Vendors behaving badly

Could 2005 be the year that vendors finally clean up their act in the Middle East IT channel? Some vendors took huge steps to put their house in order during 2004 while others continued to bury their heads in the sand.

  • E-Mail
By  Stuart Wilson Published  January 4, 2005

Could 2005 be the year that vendors finally clean up their act in the Middle East IT channel? Some vendors took huge steps to put their house in order during 2004 while others continued to bury their heads in the sand.

Channel stuffing, special pricing abuse, smuggling, financial kickbacks, grey marketing, rebate abuse and even a healthy dose of nepotism are just some of the issues that continue to tarnish the Middle East IT channel.

With corporate governance and statutory compliance hot topics in the 2005 global business environment, some major vendors — especially those with a western background — need to root out the dodgy elements that continue to blight the integrity and reputation of their regional operations. These are facts that senior regional managers should bear in mind every quarter when they sign off their financial declarations and send them back to the big bosses.

When distributors and resellers start complaining about the behaviour of vendors in the Middle East, you know that something is definitely wrong. In a sense, channel players are nothing without their vendor relationships. So when accusations of improper behaviour are leveled at major western IT vendors, it is not something the channel enters into lightly. It also becomes pretty obvious that dodgy business practices continue to permeate through vast swathes of the regional channel.

Well several accusations have been leveled in recent weeks and something is definitely wrong. To some extent the shady business practices are global channel problems, but the scale of the problem and frequency of incidents in the Middle East continues to shock.

As one major distributor puts it: “To say that vendor behaviour has definitely improved would be a categorical lie. There are vendors out there today putting a lot of investment into the [Middle East] market but expecting a short-term return on investment (ROI). This is really pushing them towards a ‘stuff-the-channel’ mentality. If they can’t wait five years and look at the long-term picture, they should not put in the investment.”

This pressure for instant results has created an environment where regional staff are under constant pressure to use all the tricks of the trade to meet quarterly targets. By placing an emphasis on their short-term goals they are in fact creating long-term structural problems in terms of meeting their sell-in targets.

Just look at the constant rotation of senior staff between vendors in the Middle East and you get a feel for how bad the problem actually is. It is not that difficult to stuff the channel for a while, bend every rule in the book, post amazing figures and then move on to the next vendor before the bean counters back at corporate headquarters smell a rat.

In terms of channel stuffing, there remains massive pressure from certain vendors for distributors to help them meet sell-in targets at the end of each quarter. At these times, the under pressure salesman will employ every trick in the book to make distributors take stock they don’t really need.

There are even tales of vendors engineering large end-user deals to create sell-in demand in anticipation of the need to fulfill the orders. When the product arrives at the distributor, the deals suddenly disappear leaving the channel stuck with thousands of boxes. This product has to be moved as no one wants to be stuck with depreciating inventory. In some cases, distributors are forced to sell below cost, which in turn creates even more problems for the vendors and their first tier partners in the quarters that follow.

This is happening right now with second-tier resellers claiming that they can buy certain product at up to 7% below the price that it is sold into the first-tier distribution channel. This is a pretty crazy situation especially when vendors harp on about the need for distributors to move deeper in-country, increase their channel breadth and serve even more second tier resellers. That is just not feasible when the second-tier resellers — often working as re-exporters — can actually offer cheaper prices and still make money.

Unfortunately, the internal structure of many vendors remains partly to blame. The channel manager handles the frustrations of the distributors and resellers on a daily basis while the sales team has one overriding aim: sell as much as you can however you can.

Channel stuffing is really just the tip of the iceberg. The one complaint I hear time and time again from distributors and resellers in the Middle East is that vendors need to start policing the behaviour of their own staff before they start criticising the behaviour of the channel. It is the vendor policies that dictate the channel reaction.

For senior management at vendors, this means looking beyond the headline numbers on the sales spreadsheet. They only tell a small part of the story. Ask yourself just how those numbers were reached, which partners played the most prominent role in achieving the targets and start joining the dots together. The longer these problems are ignored, the more entrenched they become in the whole corporate culture and the harder it is to eventually rectify the problems.

Vendors need to be realistic about the sales they can ‘legally’ achieve in this region. Some have seen the light, turned their back on bad behaviour and started to police both their own staff and the channel effectively. Policing internal staff is a hard task, as it is often easier and more convenient to turn a blind eye. From a channel perspective, policing can involve issuing legal letters to distributors and first tier partners forbidding them from transacting certain business opportunities.

Will these measures impact a vendor’s sales growth? Quite possibly, but take a good look at the bigger picture. Behaving responsibly creates an environment whereby distributors and resellers trust the vendor, channel profitability improves, the flow of grey product is reduced and solid long-term growth plans can be put in place.

The Middle East has now laid the foundations of a structured IT channel. It is now a developing market not an emerging market. No longer a dumping ground for product that is deemed excess capacity in other regions around the world, some vendors need to wake up and start appreciating the realities of the situation.

This year will witness more executive casualties at major vendors as global management teams finally wake up and take a good long look at their Middle East operations. Some distributors will be implicated in wrongdoing, so too will some vendor employees and I do not rule out a few court cases coming to light.

Vendors taking action now to stamp down on unscrupulous business practices will reap the rewards. Those that maintain a short-term outlook are simply the sewing the seeds of long-term channel discontent that will ultimately grow into out-and-out antagonism.

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