Scared of skilling up?

The reticence of the regional IT channel to invest in software and service skills is creating a bottleneck that threatens to disrupt the spectacular growth rates that have driven the Middle East market forward in recent years. That is the message from major software vendors and value-added distributors attempting to drive channel change.

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By  Stuart Wilson Published  January 12, 2005

The reticence of the regional IT channel to invest in software and service skills is creating a bottleneck that threatens to disrupt the spectacular growth rates that have driven the Middle East market forward in recent years. That is the message from major software vendors and value-added distributors attempting to drive channel change.

As the regional market matures the proportion of IT budgets allocated to hardware, software and services will change. Expect to see software and services sales outstrip the underlying market growth rate as end-users at all levels, from the smallest SMBs to the largest enterprises, look to get the maximum return from their substantial investments already made in hardware. This trend has occurred in more mature IT markets around the world, and the Middle East will be no exception.

Software vendors and value-added distributors are working overtime to communicate this message to the Middle East channel and provide them with the necessary skills and education to make the leap from selling product towards solution selling incorporating software and services. To date, the reaction of the channel has been lukewarm at best. It seems that you can lead a reseller horse to water, but you cannot make it drink.

So, what’s holding back resellers? There is definitely an element of fear, uncertainty and doubt blunting their desire for change. This region remains one of the fastest growing IT markets in the world and those resellers focused on hardware sales — even in the face of declining margins — have been able to compensate through increased volume. This development phase is now nearing an end and the time has come for resellers to start making radical decisions about their future.

A few plucky resellers have already taken the first steps to reposition themselves as genuine value-added resellers and bona fide systems integrators. The desire for change needs to come from the top management at each reseller and requires a fundamental rethink of the company structure and strategic plan.

It is not a case of going out and signing agreements with a couple of vendors just for the sake of sticking their logos on your website and business card. To make any move towards value-add and solution selling, significant investment needs to be made in training, certification and staff recruitment. Vendors and VADs are queuing up to help resellers through this transition process.

One problem holding back this process in the Middle East and wider Arab world is the lack of financial transparency that exists at a reseller level. When this process happened in Western Europe, rival resellers were able to pore over the published accounts of rivals and view the exact impact that the transition had on both the bottom line and the overall financial health of the business.

In this region, that is just not possible. One of the few ways to gauge how well a reseller is doing is to look at the car that the managing director is driving. And even then you don’t know if he has bought it outright or is merely leasing it.

When all is said and done, building software and services offerings into the business mix not only creates an improvement in gross margins but also gives an organisation much greater stability by spreading its risk across various segments.

The Arab world has a population of approximately 300 million representing a massive market opportunity. The true potential of that customer base will only be realised if the channel skills up appropriately. Some software solutions have been sold but shoddy deployment and lack of after-sales service skills has left end users in the lurch.

Gilbert Lacroix, VP and general manager at Computer Associates, explains: “It is not only about implementing solutions but maintaining them to ensure they provide what they are supposed to. I visit some big sites and discover they are using only 10% or 20% of the software they purchased. It is like buying ten cars and using only one. We need to educate our resellers and this is where VADs are important. They have access to a number of resellers who in turn have access to so many customers that there is a multiplier effect. It will take some time but things are happening step-by-step. We still have a lot of work ahead of us.”

To say that the channel is scared of skilling up is probably an overstatement. The problem is more a general lack of awareness concerning the market trends and an inability to face up to the harsh reality that the good times will not last forever.

Many strong hardware resellers were forced out of business in Western Europe because they did not take the necessary steps early enough to evolve their business as IT spending patterns changed. Those with the economies of scale managed to ride out the margin pressure. Those without went under, were bought out or became a shadow of their former self.

No one can force Middle East resellers to rethink their business strategy, but those that choose to ignore the lessons of history do so at their own risk.

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