Inventory issues

Getting to grips with the inventory situation in the Middle East channel is never a simple task. It is easy enough to talk to the vendors and their authorised distributors in the region to get a rough idea what is going on, but that typically only tells half the story. It is the grey product flooding into the Middle East channel from outside the region that can leave the market stuffed to breaking point.

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By  Stuart Wilson Published  July 26, 2006

Getting to grips with the inventory situation in the Middle East channel is never a simple task. It is easy enough to talk to the vendors and their authorised distributors in the region to get a rough idea what is going on, but that typically only tells half the story. It is the grey product flooding into the Middle East channel from outside the region that can leave the market stuffed to breaking point.

The EMEA second quarter PC shipment figures from the major research houses made interesting reading with year-on-year growth slipping to a single-digit percentage figure for the first time since the first quarter of 2003. Gartner pulled no punches in its analysis of the second quarter figures, claiming that ‘few’ vendors had a business model able to cope with the rapid change in market dynamics.

In the EMEA theatre there is another factor at play that could have real ramifications for the Middle East IT channel in the months to come — namely the European Union (EU) Restriction of Hazardous Substances (RoHS) directive, which came into force at the start of July.

The channel within the EU has been in a tizzy about this directive for some time, with vendors rushing to make sure that they are bringing compliant hardware to market. That means no evil substances such as mercury and cadmium in the latest whizzy technology kit.

From an environmental perspective, hats off to the EU for forcing through such a green directive, but I can’t help thinking that they may have inadvertently created problems elsewhere in the world as a result — including the Middle East.

The forward-thinking vendors are already compliant but not everyone was so quick off the mark and there are still many production and assembly facilities churning out non-compliant stock, which, because the EU channel and customers will not touch it with a barge pole, is invariably going to find its way into other markets where regulations are not quite so tight including the Middle East.

The numbercrunchers at Gartner reckon that the second quarter shipment figures in EMEA were lower than normal because the EU channel was actively trying to reduce inventory levels ahead of the RoHS directive.

Did they achieve their goals? Not really. The whole EMEA channel is still looking bloated. Throw in other factors such as Intel and AMD slashing prices and looking to push out their own stock surplus ahead of new product launches and it remains a worrying scenario.

The main concern is that the Middle East channel becomes one big dumping ground for vendors’ excess stock and even more of the non-compliant components that the EU is now saying can’t come in.

In fact, some people would probably contend that the Middle East market is already the global dumping ground for excess and obsolete IT stock. However, grey channels have been around for a long time and the one point that you must always remember is that every seller needs a buyer before a product flow occurs.

If grey stock (be it excess kit or non-compliant kit) finds its way into the Middle East IT channel it is because someone here believed there was a market for it in the region or a viable way to route it on to another location. Some see grey as an evil while others see it as a margin opportunity.

The main message to the Middle East IT channel — which has already had a turbulent 2006 — is to remain vigilant at all times. If an offer looks too good to be true, it probably is. Sub-distributors, traders and resellers should also never forget the extra financial advantages they receive for buying from an authorised distributor as opposed to purchasing grey kit.

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