The 2006 Power List

Big distributors: big plans. Welcome to the world of sky-high sales as Channel Middle East gets up close and personal with the regional giants of IT distribution.

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By  Stuart Wilson Published  March 12, 2006

Volume and value|~|plistsheu200.jpg|~|Frank Sheu, Almasa|~|Getting to grips with the channel dynamics of the Middle East and building up a picture of the distribution landscape in the region remains a challenge (just ask any vendor that is new to the region). With this in mind, this year's Power List once again provides an invaluable insight into the size, scale and reach of some of Dubai's premier distribution powerhouses. The 15 distributors that grace the following pages posted combined revenues of US$3.176 billion dollars in 2005. The sales figures given relate directly to the geographic remit mentioned for each vendor. In compiling this year’s list and talking to major vendors operating in the region one point has become abundantly clear: building relationships with in-country distribution operations is now starting to take priority over the formation of a single point of contact with one regional player operating out of Dubai. This is a point that needs to be explored in depth and one that has ramifications for the long-term development of Middle East IT distribution structure. There has been a fundamental shift in attitude from many of the regional distributors that were previously content sitting in Jebel Ali serving sub-distributors and re-exporters to supply product to the rest of the region. They now realise that moving in-country is not something they can consider doing, but something that they must do if they are to preserve their strategic importance in the market and sustain their business growth rates in the Middle East. This process is partly driven by the major vendors themselves. As they deploy more and more people in the region, set up dedicated offices across the Middle East and send out sales staff to remote cities and provinces, they want to be working with a distributor that can support them every step of the way and provide on-the-ground support, local stock availability and also extend credit to the genuine final tier resellers, retailers, VARs and solution providers. The process is also driven by a growing realisation from the distributors themselves that the margins that can be made from volume-driven commodity product distribution are fast becoming too small for their business to survive in the competitive Middle East IT channel. Faced by these problems, the market has witnessed numerous distributors taking steps to safeguard their business and lay the foundations for sustained growth. Typically, there are several options available to distributors looking to escape the low-margin agony of centralised volume product distribution: build incredible economies of scale to offset the low margins, expand the portfolio to take on vendors whose products have significant value-add potential or move in-country to increase intimacy with genuine final tier resellers, which in turn offers better margin potential. Faced by these three options, the gut reaction two years ago would have been to chase the economies of scale at all costs — after all, becoming a value-added distributor or moving in-country requires significant capital investment. However, that mentality has now changed and distributors are realising that they have to face up to business pressures that will only become more acute as the Middle East IT channel matures and the critical mass of each national market grows. ||**||Soaring sales: 1-5|~|1plist.jpg|~|Raj Shankar, Redington|~|1. Redington 2005 Sales $450m Main Man: Raj Shankar Geographic Remit: Middle East & Africa Overview: Redington’s sales figure of $450m (for the year ending March 2006) shows just how quickly this year’s Power List number one has grown. With an IPO provisionally planned for later this year, broadliner Redington has no intentions of resting on its laurels. 2006 Plans: Redington continues to build up an impressive network of in-country points of presence across the Middle East and Africa, Long-term, CIS is also on the radar for Redington as its continues to extend its geographic reach within the region. 2. Almasa 2005 Sales: $410m Main Man: Frank Sheu Geographic Remit: Europe, Middle East & Africa Overview: With Frank Sheu now on board as its new CEO, Almasa IT Distribution remains committed to developing its product portfolio and building up reseller breadth across the region and leveraging its economies of scale. 2006 Plans: Driving in-country and signing up more new vendors are priorities for 2006 as Almasa looks to cement its position as one of the region’s IT distribution powerhouses. Sheu is looking closely at several Taiwanese vendors. 3. Tech Data FZ-LLC 2005 Sales: $360m Main Man: Adnan Al Falah Geographic Remit: Middle East Overview: Tech Data has carved out an impressive reputation as a powerful and professional broadline distributor in the Middle East. During 2005, Tech Data launched Azlan, its value-added distribution arm, in the Middle East and expects this unit to contribute significantly to the development of the business during 2006. 2006 Plans: Tech Data has now put staff on the ground in countries such as Pakistan and Qatar as it boosts its regional credentials in the Middle East. The company is still discussing internally the possibility of setting up Tech Data as a legal entity in other major markets in the region such as Saudi Arabia, in addition to its current UAE setup. 4. Aptec 2005 Sales: $320m Main Man: Ali Baghdadi Geographic Remit: Middle East, Turkey & Africa Overview: Aptec posted solid growth in 2005 over 2004, witnessing phenomenal rises in Lebanon and Turkey during the course of the year. The UAE continued to perform strongly with sales climbing approximately 20% year-on-year. 2006 Plans: Like many of its peers, Aptec’s priority is a focus on services and margin boosting business strategies during 2006. Striking a healthy balance between its broadline distribution activities and its value-added operations remains a top priority. 5. Company: FDC 2005 Sales: $320m Main Woman: Marissa Safe Geographic Remit: Middle East & CIS Overview: Working with focused resellers around the region, FDC has established itself as a one-stop-shop for IT components, selling a massive 1.35 million hard drives during 2005. With service centres around the region, FDC is committed to helping its partners grow. 2006 Plans: Extending its product portfolio in the monitor, notebook and printer space are all on the cards for FDC. The company also plans to maintain its focus on profitability during 2006. ||**||Solid growth: 6-10|~|plist3_200.jpg|~|Amer Khreino, Emitac|~|6. Emitac Distribution 2005 Sales: $203m Main man: Amer Khreino Geographic Remit: Middle East Overview: Serving more than 500 resellers across the Middle East, Emitac Distribution remains one of the most important distributors of HP products in the region. The company also has agreements in place with other major vendors such as Microsoft and Acer and has set up several joint ventures to increase its geographic reach. 2006 Plans: Saudi Arabia figures highly on Emitac’s plans for 2006. The distributor is now in the final stages of setting up a major joint venture with a large in-country distributor in the Kingdom. This deal, when completed, has the potential to reshape the dynamics of HP distribution in Saudi Arabia. 7. Mindware 2005 Sales: $180m Main Man: Jacques Chammas Geographic Remit: Middle East & North Africa Overview: During the last two years, Jacques Chammas has transformed Mindware into a genuine value-added distributor, signing up new vendors along the way and focusing on reseller education. 2006 Plans: For 2006, Mindware will continue to strive for balance between its volume focused business where it represents vendors such as Intel and Seagate and its value vendors such as Citrix. Long-term, Chammas is striving for a GP margin of between 6% and 6.5%. 8. Comtronix 2005 Sales: $168m Main Man: Mahmoud Ebrahimi Geographic Remit: Middle East, Africa & CIS Overview: A new entrant to this year’s Power List, Comtronix distributes its own brand Neo5 product range alongside components from vendors such as Albatron and Asus. The company now boasts a total headcount of 150 staff. 2006 Plans: Comtronix is on the lookout for more branded products in the hard drive and peripherals space to ensure that it can meet the needs of its reseller partners. The company sees growth opportunities in Saudi Arabia and Africa. 9. MID 2005 Sales: $160m Main Man: Anupam Goel Geographic Remit: Middle East & Africa Overview: Founded in 2002, Micro International Distribution (MID) is part of the Fortex Group, which maufactures its own brand of notebooks and desktops. In addition to distributing these products MID is also actively involved in the components distribution space, offering kit from a variety of vendors in the hard drive space as well as CPUs 2006 Plans: The Fortex Group has introduced a build-to-order assembly model and is also supplementing its own in-house assembly business by signing up with major vendors as well. The company has secured Lenovo distribution rights for Iraq. 10. Logicom 2005 Sales: $150m Main Man: Nicholas Argyrides Geographic Remit: Middle East Overview: Logicom sales in the Middle East soared from US$110m in 2004 to US$150m in 2005. Opening a new facility in Jebel Ali and excellent performance by the components and networking division helped to drive the growth. 2006 Plans: Logicom has plans to establish a warehouse in Saudi Arabia as soon as possible. Logicom intends to position itself as the distributor of choice for resellers and prides itself on its ability to provide genuine value-add. ||**||Rising stars: 11-15|~|plist4_200.jpg|~|Pavan Gupta, eSys|~|11. eSys 2005 Sales: $143m Main Man: Pavan Gupta Geographic Remit: Middle East & Africa Overview: Part of a global hard drive distribution giant, eSys Middle East has broadened its product portfolio in 2005 and now plans to expand into new territories during 2006 such as South Africa. eSys also has a strong assembly operation. 2006 Plans: Reports out of Singapore, quoting Vikas Goel, chairman and MD at eSys claim that the distributor’s Middle East operation will seek a listing on the Dubai Stock Exchange in late 2006 or early 2007. 12. Empa 2005 Sales: $107m Main Man: Savas Yucedag Geographic Remit: Middle East, North Africa & CIS Overview: Empa now has established points of presence in Dubai, Riyadh, Jeddah and Egypt and has expanded its product portfolio beyond components into finished goods, bagging distribution rights for Asus notebooks in Saudi Arabia and Philips display products in the region. 2006 Plans: Empa has ambitious growth plans for 2006 and beyond. The company has set itself the target of reaching revenues of US$250m for full year 2007. North Africa remains an area of strategic focus for Empa and the distributor recently extended its Intel distribution rights to take in Algeria and Tunisia as well. The organisation now boasts 70 people and also has strength in the CIS. 13. Golden Systems 2005 Sales: $73m Main Man: Ehsan Hashemi Geographic Remit: Middle East Overview: Golden Systems boasts a strong profile in Iran where it has helped Gigabyte establish itself as a major vendor in the channel. During 2005, the company has also focused on business development in other markets such as Iraq and Algeria. 2006 Plans: Golden Systems plans to remain focused on sustainable business growth in 2006. As well as Gigabyte, Golden Systems is working hard with other vendors such as Leadtek. Iraq represents a ‘golden’ opportunity for further growth in 2006. 14. Asbis 2005 Sales: $72m Main Man: Hesham Tantawi Geographic Remit: Middle East & North Africa Overview: Asbis has developed a strong reputation in the components space. The company offers a sophisticated online ordering system for resellers that allows it to keep excellent control of its own overheads. 2006 Plans: Part of the wider Asbis Group, which has massive strength in Eastern Europe, Asbis is looking to boost its Middle East and North Africa sales to approximately US$84m during full year 2006. 15. Sky Electronics 2005 Sales: $65m Main Man: Manoj Thacker Geographic Remit: Middle East & North Africa Overview: After boosting its sales 23% in 2005, Sky is looking forward to 2006 with confidence. In total, the company serves some 1,200 reseller partners (both directly and through its sub-distribution partners) and has become synonymous with AMD CPUs in the Middle East. 2006 Plans: The assembly business of Sky is a top priority for 2006. Building on AMD platforms, Sky is expected to go from strength to strength as a supplier of barebone and fully assembled PCs and servers in the region. The company also has plans to set up outsourced logistics points around the region, which will in turn be managed by the company’s operations in Jebel Ali. ||**||Striking a balance|~|plist5_200.jpg|~|Adnan Al Falah, Tech Data|~|What we are now seeing from all major distributors is an understanding that they need to balance the volume and value aspects of their business. It is not an easy option, but it is a necessary one for any distributor seeking to bolster bottom line margins. Mindware has worked hard to develop its value-added distribution activities during the last two years, Tech Data recently launched Azlan in the Middle East and other major players such as Redington are also exploring how best to introduce higher-margin offerings into their business mix. This is a trend that looks set to continue during 2006 as distributors continue to look beyond volume and focus on value. Jacques Chammas, managing director at Mindware, explained: “Becoming a true value added distributor does not happen overnight. We started this process two years ago and it is now that we start to see the pipeline of opportunities becoming bigger as the resellers become more knowledgeable. Our objective has always been to become a value-added distributor and achieve a healthy balance alongside our high-volume sales. We need to have both sides of the business in place to ensure that there is a healthy equilibrium that positions us well for future growth.” In the coming weeks and months Channel Middle East will publish a series of interviews with senior executives from the distributors appearing in this year’s Power List laying out their plans for 2006 and their strategic business goals for the year ahead. One point that became abundantly clear during the research for this year’s list is that the very term ‘distributor’ remains a vague phrase. Each company profiled has a unique product mix, geographic focus and customer base — factors which all play their role in determining how their business will evolve. Bearing this in mind, it is important to point out that top line revenue statistics only count for so much. However, in a region still blighted by a lack of genuine financial transparency it does provide an idea of the scale of the Middle East distribution sector and forms a valuable first step in the ongoing quest for greater visibility. Looking ahead, the possibility of Middle East IT distributors performing an IPO may well accelerate this process. Redington, which boasts a massive distribution business in India in addition to its Middle East and Africa operations, is still looking closely at performing an IPO in India in late 2006. Closer to home, it would be no surprise to see players such as Aptec and Almasa IT Distribution considering an IPO, especially as the attractiveness of listing on the Dubai Stock Exchange grows. Reports emanating from Singapore, quoting eSys chairman and managing director Vikas Goel, claim that the global components distribution giant is also mulling over the possibility of listing its Middle East operations on the Dubai Stock Exchange later this year. While we are starting to see some top line transparency from the regional distribution operations based out of Dubai, the next step in building up a picture of the Middle East channel landscape is identifying the major in-country players in strategic markets such as Saudi Arabia and Egypt. The list that we have compiled is focused on the distributors based in Dubai, many of whom have multiple offices and stocking points across the region. Nevertheless, with more distributors now drop shipping direct to in-country partners, many of the strongest players in major markets are on a par with the Dubai giants when it comes to revenues. For example in Saudi Arabia, distributors such as Nahil, BDL, ICC and AIM are all now posting substantial revenues, reflecting the Kingdom’s status as the largest IT market in the region. In the past, much of this revenue would have appeared in the figures of the Dubai-based distribution powerhouses as well, before the product was moved on into the Kingdom itself. ||**||Careful counting|~|plist6_200.jpg|~|Hesham Tantawi, Asbis|~|This brings us neatly on to the issue of double counting, which continues to hamper the ability to assess the overall size of the market in relation to the sales figures being posted by distributors in the region. Put simply, this means the same product being counted as sales by two different distributors. In some cases it can even be counted twice within the same distributor. For example, Redington’s role as a logistics service provider (LSP) for HP’s Saudi assembly facility means that it is charged with taking this product and selling it on to HP channel development providers (CDPs) in the region. This means that Redington can technically count the sale in its revenues as can the CDPs before they sell the product out to resellers. Similarly, within the UAE, distributors can sell between their own internal business units — from a Jebel Ali facility to their Dubai operations for example. In fairness, many of the companies participating in this year’s Power List have made a point of not including intra-company sales in their revenue figure. The complex nature of product flow within the Middle East is not going to disappear during 2006 — far from it. With most vendors still unsure of the best way to approach markets such as Iran, Iraq and Syria — and many vendors not supposed to be selling into some of these countries at all — the role of re-export and sub-distribution remains important. Several of the players in this year’s list play an active role in this space. The point that needs to be made is that the strategic importance of this role in serving markets such as Saudi Arabia, Egypt and even the Levant is now being eroded. It is the reason why many of the Dubai-based traders have instead turned their attention to markets in East Africa and the CIS as they look to sustain their sales volume. Vendors with experience and skilled staff on the ground understand the challenges faced by distributors in the Middle East. However, there are still some that are a little bit wet behind the ears when it comes to developing an effective channel strategy in the region. Hesham Tantawi, vice president Middle East and Africa at Asbis, said: “Some vendors still do not really fully understand the geography of the Middle East and the complex nature of trade between countries. The impact of trade regulations and borders mean that the Middle East and North Africa remains a very unique market for IT distributors to operate in.” ||**||Working together|~|plis7_200.jpg|~|Nicholas Argyrides, Logicom|~|Vendors that are serious about capitalising on the growth opportunities that exist in the Middle East need to identify committed distribution partners and work hand-in-hand with them to actively grow and develop the channel-to-market. Nicholas Argyrides, general manager at Logicom Dubai, believes that networking giant Cisco is one vendor that stands out from the crowd. “It is crucial for vendors to comprehend the complications and uniqueness of this market. Even though numerous vendors are being supportive, I have to admit that Cisco has been the ultimate example of getting involved, identifying and actively taking part in solving problems and handling challenges with the distributor,” he commented. This year’s Power List has once again shown healthy double-digit growth rates in terms of sales for all the major players. More importantly, their focus on margins and sustainable business growth has entered a new level of sophistication. This emphasis on profits has been highlighted by significant back office investment and a growing maturity in the sector. 2006 looks set to be a year of further change for the Middle East distribution sector. The formation of a regional distributor trade body has occurred and this sense of collective responsibility after years of infighting and bickering must be applauded. There is still a long way to go before the Middle East distribution landscape approaches the levels of maturity seen in the US or Western Europe. However, the drive is there as is the commitment to move towards advanced distribution models. With the overall size of the market increasing and vendors investing greater resources in the Middle East, expect further developments in 2006. Will Ingram Micro enter the market this year? Watch this space. ||**||

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