Ready or not?

Global distribution giants are still a bit nervous when it comes to building up operations in the Middle East. The decision-makers at these logistics powerhouses are still a little bit scared by the credit risk, regional business practices, the political climate and even their need to meet corporate governance guidelines.

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By  Stuart Wilson Published  June 22, 2005

Global distribution giants are still a bit nervous when it comes to building up operations in the Middle East. The decision-makers at these logistics powerhouses are still a little bit scared by the credit risk, regional business practices, the political climate and even their need to meet corporate governance guidelines.

Speaking to one global distribution giant recently, who is not yet present in this region, it became clear that, despite the mightily impressive IT sales growth rates occurring in the Middle East, it still remains a relatively small part of the overall global picture. Until the region reaches a critical mass in terms of scale, it is quite easy for them to say 'nice market but no thanks'.

So who’s present and correct already from the global big boys? Well Tech Data is one name that springs readily to mind. With Middle East sales just north of US$300m a year, Tech Data is one of the largest distributors in the region.

Sounds impressive, but when you put this figure in a global context you start to understand where the ‘stay away’ distributor mentality is coming from. Tech Data’s US$300m Middle East sales represented just 1.5% of worldwide sales of US$19.8bn for its last fiscal year ending July 2005.

Given the slim margins that distributors work on and the elevated risk of bad debts occurring in this region, it is little wonder that some are reluctant to make an inward investment in a region that makes up just a fraction of the total addressable global market.

I suppose you could also argue that Synnex has made a partial entry through its acquisition of a stake in Redington and let’s not forget value-added distributor Magirus. While not exactly a supertanker of the broadline distribution variety, Magirus is one of the most significant value-added distributors in EMEA and it has started to invest in this region — albeit through a joint venture vehicle.

So that’s three pretty significant players present and correct in the Middle East, which begs the question, 'Who’s missing?'

If you trawl through the members of the Global Technology Distribution Council, an industry talking shop for distribution bigwigs, there are a few prominent companies that stick out, many of whom already have a significant presence in Europe.

Companies such as Actebis, Arrow Electronics, Avnet, Bell Microproducts, GE Access, Ingram Micro and Scribona will be familiar names for those up-to-speed with the global channel landscape. Yet to date, they have kept their distance in this region.

Admittedly, Avnet has started taking advantage of its EMEA master distribution rights with AMD and signed a contract to supply Dubai-based Golden Systems. Avnet is also looking to sign up additional distribution partners as well to expand its coverage.

For now these products are being shipped in from Europe and Avnet remains uncommitted to opening a dedicated office or stocking point in this region. Ingram Micro is currently concentrating on Eastern Europe before it considers the Middle East.

The lessons learnt in Eastern Europe are also impacting the approach that several of these players take when it comes to building up Middle East operations. Put simply, when the markets of Eastern Europe first opened up, some of these players went in too quick, too fast, believed they could displace the established national incumbents and ended up getting their financial fingers burnt before beating a hasty retreat.

The choice of building up an operation from scratch in new territories or actually purchasing an existing player remains a tough call. Pretty much every major IT distributor in this region is up for sale should the right offer come in.

Many want to be bought by a global player and they are actively polishing their operations to ensure that they are presented in the best possible light to potential bidders.

There are undoubtedly conversations going on behind closed doors as regional distributors try to persuade their global brethren that they are the right distributor to invest in should they decide to enter the Middle East market.

The largest IT vendors are desperate for more global distributors to enter the region as well. They feel much more secure dealing with a global distributor that has financial transparency, financial security and is also committed to the same level of corporate governance. This is especially true for the US-based vendors operating in this market.

It is the emerging nature of the Middle East markets that preserves channel diversity and allows new distributors and resellers to spring up with innovative business models supplying certain products to certain markets in a way that no-one else has contemplated before.

The big boys of the global distribution landscape will eventually arrive in the Middle East. For now though, it remains a land grab for the regional incumbents and a race to establish themselves as the largest and most professional distribution outfit in the Middle East.

This means much more than pure sales: it involves reseller breadth, the scope of the vendor portfolio, slick logistics and a deep bench of highly skilled and experienced managers.

This is the combination that will win the distributor beauty parade should the global giants ever decide to open up their chequebooks and take the plunge in the Middle East.

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