Driving value

Value-added distributors are playing a pivotal role in the relentless march towards solution selling and sustainable margins in the Middle East IT channel

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By  Stuart Wilson Published  August 22, 2005

Skills development|~|vadtechaccess200.jpg|~|Kamran Hussein, VP sales and marketing at Tech Access|~|The road to reseller margin is signposted value-add. For those in the channel prepared to embark on this particular journey, commitment is a must. It is not an easy journey and resellers will rely heavily on value-added distributors (VADs) in the early stages of their development into fully-fledged solutions providers. As the Middle East channel moves beyond the box, VADs are playing an increasingly important role, ensuring that the necessary skills and services are made available to partners across the region. Channel Middle East gets up close and personal with leading Middle East VADs to find out more. The Middle East IT channel is in the midst of a paradigm shift and value-added distributors (VADs) are playing a vital role in the reseller revolution. With the exception of a few pure traders, resellers across the region are waking up to the necessity of solution-selling and delivering services to end users. This is the only way to truly differentiate their offering from rivals and produce operating margins that safeguard their long-term future. As resellers understand this channel reality, a new breed of focused VADs offering a variety of extra services is emerging to help them develop their business. “VADs go that extra mile with the resellers,” explained Kamran Hussein, VP sales and marketing at Sun distributor Tech Access. “This means offering services such as pre-sales assistance, marketing support, account management and paying attention to every deal that our partners are involved in.” Already serving some 50 resellers stretching from Casablanca to Islamabad, Tech Access has boosted its vendor portfolio, adding names such as BlackSpider, Huawei and Business Objects to ensure that resellers can turn to it as a complete solutions provider. Building up a strong product portfolio is incredibly important for VADs looking to build loyalty among the resellers they deal with it. The term ‘reseller’ is a fairly generic term and does not really do justice to the type of partners that VADs are pushing product through. To truly understand the role of VADs, it is necessary to move away from the idea of a channel boxshifter and understand that these companies are dealing with value-added resellers (VARs), systems integrators, service providers and even IT consultancies. This type of partner frequently adopts a vendor agnostic approach when recommending a solution to end-users. They are not committed to one particular vendor and will instead present all the relevant options and let the customer decide. This means that the VADs themselves have to ensure that they work with all the relevant vendors that are being presented to the customer. ||**||Vendor needs|~|vadmagirus200.jpg|~|Vimal Kocher (left) and Patrick Eichstädt (right), joint general managers at Magirus Middle East|~|Dubai-based VAD Magirus, which specialises in server, storage and virtualisation solutions, has already begun the process of expanding its skill set in the region to offer a wider product choice of vendors to the resellers it works through. “This year we have really started developing the business with new vendors such as IBM and EMC as well as working with specific software vendors,” said Vimal Kocher, joint general manager at Magirus Middle East. “We used to be totally focused on HP and six months ago we did wonder how they would react to us working with more vendors. There have been no problems because our model means separate teams for each vendor and they all have faith in this approach.” No VAD wants to be totally reliant on one vendor. It not only increases their own level of vulnerability to any change in that vendor’s fortunes, it also makes it difficult for them to work with resellers on all the project opportunities that exist. If one VAD is unable to offer the reseller a suitable solution, there are plenty of rivals ready to step in. “Building up the vendor portfolio builds a lot of synergies between Magirus and our partners in the region,” continued Patrick Eichstädt, recently appointed joint general manager at Magirus Middle East. “It enables us to offer most of the solution options that the market considers. We do not have to say, ‘Sorry, can’t help, we don’t do that vendor’. This gives a fantastic opportunity for the integrators, resellers and ISVs we work with to go to their customers and offer them the variety of options that they want to consider.” The role of the VAD is vital in the Middle East market for a number of factors. Typically, many vendors — especially those selling sophisticated high-end products — do not have the economies of scale in terms of sales to justify having their own staff on the ground in the region. “Most vendors have offices in Western Europe because the size of the market justifies it,” explains Sami Bazzari, business development manager at regional VAD US Telecoms. “The size of that market and the revenues they make justify having vendor staff available to help resellers and end-users. That is just not the case yet in the Middle East, so many of these vendors turn to VADs instead.” “The presence of vendors is not as strong so VADs have a bigger role to play in order to fill that void,” concurred Suren Vedantham, managing director at storage solutions VAD StorIT. “At the same time there are only a limited number of resellers with the scale to really go and invest in their own skills base in areas such as storage. So, the reseller base itself is reliant on the services and competency levels that they can source from VADs.” ||**||Service resource|~|vadtechdata200.jpg|~|Quentin Cornelius, sales director at Tech Data|~|The channel landscape and market dynamics of the Middle East IT sector do elevate the importance of the VAD role. Many systems integrators, VARs, resellers and service providers operate in small national markets that do not offer the economies of scale that justify them making a significant investment in building up their own internal professional services arm. This opens the door for regional VADs to create a centralised resource that can be subcontracted to resellers whenever they have a need to provide these services to customers. “More partners are looking to build up service skills,” added Hussain. “However, there are still a large proportion of partners that require assistance. Even with the partners that are highly skilled, VADs still have a role to play and typically engage with them on a daily basis providing advice and support.” Building up this internal service resource means that VADs typically incur extra operating costs and the debate over whether these skills should be made available for a fee to the resellers or provided for free remains a thorny subject. Tim Martin, managing director at security VAD Fusion Distribution, explained: “Internal technical and sales resources are where the value-add lies. If a broadline distributor goes out to market saying that they have the technical staff in-house and the VAR can sell these on like a box then this is not adding value. This is just boxshifting without the physical box.” “The true VAD is investing in knowledge that a partner can call upon either free of charge or as a charged service that both partners make a profit on and use this to close or secure deals while also making a better profit margin,” he continued. VADs are not only responsible for providing services to resellers; they also play a critical role in driving the adoption of new technology into the Middle East market. These companies take risks, frequently signing up cutting-edge vendors that have no existing customer base and no channel partners in the region. To create a market for these products, training and communication with the channel partners is an absolute imperative. ||**||Channel clarity|~|vadfusion200.jpg|~|Tim Martin, managing director at security VAD Fusion Distribution|~|“Training and knowledge transfer is vital,” added Hussain. “There is still a large hole that needs to be addressed to make sure that Middle East resellers have the toolset to address all the opportunities that exist in the regional market.” As the regional channel matures, so too does the role of the VAD and its position within the market. Channel segmentation has been on the agenda for some time in the Middle East and for the vast majority of VADs this means ensuring that they only deal through resellers and never work direct with end-users. It is an issue of channel trust and unfortunately, in the Middle East, there are still some channel players that destroy trust by claiming to be a VAD and then engaging directly with end-users. It is something that the genuine VADs view with disdain. “If you are a VAD you help resellers work with end users,” said Hussain. “If the resellers require us to go and visit the end-user for pre-sales consultation or even configuration we will, but only at the invite of the reseller. We never go direct to end-users because that would push the resellers away.” Not all VADs operate such a clear-cut policy and it is something that both vendors and the genuine VADs want to see eradicated from the market once and for all. “The clarity of the role of distributors is much better now than it was five years ago,” commented Quentin Cornelius, sales director at Tech Data. “Back then it was a total shambles and many players that were supposed to be distributors were also operating as systems integrators and resellers. Resellers are not loyal to those companies and we still see a level of mistrust in the region. However, I would say that we are now getting more definition in the channel landscape.” ||**||Avoiding conflict|~|vadust200.jpg|~|Sami Bazzari, business development manager at regional VAD US Telecoms|~|“Selling to end-users goes against the resellers if you are a VAD,” added Vedantham. “It is a totally contradictory stance and any VAD that claims to be a systems integrator is not a VAD. It is just not a viable business model and it is something that vendors themselves should also keep an eye on. The vendor is setting a bad example to the channel if they let a VAD compete against resellers.” For some VADs, especially those working with extremely high-end IT products, there does still remain the need to take on a more prominent role for the first few installations in the Middle East. Bazarri at US Telecoms explained: “It is a fine line sometimes and there needs to be clear vision and policy within a company. We have a network integration division as well within US Telecoms so we have to operate a Chinese wall between the two units. The integration division does not work with the products that we sell within the VAD unit.” “On the VAD side of the business we do not sell to end users unless the products are totally new to the region and there are no resellers on board. In that situation, in order to get resellers on board, we have to show that sales can be made to end-users. No reseller will waste investment and sales time on a product if they don’t believe there is a market for it. So, we work as a systems integrator to get the product up to a certain level in the market.” Bazarri’s point is a valid one. As much as ‘reseller’ is a horribly generic term that hides the complexity and variation of businesses that exist within the category, a similar argument can be applied to the term ‘VAD’. Different VADs represent a vast array of products ranging from industry standard servers right through to highly specialised vertical software solutions. While the former is practically a volume channel sale, the latter may represent just a few sales opportunities every year across the entire Middle East region. It is much easier to criticise a VAD playing at the lower end of this scale that sells direct to an end-user than it is one operating at the high-end. ||**||Making the move|~|vadstorit200.jpg|~|Suren Vedantham, managing director at storage solutions VAD StorIT|~|This variation in the VAD role has also opened the door for traditional volume distributors to carve out a role in the value-added arena. Aptec started off down this road some time ago, building up a strong reputation working with vendors such as Symantec. Prajit Arakkal, Symantec business unit manager at Aptec, explained the role that the distributor has taken on in the Middle East for the security software vendor: “The products that we sell require high levels of expertise and commercial know-how. We do a great deal of value-add with the products that we sell through the business unit. We have a pre-sales and technical support group that helps partners with configuration and deployment. We also offer project management and project design to resellers.” “Value and volume distribution can co-exist within one company if the infrastructure is in place to support it. This also means recognising that the investment required in terms of value distribution is actually higher than in volume,” continued Arakkal. Tech Data — an established player in the volume distribution market — is gearing up in a big way to enter the VAD arena. For Cornelius at Tech Data, this move will open the door to relationships with a whole range of new channel partners. “We are looking at working with the corporate resellers that have invested in their own skill sets and can mould a solution to customer needs,” he said. “We will also work with ISVs and Tech Data will have skills, resources and facilities that they can draw upon at every stage of the sales cycle.” The conditions are now right for Middle East resellers to truly embrace the opportunity that solution selling and attaching value-added services to their business model offers. Those stuck in a boxshifting rut will find themselves coming under increased margin pressure unless they adapt their strategy. End users are moving away from investment in more physical IT infrastructure, choosing instead to sweat their existing assets and drive more efficiency into the business. To meet these changing customer requirements, resellers must evolve. For many, this transition is a daunting prospect and this is why the importance of VADs will accelerate in the Middle East IT channel in the years ahead. The VADs are ready and waiting to support resellers that understand the need to evolve in a channel landscape where only the fittest will survive. VADs can help resellers minimise the up-front investment required in services expertise and skilled staff. Pick up the phone and make contact with your friendly regional VAD. It will open many doors and allow you to sell even more to your existing customer base. ||**||

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