Sahara crashes Mindware's party

It’s all go in the Indian IT channel after Sahara gazumped a rival bidder to snap up the country’s fourth largest distributor, SES Technologies, for an undisclosed sum. Dubai-based distribution outfit Mindware had been widely tipped as the most likely buyer of SES and would have also picked up Indian Intel distribution rights in the process.

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By  Stuart Wilson Published  August 30, 2005

It’s all go in the Indian IT channel after Sahara gazumped a rival bidder to snap up the country’s fourth largest distributor, SES Technologies, for an undisclosed sum. Dubai-based distribution outfit Mindware had been widely tipped as the most likely buyer of SES and would have also picked up Indian Intel distribution rights in the process.

Representing a clutch of major vendors including Seagate, HCL, Lexmark, LG, Microsoft, HP and BenQ, SES was an attractive target for companies wanting to enter the Indian market and establish a strong physical presence straight away. SES boasts some 25 offices across India plus two warehouse hubs — and let’s not forget it also holds those all important Intel distribution rights.

The big question now is whether or not Mindware will still pick up Intel rights in India? Will Mindware now try and enter India organically or is it courting other acquisition targets? According to Intel’s website, its current distribution line-up in India includes eSys, Ingram Micro (which acquired Tech Pacific, another Intel distributor), Redington and SES (now part of Sahara).

Why am I writing about India I hear you cry? This is Channel Middle East after all.

Well, the fact that both Mindware and Sahara were interested in picking up SES is a point worth pursuing. Mindware is a distributor, operating out of Dubai, currently serving markets across the Middle East and North Africa. And Sahara Computers, which started off in South Africa, then went on to form an operation in the Middle East and has now established a footprint in India.

Talking to volume distributors in Africa, the Middle East and India, it is becoming increasingly clear that few see this geographic area, and the individual countries and regions contained within, as separate entities when it comes to channel dynamics. Product is already flowing freely within this wider region despite the best efforts of vendors to enforce theatre boundaries and form specific territories.

Distribution is all about economies of scale. For those companies that build up operations across Africa, the Middle East and India, the potential rewards are huge. Scale brings purchasing power for these giants and if they are awarded official distribution rights across all territories, their ability to move product from one continent to another and exploit pricing discrepancies and currency fluctuations to make a decent margin grows.

More and more vendors are paying greater attention to global product flows, the needs of various markets and structuring their own organisations accordingly. Cisco recently came up with its emerging markets theatre and other major vendors operating a Middle East and Africa organisation are also now toying with the idea of pulling India into this unit as well.

METACISI could become the next acronym to grace business cards, if a single operating unit spanning the Middle East, Turkey, Africa and CIS and India becomes a reality. The attraction of India is clear to see. One of the buzz phrases being bandied around in the corridors of global IT vendors is ‘targeting the BRIC’. The BRIC that these growth-obsessed executives are referring to is of course Brazil, Russia, India and China — four of the fastest growing economies in the world, all with a healthy appetite for IT investment.

The Middle East IT channel is growing fast. As much as this is being driven by demand within the region itself, it is also being driven by product flow out of the region to Pakistan, Africa, the CIS, India and even Europe.

Vendors can assign territories for distributors and put in place fancy channel programmes that supposedly persuade resellers that buying from the authorised distributor for their region is the best option. That’s all well and good, but you don’t have to delve too deep beneath the surface to see the real picture — and it is frequently a chaotic one.

In the components arena — where products are characterised by relatively high values and volatile pricing and can be moved around the world quickly — the channel dynamics are akin to a frenetic trading session on a busy stock exchange. The only rules that really matter are supply, demand and pricing. When there is margin to be made it is pretty easy to forget what countries you are actually authorised to sell into and those that you are not supposed to touch.

The Middle East, Pakistan, CIS, Africa and India is witnessing an explosive growth spurt in terms of IT demand and some vendors are failing to monitor product flows as well as they should. Different offices within this wider region are actually fighting each other.

Regional pricing policies must be harmonised and vendors need to understand exactly how the channel can play the system to maximise margins. Some vendors need to get a grip on the situation before it gets totally out of control and completely undermines their efforts to develop sustainable in-country channels.

It is a frenetic and exciting time in terms of the development of the IT channel, with many distributors embarking on a land grab to prove that they are the biggest and the best. However, these companies need to make sure that they are adhering to basic business principles and not sacrificing financial stability for the sake of growth.

Many of the distributors in the region hope to be bought by a global giant or eventually perform an IPO to raise a great big wad of cash. Unfortunately, they may be waiting a long time for these dreams to become a reality. The global distributors know how to assess a potential acquisition target and do not splash their cash readily.

Similarly, it is becoming harder and harder to hoodwink investors when it comes to distributors performing an IPO. Yes, IT is an exciting industry, and as an IT distributor, these companies are an integral part of the sector. However, this cannot mask the fact that IT distribution is actually a low margin game built on logistics and financing.

A distributor is a distributor regardless of the market they operate in. I don’t care if a company sells notebooks, servers or apples and oranges. It’s the one that makes the best margins and has built a long-term sustainable business model that I would opt to invest in every time.

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