Microsoft to merge units?

Microsoft is mulling over plans to pull together the various regional units that make up its Middle East operation, according to informed sources close to the company. Under the new plan, Microsoft North Gulf and South Gulf could even become a single territory. Wider changes to the existing business structure are also believed to be under consideration.

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By  Stuart Wilson Published  August 24, 2005

Microsoft is mulling over plans to pull together the various regional units that make up its Middle East operation, according to informed sources close to the company. Under the new plan, Microsoft North Gulf and South Gulf could even become a single territory with wider changes to the existing Middle East business structure also believed to be under consideration.

Microsoft’s Middle East operations currently consist of five separate units: South Gulf, North Gulf, Saudi Arabia, Egypt and East Mediterranean. Each region has its own general manager and marketing team. The restructuring plan, which one insider claimed is still very much ‘hush hush’ and ‘beneath the radar’ for the vast majority of employees within Microsoft itself, would help to streamline the regional business and provide a stronger sense of direction for the vendor in the Middle East.

At present, Microsoft South Gulf covers Oman, Pakistan, Yemen and the UAE. Microsoft North Gulf includes Kuwait, Qatar and Bahrain, while Microsoft East Mediterranean covers Jordan, Lebanon, Malta and Cyprus. Microsoft Saudi Arabia and Microsoft Egypt look after single country territories.

Any changes to the existing geographic set-up would have implications for Microsoft’s Middle East management structure and also its channel engagement model. Distributors in the region claim that the existing set-up remains difficult to deal with and creates inefficiency in the supply chain model.

One distributor explained the problem: “Let’s say I want to sell Microsoft products in North Gulf, South Gulf and Saudi Arabia. I have to negotiate three different distribution contracts — one for each territory. I have to purchase separately for each territory and stock separately as well. I also have to negotiate separate contracts for the OEM products. There is no way that this model can ever be efficient and it has created many problems.”

“We have to deal with so many different points of contact that the agreements become very difficult to manage. I have known distributors to cancel contracts for specific territories because the whole business model has become too complex to make it worthwhile. Any move to change the existing set-up would be welcomed,” the distributor added.

Major distributors are crying out for Microsoft to simplify its business structure in the Middle East and in so doing, streamline the channel engagement model and allow distributors to build genuine economies of scale in the region, serving multiple territories from one stocking point and through one simplified contract with Microsoft.

If Microsoft does decide to press ahead with the restructuring of its regional operations, it would also require a reshuffle of the existing management structure to reflect the new model. At present, the restructuring plans remain on the drawing board, but sources believe that significant changes to the existing structure are inevitable.

The channel will welcome any move that drives clarity into Microsoft’s distribution model in the Middle East. Given the battles with piracy in the region, problems with grey market flow and the need to develop strong relationships with assemblers across the Middle East, streamlining Microsoft’s own organisational structure makes a great deal of sense.

Sources have indicated that the formation of a Microsoft Gulf organisation — combining both North and South — is now firmly on the cards. Whether or not a wider structural overhaul will involve Microsoft Saudi Arabia, Egypt and East Mediterranean remains unclear. Microsoft has so far been unavailable for comment on any potential plan to restructure its Middle East operations.

Will a few egos be bruised if a restructuring occurs? Absolutely. However, for the long-term development of both Microsoft and its channel-to-market in the Middle East, it is really now only a question of ‘when’ a restructuring should occur, not ‘if’.

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