DISTREE diary

For those convinced that distribution is a dull low-margin game of relentless boxshifting, the recent DISTREE conference held in Monaco provided a welcome break and highlighted the glitzier side of the business.

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By  Stuart Wilson Published  February 2, 2005

For those convinced that distribution is a dull low-margin game of relentless boxshifting, the recent DISTREE conference held in Monaco provided a welcome break and highlighted the glitzier side of the business.

Distribution powerhouses from across the Middle East and Africa took the opportunity to meet up with potential new vendor partners, swapped notes on regional business trends and still managed to find time to pop along to the world-famous casino during the annual channel get-together.

Several issues affecting the development of the regional channel were discussed at length as vendors and distributors addressed their future concerns.

One pain point that continues to afflict the Middle East channel is just how regional and in-country distributors can sit alongside each other with minimal conflict. Time and time again, in-country distributors bemoaned the fact that vendors wanted to use their local reach but were unprepared to strike distribution deals with them, preferring instead to appoint regional players to serve the market.

It is a conflict with no easy answers. In many ways it is testament to the fact that the market is moving to a point where the actual product fulfillment channel slowly separates from the sales and marketing efforts and channel development role that needs to be provided at a local level. Not everyone is comfortable with the current model and many distributors were keen for vendors to start paying more attention to the problems that an unclear distribution model could create.

What appears to be lacking in the region is a degree of channel clarity that allows efficient distribution infrastructures to be established. With the Middle East (and Africa) region covering such a broad geographic area, characterised by markets of many different sizes at different stages of development, the actual flow of products can be a confused affair. Throw in the complications of tax and duty, grey product and the difficulties involved with extending credit to resellers, and it is clear that major challenges continue to exist.

Nevertheless, demand for IT products continues to grow across the Middle East and Africa. Numbercrunchers from analyst houses covering the region lined up at DISTREE to deliver a powerful message about the underlying growth rates that exist. Some in-country distributors, claiming to see a very different picture on the ground, questioned the validity of these figures.

This merely served to underline the problems involved in sizing the regional market and pinpointing exactly where components or products enter the channel, and more importantly where they finally reach the end-user. It is no secret that the UAE has a hugely inflated IT sales figure because of its role as a re-export hub for major markets including Iran.

Despite the challenges posed in the region, new vendors continue to show strong interest in entering the market and building up distribution channels. A line-up of vendors from a range of IT areas including networking, peripherals, components and even enterprise software were on the lookout at DISTREE for distribution partners that could give them access to the huge opportunities that exist in the Middle East markets.

As more and more new vendors enter the region, and the overall market size increases, the channel will come under increasing pressure to mature. To achieve this, distributors will begin to segment and specialise either by product area or geographic focus. As they do, many are hoping that vendors — including all those already in the region — will recognise the effort and investment they are making and begin viewing them as long-term partners as opposed to nothing more than a sales engine.

Expect the value of in-country distribution expertise to climb during 2005 — especially as vendors deploy more resources on the ground across the region. While Dubai will remain a logistics hub for the product itself, vendors will want an ever-greater understanding of exactly where the product is ending up and how they can grow sales in specific markets.

The pressure is growing on regional distribution giants to supplement their undoubted logistics efficiency and economies of scale with an element of local touch that allows vendors to take Middle East channel development to the next level.

As everyone looks to improve channel efficiency in the Middle East, the concept of multiple touch points throughout the route-to-market model will become harder and harder to justify, leading to the eventual disintermediation of those providing no real value.

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