Channel conflict

Distributors should not sell direct to end-users. That is how the two-tier channel is supposed to work, which makes the antics of a few distributors in the Middle East difficult to believe. Worse still, some of the vendors that these rogue distributors represent appear to wholeheartedly condone the actions of their partners.

  • E-Mail
By  Stuart Wilson Published  May 11, 2005

Distributors should not sell direct to end-users. That is how the two-tier channel is supposed to work, which makes the antics of a few distributors in the Middle East difficult to believe. Worse still, some of the vendors that these rogue distributors represent appear to wholeheartedly condone the actions of their partners.

Reports from attendees at last month’s Gitex Saudi Arabia claim that some distributors operating in the Kingdom were happily selling product to end-users from their stands. These distributors were depriving their own resellers of the opportunity to make a sale and jeopardising their long-term customer relationships.

The fact that vendor representatives were also on the stand, giving their tacit approval to this underhand activity by not intervening and putting a stop to this channel fiasco, quite frankly beggars belief.

Maybe in the past this sort of behaviour was tolerated in the Middle East IT channel — especially when channel structures were embryonic and it was not clear where various companies and individuals actually operated in the supply chain. That is no longer the case as vendors moved to appoint in-country distributors with detailed local market knowledge.

When vendors used an exclusive distributor for the Middle East, selling direct to end-users may have been more commonplace. After all, the distributor would feel fairly secure knowing that it was the only source that the resellers could buy from.

Today, we have entered the next phase of channel development where resellers have a choice of distributor to purchase from. It is now a comparatively small percentage of vendors — or those without critical mass in the region — that clings to the business models of yesteryear and maintains that a master or exclusive distribution model is actually the best way to build up a channel in the Middle East.

Let’s spell this out for the distributors that do not understand what is so bad about selling direct to end-users. There is nothing more galling to a reseller than witnessing a distributor selling direct to end-users.

It breaks the circle of trust and means that the reseller is actually competing against its own supplier for the same customers. Business relationships that took years to build up can be destroyed in an instant. It is something that those distributors prepared to sell direct to end-users need to understand.

At this point in time, I am not going to mention the guilty distributors or the vendors that condoned their actions, but they need to understand that selling direct to end users is fundamentally wrong and they risk facing the wrath of their reseller base.

Saying it was a mistake the first time is all well and good but persisting in cutting out resellers is a recipe for channel conflict that will result in a significant proportion of the distributor’s resellers looking for a new supplier.

As the Middle East channel matures, resellers typically have a choice of distributors that they can purchase from. They need to exercise this freedom to choose and use their collective power to uphold decent standards of behaviour among distributors. So, next time your distributor sells direct — with or without the consent of the vendors they represent — tell everyone so that the problem can be confronted head-on.

Collectively, second tier resellers are the most powerful force in the Middle East IT channel structure. At an individual level, many may find this difficult to believe, but stop and think about it for a moment.

All vendors selling IT products — with the exception of those playing purely at an enterprise level or using a one-tier integrator channel — rely on the two-tier channel to take their product to market. Nothing reaches the end-user without the support and effort of the second tier resellers.

Without the support of the second tier resellers, distributors are out of business. Without the support of second tier resellers, vendors pursuing a two-tier channel model are nothing. Many vendors actually prohibit distributors from selling to end-users when they define the terms and conditions of the contract.

If you know of authorised distributors in the Middle East selling direct to end-users and disrupting the channel model, feel free to e-mail in details. If you know of vendors that are quite happy to turn a blind eye to this activity in the Middle East, now is the time to speak up.

Channel conflict has the potential to wreak havoc in emerging markets. It is time for second-tier resellers to nip this activity in the bud and make sure that distributors and vendors are brought to account for their unscrupulous actions.

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