Fear factor

The Middle East IT channel experienced a turbulent first half in 2006. From stock market slumps through to channel stuffing, credit concerns and volatile demand dynamics, it certainly wasn’t the easiest six months for vendors, distributors and resellers.

  • E-Mail
By  Stuart Wilson Published  July 19, 2006

The Middle East IT channel experienced a turbulent first half in 2006. From stock market slumps through to channel stuffing, credit concerns and volatile demand dynamics, it certainly wasn’t the easiest six months for vendors, distributors and resellers.

Will the second half usher in a period of stable, solid growth? Quite possibly, but to ensure that the overall health of the channel is maintained, the industry needs to overcome the ‘fear factor’ that has started to creep into the market.

The unfortunate but entirely understandable cancellation of the Dubai Shopping Festival at the start of January set the tone for a difficult six months in the Middle East IT channel. The decline in stock market valuations across the region has been an ever-present backdrop this year and clearly had an impact during Gitex Saudi Arabia. While there remained a significant amount of sell-in during this period, consumer confidence in the Kingdom had been knocked by the stock market falls and sell-out was sluggish.

The market in Iran has also had its ups and downs during the year to date. Political issues have created an air of nervousness regarding the long-term stability of demand for technology products in Iran and this has had a knock-on effect to trading hubs such as Dubai. With significant amounts of re-export happening to Iran for all vendors (including those under embargo), if Iran sneezes then the entire vendor community in the Middle East can catch a cold.

There was a further knock for channel confidence when Dubai’s latest credit crisis caused millions of dollars of bad debt and led to an immediate clampdown on the credit and financing facilities available to second-tier resellers from distributors and banks alike. A growing market depends heavily on capital to fund its expansion and the impact of the credit crisis in stalling the market should not be underestimated.

Immediately after the credit crisis, the market entered the traditional summer slowdown. While seasonal demand fluctuation has diminished in recent years, the summer months — especially in the Gulf — are a time when volumes can drop off sharply.

The current conflict in Lebanon is also making its presence felt in the regional channel context. Lebanon had been emerging as a powerful route-to-market for the supply of product into the wider Levant region.

That’s where we are and looking at all the events and trends noted above you would be forgiven for thinking that is all doom and gloom in the Middle East IT channel. However, dig a little beneath the surface and you start to realise that the market situation is not as bad as it seems.

I have talked through all these events with various distributors and vendors and there has been a common point of view emerging. Many senior industry figures view it as a cleansing process — a necessary evil associated with a fast-growing market. In other words, these types of events weed out the weaker players, ensure that only the strongest players survive and, put simply, separate the wheat from the chaff.

I couldn’t agree more to be honest. It has been a painful time for many channel players, but you get the feeling that the market will emerge stronger in the long-term as a result. What is important now is that vendors, distributors and the committed members of the reseller community do not let fear, uncertainty and doubt cloud their judgement and impact their business relationships.

We all know what needs to be done to create a clean and healthy channel. We all know the trustworthy players in the market. We all have a good idea of the level of risk involved with certain business practices. The first half has been a wake-up call for a channel that had been spoilt by success in recent years. Success and sales growth cannot be taken for granted; they must be worked for.

The Middle East IT channel now has to show its true credentials, overcome the lingering ‘fear factor’ that still resides in some camps and come out fighting, because, when all is said and done, the Middle East remains one of the fastest growing IT markets in the world.

Add a Comment

Your display name This field is mandatory

Your e-mail address This field is mandatory (Your e-mail address won't be published)

Security code