The circle of trust

Channel relationships are fragile. In a fast-moving trading hub such as Dubai, where the fortunes of so many distributors, dealers, traders, resellers and re-exporters are inextricably intertwined, honesty, transparency and trust are the foundations that underpin the strength and stability of the overall market. In the wake of the recent credit crisis, the pressure is now on for the channel to rebuild its circle of trust.

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By  Stuart Wilson Published  August 16, 2006

Channel relationships are fragile. In a fast-moving trading hub such as Dubai, where the fortunes of so many distributors, dealers, traders, resellers and re-exporters are inextricably intertwined, honesty, transparency and trust are the foundations that underpin the strength and stability of the overall market. In the wake of the recent credit crisis, the pressure is now on for the channel to rebuild its circle of trust.

Vendors have to start playing their part too in accelerating the process of change that will create a stable channel structure. This means introducing channel programmes that actually make sense in the Middle East market and encouraging distributors to build relationships with the genuine second tier resellers across the region actually supplying products to end-users.

Re-exporters and traders continue to play a vital role in developing the routes-to-market that allow this market to live up to its true potential. However, it is important that this is all they are used for. They should not be able to take advantage of unfairly weighted channel programmes that allow them to sell on product at a better price than the authorised distributors that they are buying from.

To rebuild the circle of trust in the channel we need to look carefully at the current balance of power in the market and identify the unhealthy business relationships. Vendors have come up with some pretty whizzy channel programmes in Western Europe and the US that are working well. Unfortunately, what works well in these mature markets — where a clearly defined two-tier channel is the norm and not the exception — is frequently a recipe for disaster in the Middle East IT channel.

The clever vendors are starting to take a hybrid approach to building up their channel programmes in the Middle East. Rather than a 'one size fits all' channel programme that is open for abuse and prioritises short-term sales volumes over long-term sustainable growth, the savvy vendors are spending real time and effort getting to understand the local channel dynamics. This enables them to tailor programmes to the local market conditions and work in a positive fashion alongside their authorised distributors to drive real channel development.

At the moment there are only a few vendors that the channel — and by that I mean distributors and resellers — speak highly of. The majority are seen as uncaring entities interested only in hitting targets.

Distributors are now being asked by vendors to build channel breadth and move in-country. Simultaneously, the vendors are implementing crazy rebate and incentive schemes for the second tier resellers that make the emergence of a few all-powerful sub-distributors inevitable. It makes no sense.

Down on Computer Street — and across the Middle East market for that matter — the complex web of buying and selling of product between second tier resellers continues unabated. Why is this happening? Why is a small reseller in East Africa or even Kuwait buying from a trader on Computer Street as opposed to an authorised distributor for that vendor’s products? Until these questions are answered the Middle East market will continue to remain inherently unstable and incredibly risky in terms of credit.

Change has to come from the top and by that I mean the vendors themselves. Authorised distributors are squeezed between ridiculous targets from the vendors and an inability to extend any more credit to the customers or even to increase channel breadth. The resellers are under pressure because of the lack of credit available in the market and the fact that they themselves are at the mercy of extensive unsecured credit lines that they have extended to their own customer base.

Maybe some of the major vendors are now starting to wake up to the realities of the situation. The word from Egypt is that Intel’s crack team of auditors — brought in during the aftermath of this year’s credit fiasco — are now wrapping up their work in Cairo and will soon be landing in Dubai for the second leg of their Middle East tour.

What are the Intel beancounters doing? Well, put simply, they are going into the authorised Intel second tier partners to check that these companies have an assembly capacity that matches the volume of CPUs they purchase. It will be interesting to see how deep Intel’s investigation team digs into the Dubai market.

Regardless of what the vendors do, the distributors and resellers are in a position to help overcome the lack of trust in the market. Constant communication and complete transparency has to be the order of the day, because if the circle of trust is not rebuilt in the local channel, everyone will suffer long-term.

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