Driving Change

Channel Middle East chats to Ali Baghdadi about the channel trends that will shape 2006 and looks back at the key events of 2005

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By  Stuart Wilson Published  January 4, 2006

Looking ahead|~|alibaghdady200.jpg|~|Ali Baghdadi, president and CEO at Aptec Holdings |~|Channel Middle East looks back at the major news and developments that shaped channel development in 2005 and chats with Ali Baghdadi, president and CEO at Aptec Holdings to discover just what is in store for 2006. The need for distributors and resellers to evolve their business models is becoming more acute and the pressure on vendors to adopt ethical strategies in the region is growing every day. When it comes to running a successful distribution operation, it is actually a lot like a great round of golf. Getting the fundamentals right may be a relatively simple task, but it is the ability to produce a sparkling short game that sets the stars apart from the rest. For distributors in the Middle East, that means looking beyond the basics of inventory, logistics and credit, and understanding the importance of developing a model that offers resellers a host of incremental value-adds that create genuine channel loyalty. Ali Baghdadi, president and CEO at Aptec Holdings is convinced that 2006 will be the year when value-add in the distribution space becomes the major differentiating factor. “I hope 2006 will be the year when this finally happens because distribution is definitely a low margin business and it can’t get any lower,” he said. “As a distributor or even as a reseller there has to be an element of value-add alongside simply selling hardware or software. In fact hardware and software sales has to be a means to an end — and the end has to be the provision of a quality service.” “The end-user is now starting to realise that they have to pay for quality service, support and consultation,” he added. “The Middle East has traditionally sold product and not provided adequate or sufficient service. There is a change in the air for 2006 and this has to happen, especially when you consider the service levels in other industries that are now available in Dubai and elsewhere in the Middle East. The IT industry has to catch up and start providing the levels of service that customers in this region have grown accustomed to.” While the IT channel can expect another solid year of top line sales growth in 2006, there is no guarantee that margins will remain at their current levels or even rise. Looking at the developments that shaped 2005, it may well be the case that margins will shrink even further during 2006. Rather than bemoaning this fact, channel players would be well advised to accept the situation and adapt their business strategies accordingly. And services stands out as the arena that can insulate the channel from the low-margin world of box-shifting that is becoming less appealing day-by-day. “There is tremendous growth potential across the region,” added Baghdadi. “We expect Saudi Arabia to accelerate rapidly because of the spending power that exists, and the UAE also continues to grow at a rapid rate, especially Abu Dhabi. The real potential is not geographical though; it lies in services. Globally, IT spending on services is equal to spending on products. In this region it remains a lower proportion — 30% services and 70% product. There is significant catch-up potential in the Middle East.” ||**||Defining moment|~|2alibaghdady200.jpg|~|“The good old days of ‘pile it high and sell it fast’ is no longer a sustainable business model. I have heard this again and again from finance companies and credit houses."|~|“I think in terms of distribution, this is a defining moment for the industry in the Middle East,” he continued. “The good old days of ‘pile it high and sell it fast’ is no longer a sustainable business model. I have heard this again and again from finance companies and credit houses. They are not even happy with the models of the largest distributors in the US and Europe, because they rely too much on borrowing to finance a small return. IT distribution has to turn into something new and I believe that creative thinking and understanding the needs of the customers will allow Middle East distributors to develop decent value-adds.” While distributors may want to escape the nightmare that is low-margin box shifting, their ultimate ability to make this transition will depend heavily on the attitudes and business models of the vendors that they represent. While some major A-brand vendors have now started to invest significant time and resources in the development of sustainable channel models in the Middle East, there remain many that still take a shortsighted approach to their presence and potential in this market. The channel is waking up to the collective power that it possesses and 2006 needs to be the year when distributors and resellers speak up even louder about vendor tactics that they believe are having a negative impact on the market. Baghdadi is keen for the major distributors in the region to enter a new era of co-opetition that will help the overall market development. “I think the vendors are keen to learn and more than ever I think they are keen to listen now,” explained Baghdadi. “I am keen to work together with other major distributors in the region and form some kind of club where we can discuss opportunities and developments in the market. It is not only about competition in the channel — I don’t fear competition. I just believe that we could achieve more working together in some areas. I hope that in the next few months we can create forums where distributors can come together and work on introducing new concepts into the market.” Major vendors did take steps to cleanse their Middle East channels where necessary. After a turbulent year in terms of its channel engagement model, 2006 looks set to be the year when we can draw a line under the Microsoft licensing model saga that blighted the software giant’s partner relations in 2005. “I think Microsoft has finally put its house in order,” said Baghdadi. “It really harmed the image of the industry — the squabbling between Microsoft and its distributors. I think Microsoft’s legal department had too much influence and the vendor lost sight of the value of its partners.” “Nokia also took steps last year to blacklist some of the gangs — many with links to VAT carousels — that had come into this region to trade mobiles. I don’t know how successful they were but they are working hard to reclassify their channel partners now. This will mean some being focused on retail distribution, some focused on Africa, some focused on SMBs and some even specialising in taking end-of-line and obsolete stock to market,” Baghdadi added. For Aptec, 2006 promises to be a year of new opportunities. With Aptec Holdings based at DIFC, the group will look to launch even more new companies during the year ahead. In recent months, Aptec has unveiled IT security consulting company ATS and kiosk business AKS. Despite the demanding business environment that characterises the IT market, Baghdadi’s appetite for identifying the next growth wave is undiminished. “2006 will be a tough year for some companies. I think we will see some real consolidation at a reseller level. The second tier vendors will find it easier to break into the region as more partners look to identify new business opportunities,” he concluded. ||**||The year in review|~|faceoff200.jpg|~|April: We also brought together Intel’s Maan Ahmadie and AMD’s Tarek Heiba for a face-off. Tarek’s now left AMD, so we guess that makes Maan the winner!|~|January: Lenovo launches We reported on the channel implications of IBM’s decision to sell off its PC division to Lenovo. The deal restructured the global A-brand PC landscape and also cemented the Far East as the global manufacturing hub for IT products. Also filling column inches was the news that Joe Devassy, SMS&P manager at Microsoft Gulf had left the company. Acer revealed that it was mulling over launching a local assembly arm in Saudi, but a year later has still not made a definitive move. February: HP creates IPSG unit Phase one of HP’s almost continuous restructuring exercise in 2005 made the headlines in February, as Carly Fiorina — in one of her last acts as CEO at HP — decided to merge IPG and PSG into a single entity. Fiorina didn’t last long and neither did IPSG come to think of it. Microsoft’s 2005 channel saga rumbled on as the vendor took legal action against UK reseller Itac for sourcing grey software from the Middle East. That saga was set to rumble on for some time. March: The A-Team arrives Microsoft once again hit the headlines as it flew in a crack team of auditors (The A-Team) into the region to pore over the books of its major distribution partners. Almasa continued to boost its vendor portfolio, signing a deal with Russian security software vendor Kaspersky to sell its solutions in the Middle East. Trend Micro also struck a deal with Tech Data to take its security software to market. Plus we ranked Dubai’s dozen biggest distributors by sales. April: Saudi surge Microsoft, EMC and Samsung all reiterated the importance of Saudi Arabia to their overall Middle East strategies. Microsoft signed up Redington as an in-country partner for the Kingdom while EMC opened up a dedicated office in Riyadh. The channel also braced itself for a potential squeeze in the HDD space as a substrate shortage threatened to curb supply. We also brought together Intel’s Maan Ahmadie and AMD’s Tarek Heiba for a face-off. Tarek’s now left AMD, so we guess that makes Maan the winner! May: Familiar faces Jonathan Saunders, a familiar face to many in the networking market (especially at Cisco), made a return in May as head of World Wide Packets (WWP) Middle East operation. Microsoft continued to add more new distributors at a rate of knots, finalising a deal with Emitac in Qatar. Fujitsu Siemens became the latest A-brand vendor to indicate that it was looking at setting up an assembly facility in Saudi Arabia. Like Acer before it, talk proved cheap, and the plan has so far come to nothing concrete. June: Emitac adds Acer UAE-based distribution house Emitac underlined its multi-vendor ambitions, inking a distribution deal with Acer. Regional distribution powerhouse Aptec boosted its operations in Saudi Arabia, introducing a new call centre concept to improve its service levels in the Kingdom. Navin Tikoo, formerly boss at Aptec Africa, decided that the time was right to move into retail distribution and signed up with new UAE outfit Derinton. ||**||Second half|~|hazbazan200.jpg|~|HP's Hazem Bazan has played an instrumental role in the deployment of HP's PPP channel scheme in the region|~|July: CA channel push The team at Computer Associates, led by Gilbert Lacroix continued to flesh out its ‘channel-friendly’ credentials as it unveiled a three-tier partner programme in the region. Time Group Middle East announced plans for an assembly plant at Dubai Silicon Oasis and Sun Microsystems stumped up a whopping US$4.1bn for StorageTek. Monitor vendor Viewsonic revitalised its channel approach in Egypt, signing up Metra Computers. August: PPP unveiled HP channel champs Christoph Schell and Hazem Bazan got to grips with the concept of T-shaped resellers as the channel got to grips with the implications of the Preferred Partner Programme. Sumit Kumar, formerly of Aptec, took up the reins as regional boss at US Robotics. Joe Devassy, now in place as enterprise solutions sales manager at Nokia MENA, set about recruiting a channel of integrators and solution providers capable of taking push e-mail solutions to market. September: Hello ChannelTech Fujitsu Siemens boosted its GCC reach, naming ChannelTech — the distribution arm of Sahara — as a partner. Sajit Sarwar, one of the rising stars within Aptec was promoted to the position of finance and operations controller. Down on Computer Street, resellers decided the time was right to start a trade association to monitor competition and drive channel profitability through collaboration. The local Lenovo team was unveiled as the Chinese PC giant geared up for 2006. October: Shepherd steps down Our bumper Gitex issue broke the news that Eliot Shepherd was stepping down from his role as marketing director at Tech Data Middle East. We also outlined Sun Microsystems’ plans to revamp its channel programme and recruit more partners to reflect its growing product portfolio. Full details of HP’s Preferred Partner Programme were unveiled as Hazem Bazan and his channel team set about introducing a radical new model for the vendor’s channel. November: Al-Jammaz boost One of this year’s rising stars in Saudi Arabia, Al-Jammaz, continued to flesh out its product portfolio adding APC to its vendor mix. Asim S. Al-Jammaz has played a pivotal role during 2005 as the in-country distributor also tied up with Dell and Sun in the Kingdom. Redington grabbed 3Com rights in Saudi as well. Networking vendor 3Com is targeting further channel recruits in 2006 as it looks to challenge Cisco’s dominance. December: Berkin resigns We ended the year pretty much the same way as we started with another high-ranking departure at Microsoft, as Emre Berkin, chairman at Microsoft Middle East and Africa announced his resignation. Tech Data made its long awaited move into the value-added distribution arena in the Middle East with the launch of Azlan in the region. Iran took centre stage as we sidestepped the embargos currently in place and got to grips with one of the largest IT markets in the entire Middle East region. Looking back on the events of 2005, it is clear that the Middle East channel is in the midst of a profound structural overhaul. This region is now hitting critical mass in terms of volumes and the channel models of yesteryear will become increasingly outdated. Most of the distributors and resellers out there know precisely what the advice is for 2006 in terms of business strategy. As always, it’s a case of get big, get niche or get out. Happy margin hunting for 2006 and as always, if you have any news or views on developments in the Middle East IT channel, feel free to e-mail stuart.wilson@itp.com||**||

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