Regionalisation

Just like disintermediation, the word regionalisation has secured a special place in the minds of IT channel managers working around the world. These two principles lie at the very heart of the quest to inject cost efficiency, reach and logistics excellence into global go-to-market models.

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By  Stuart Wilson Published  July 20, 2005

Just like disintermediation, the word regionalisation has secured a special place in the minds of IT channel managers working around the world. These two principles lie at the very heart of the quest to drive cost efficiency, reach and logistics excellence into the go-to-market model.

While these words are bandied around pretty frequently in the upper echelons of vendor channel management, it is important to really get to grips with what they mean. Let’s start with disintermediation — a word that is feared by many resellers and even distributors operating in the market.

Put simply, disintermediation refers to the process where a layer of the channel model is bypassed by a vendor. This could mean the transition from a two-tier channel — going through distributor and reseller — to a one-tier model, or more drastically it could involve the creation of a direct sales model.

In today’s market, it has become increasingly common for vendors to operate a hybrid model, typically employing a combination of direct, one-tier and two-tier channel structures. Often, the direct sales model is limited to a specified list of named accounts and the upper reaches of the midmarket are served through a dedicated and committed one-tier corporate reseller channel. Below this, the two-tier distribution model comes into its own.

As vendors tweak their channel strategies, it is all too easy to jump to the conclusion that they are turning their back on the channel if a few accounts that were handled indirectly suddenly transfer to the vendor’s own account managers. When this happens, it is not uncommon for rival vendors to embark on a spree of scare mongering in the channel, looking to give partners the heebie-jeebies by claiming that this is just the first step in a much more fundamental channel shift.

Modern channel structures and go-to-market programmes are now being rolled out in the Middle East. As this happens, channel partners need to show maturity and understanding when analysing the various pros and cons of each model. They also need to understand the difference between direct sales and marketing engagement and indirect product fulfilment. It is not unusual for vendors to proactively lead the sale to enterprise clients and then pull in the channel for the fulfilment, implementation and maintenance of a project.

Disintermediation is not a black and white scenario and distributors and resellers need to take a step back from time-to-time and appreciate the bigger picture. This will be especially true for channel partners in this region as vendors implement increasingly sophisticated programmes that stratify and classify partners into clear groups with specific customer targets.

Moving on to regionalisation, which is really a concept that goes hand-in-hand with the development of mature channel structures and the implementation of sophisticated partner programmes, and it is clear that the Middle East and Africa region is already heading off down this path.

What does regionalisation mean? It is all about the introduction of distribution structures and logistics efficiency that move beyond an approach that treats each individual country as a separate and standalone market. In the distribution space, the process of regionalisation typically involves centralised stocking hubs, the consolidation of in-country distributors to form larger entities and a push towards supply chain efficiency.

Regionalisation does not happen overnight and is closely linked to political, social and economic factors within a given region. Despite the obstacles that need to be overcome in the Middle East, major vendors such as HP are already laying the foundations for the eventual regionalisation of the IT channel.

HP is working hand-in-hand with key distribution partners to drive a regional approach to channel logistics and improve efficiency throughout the supply chain in the Middle East and Africa (MEA). Jebel Ali Free Zone looks set to play a primary role as HP evaluates the potential for stocking hubs in the region and the most efficient way to supply in-country distribution operations.

“I want to differentiate between the first leg of logistics and the second leg,” said Christoph Schell, SPO manager for the ISE region at HP. “The first leg involves HP shipping finished goods from the point of manufacturing to a hub. The second leg is HP or a partner shipping the product to the final country of distribution.”

During the last year, HP has worked hard on the second logistics leg, encouraging distributors from across MEA to set up an operation in Jebel Ali and consolidate shipments there. HP is now looking at how it can expand the role of Jebel Ali for the first leg of logistics.

Schell explains: “We currently have one category of HP products that is moved directly from the manufacturing site to Jebel Ali: low-end inkjet printers. On the desktop PC side, we stopped doing this when the assembly facility in Saudi Arabia opened. With that facility in place, there was no need to have a hub stocking desktop PCs at Jebel Ali. We are now looking closely at notebooks and Intel-based servers and over time I believe we will follow the set-up we have with inkjet printers.”

“If we do decide to have a finished goods inventory hub in Jebel Ali for these products, it will have a big boost in terms of lead times and turnaround times for all those partners that are driving regionalisation with us,” he added.

One of the positive impacts of improvements in the logistics model is the usage of credit lines by major distributors according to Schell. Distributors that pay 100% of the amount due for a shipment within 14 days of purchase from HP receive a 2% discount.

“In the past some distributors were reluctant to do this because it meant they had to pay for the goods before they physically received them,” added Schell. “The enhanced model changes that.”

Regionalisation will be a driving force in the evolution of IT channels in the Middle East and Africa and distributors need to set their stall out early and decide exactly how they want to develop their business in the long-term.

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