarios such as price sensitivity, import regulations and vendor flexibility. Re-export will be around for a while, especially given the re-export friendly business policies of the UAE.
||**||Regional rockets|~|Amjad,-Mehdi-----AL-MASA-IT.jpg|~|Mehdi Amjad, group managing director at Almasa Distribution|~|Cme: Which countries do you expect to rocket in 2005?

ALI BAGHDADI (D): There are some small countries with tremendous growth potential such as Qatar, Bahrain and Jordan. Egypt is now much more stable and Libya is opening up. I would not say Iraq yet but there are opportunities in the Stans. Kuwait also has tremendous potential and we have just appointed a new manager there and added more sales people as well as improving the logistics. When you look at the overall region, there are many opportunities for growth.

MEHDI AMJAD (D): We plan to appoint 30 more field sales representatives in 2005 to target markets such as Algeria and Iraq. Almasa also see an excellent opportunity in Egypt, Libya and Sudan — a region we class as one territory. Iraq is doing very well and we already have an office in Baghdad including a service centre. We have seen strong sales in Iraq but it is very spiky and there is no real run rate business yet.

PAVAN GUPTA (D): Iran and North Africa are demonstrating high potential for rapid growth. However, if one were to pinpoint a market that is likely to rocket, that would have to be Iraq. However, this cannot be a firm prediction, as it is dependent not just on market demand, but also on overcoming political and logistic hurdles.

ADNAN AL-FALAH (D): Qatar and Bahrain are a tremendous opportunity and I still think Saudi Arabia holds even more potential. Bahrain did very well in 2004 after we put in a substantial effort to increase reseller breadth, build up marketing activities and develop stock availability. We will look to evolve markets such as Qatar, Jordan and Lebanon in a similar fashion.

RAJEEV MUKUL (V): We will continue to protect Maxtor’s share in the traditionally strong UAE market. We foresee the highest growth in Saudi Arabia and Egypt due to our engagement with strong local channel partners in these markets.

Cme: Which product areas do you expect to rocket in 2005?

ADNAN AL-FALAH (D): Security products will continue to do well as will wireless technology and everything to do with mobility. I think the growth in branded notebooks will be phenomenal and the same will be true for PDAs.

PAVAN GUPTA (D): New technologies are well received in the Middle East. LCD monitors, DVD players, notebooks, digital cameras, PDAs and USBs will all follow a high growth curve. These gadgets are on the threshold of moving from novelties to products in everyday use.

ALI BAGHDADI (D): We have tremendous plans to boost our mobile phone distribution business and will grow the number of Aptec retail outlets by 50% in 2005 in the UAE. By 2007 we plan for this area of the business to go regional.
||**||Channel concerns|~|DSC_3663.jpg|~|Pavan Gupta, general manager at eSys Middle East|~|Cme: Do you expect credit problems in the channel to get worse?

ALI BAGHDADI (D): Giving credit will not get easier unless people start to become more transparent and show their accounts. Not the fiddled accounts but the real ones signed by auditors. The channel has to realise that not everybody deserves credit. Dubai remains too easy a place for any reseller to come to, set up a business and get credit.

MEHDI AMJAD (D): I do not expect it to get worse but the situation could continue in the UAE. The resellers in the UAE do not all make money and that creates the problems. In other countries, they do make money and there is not such a problem. The problem in the UAE comes about because some distributors take too much risk to ensure sales and make too much credit available.

ADNAN AL-FALAH (D): It needs to be mandatory for companies in Dubai to publish accounts. There are not very many companies in the channel that are well financed and therein lies the problem. Too many companies are reliant on credit to keep the cashflow turning over. You also have cases in Dubai where resellers set out to deliberately defraud. That is not a credit problem; that is out and out fraud. I have to tell you that this sort of behaviour does not occur in other markets around the region such as Saudi Arabia.

Cme: What are your 3 predictions for the Middle East and Africa IT market in 2005?

PAVAN GUPTA (D): The Middle East and Africa IT market will grow at over 20% in 2005. The market transactions will become more transparent, which will in turn strengthen vendor interest in the market. In the retail segment, digital lifestyle products will provide the biggest revenue boost.

RAJEEV MUKUL (V): Retail end-user sales will grow at a phenomenal rate. The market will witness a marked growth in broadband internet connectivity. End users will expect and demand higher quality customer service and product quality as opposed to only being concerned by price.

BEN GALE (V): With the cash surplus from the high oil prices we expect to see increased spending on IT infrastructure. Secondly, there will be a rise in the number of third party service providers to manage the infrastructure projects. Thirdly, there will be further vendor consolidation.

Cme: How will you evolve your vendor portfolio?

ALI BAGHDADI (D): Every month we look at five or six potential new vendors. There are only half-a-dozen or so major brands on our wishlist and we have ongoing communication with them.

MEHDI AMJAD (D): There are product lines in three new areas that Almasa will introduce by 2007. We will introduce one of these areas in 2005, maybe two. We will definitely offer a wider product choice.

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