Get over it

It is time for the entire Middle East channel to move on from the recent credit crisis. Yes, it was a painful experience and yes, lessons must be learnt. This financial hit, coupled with a slight slowdown in consumer demand linked to macroeconomic factors in several major GCC markets, has dented the confidence of the channel.

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By  Stuart Wilson Published  June 28, 2006

It is time for the entire Middle East channel to move on from the recent credit crisis. Yes, it was a painful experience and yes, lessons must be learnt. This financial hit, coupled with a slight slowdown in consumer demand linked to macroeconomic factors in several major GCC markets, has dented the confidence of the channel.

However, let’s not forget that the Middle East remains one of the fastest growing markets for technology in the world. The market has suffered a blip, but now is the time to start looking ahead rather than lamenting recent events. Get over it...move on.

Maybe that sounds a little bit harsh. What I’m trying to say is that the channel could quite easily spend weeks and months having an in-depth post-mortem on the factors and events behind the latest runaway resellers episode in the Dubai channel. This probably should happen, but distributors and resellers have to realise that it must also be ‘business as usual’ during this painful process of navel-gazing to discover what went wrong in the run-up to the biggest ‘hit and run’ to ever hit the local market.

Identifying the root causes of the recent problems is important, but as soon as this morphs into excessive introspection, self-absorption and a dangerous level of concentration on a single issue such as credit, there is the real possibility that this painful blip becomes a longer-term channel malaise that impacts the health of the whole market for some time to come.

The runaway resellers in question traded their way into trouble. Now the distributors and the hundreds and thousands of resellers that remain active in the market need to help each other, communicate clearly and openly, and work together with the vendors to grow the market and create the demand that will help everyone overcome any financial looses they incurred during the recent credit crisis.

When all is said and done there remains a strong sense of community in the Middle East channel. Relationships have developed over many years and much of the market remains built on friendship and mutual trust. There’s a great deal to be said for that, but at the same time these admirable qualities need to be supplemented by a dose of financial clarity to ensure that the market remains healthy.

Friendship and mutual trust are great, but financial transparency, long-term business planning and sound management skills are becoming ever more important in an IT channel increasingly characterised by rapid product lifecycles, pricing volatility and uncertain supply-demand dynamics.

We need to find a balance in the market between the nature of business relationships that have served the Middle East channel so well in the past and the new paradigm that is starting to emerge. I think the latest case of runaway resellers represents a watershed moment for the Middle East channel in this respect.

The market is reaching a size and scale where an unsophisticated trading model becomes more and more difficult to sustain. Don’t get me wrong; trading will remain a vital part of the regional channel set-up — especially given Dubai’s role as a re-export hub in the region. However, everyone involved in the channel needs to make sure that their business partners are up to the task at hand and do not over-extend themselves.

Looking at the latest batch of resellers to disappear from the market, it is important to understand how these organisations emerged and developed so quickly. I still believe that certain vendors and distributors need to understand the role they played in creating business relationships with a few powerful resellers that were inherently unstable. They need to make sure they do not make the same mistake again.

Let me explain that one a little bit. If it was not for the vendor-led rebate and incentive programmes coupled with the propensity of distributors to extend ludicrous credit lines to the likes of MID-Fortex, MST and Micron, the scale of the losses the channel is facing would be nowhere near the levels that have been reported.

The problem facing the distributors and vendors is that once they have started feeding credit and incentives to a reseller, it is difficult to stop that process or even slow it down. It has an irresistible momentum as the business grows and the reseller sells more and more kit. Simultaneously the credit lines have to keep rising and the balance of power suddenly shifts as the reseller becomes an ever more important cog in the channel machine.

Before you know it, you’ve created a channel monster. And monsters are an unpredictable lot.

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