eSys looks for perfect Middle East balance

Pavan Gupta, eSys’ EMEA director, explains the intricacies of business development in the Middle East and Africa market.

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By  Stuart Wilson Published  October 2, 2006

|~|pgii200.jpg|~|Pavan Gupta, EMEA director at eSys |~|Pavan Gupta, EMEA director at components giant eSys explains how the unique characteristics of the Middle East market present a series of complex business challenges for distributors.

CME: eSys is looking at opening a new stocking point besides Jebel Ali free Zone in the Middle East and Africa. What’s the thinking behind this move?

PAVAN GUPTA: Basically from the Middle East and Africa perspective, our cargo points are Jebel Ali Free Zone and also our hub in Amsterdam, which is used to supply some customers in the region. We now have a shortlist of two locations for an additional cargo hub: Tangiers and Johannesburg.

CME: Vendors keep asking distributors to build local channel touch but many still appear to have centralised regional hubs. Why does there appear to be two different schools of thought?

PG: It is very tricky and defies all the logic of what is learnt in MBA classes. I think it is very much a case of when in Rome live the way Romans live. What I mean by that is the minute that you decide to go local, you have to adapt to the local ways of business in order to survive. We know the peculiarities of the pricing on Computer Street in Dubai. We understand that there is something called 5% import tax. If eSys opened an outlet on Computer Street we still would not be cost competitive compared to some of the traders and resellers because we do not have the same systems in place that other companies use.

CME: So are you saying you can’t get as close to the genuine local resellers in the region as many of the vendors would like?

PG: We can still continue to run from a credit perspective and some of the vendors may not like the current situation because they want us to be very local in terms of our channel engagement in the market.

CME: Do you see the current situation regarding your ability to develop deeper local touch in the region changing?

PG: For a company of eSys’ size and profile the one thing that we are not going to do is compromise our business principles and ethics. The only way we can get local is by adding a huge amount of value to the local resellers. Hypothetically speaking, tomorrow we could become a broadliner carrying 60 products — when you are in that situation you can trade off the handicap of not indulging in hanky panky through your breadth.

CME: Is there a middle ground that balances centralised efficiency with local touch?

PG: A focused distributor can have a limited cost structure and operate out of Jebel Ali Free Zone or you can be a huge broadliner with 12 countries of operation in the region. The profitability of a distribution business remains a major issue and we have seen companies in Europe go under as a result. When you become a broadliner you can create a much larger cost structure and when you are in that situation taking the profitability out of the operations becomes a significant challenge.

CME: How do your deals out of Jebel Ali break down at present?

PG: For our facility in Jebel Ali, I would say that transfer of ownership is still 60% of deals and 40% is exported out. The amount that we export out to Dubai is probably just 3%. Most of our customers have their own designated freight forwarders that pick up the goods from our facilities.

CME: So which products do you export into Dubai from Jebel Ali?

PG: It is a lot to do with the product lines. For hard drives, memory and CPUs you have one set of market characteristics and the vendors do not press too much for information. When you talk about VGAs, motherboards or printers, the vendors are much keener on building real local touch. The 3% that is exports to Dubai is primarily BenQ and Xerox products that require a great deal of value-add and interaction with the resellers.

CME: Can vendors introduce channel programmes that work in Western Europe in the Middle East too?

PG: We talk to them about customer breadth, explain the situation and they realise that our approach is right. If they want to attach importance to the numbers then they have to understand how business happens in this region. If they want to be theoretical and say you have to sell this way and sell to 2,000 customers then I think they are asking for trouble.

People know how the CPU numbers are made in Dubai — vendors know it and so too does the channel. Vendors don’t put too much pressure on the channel. Sometimes they will switch to the mode whereby they want to really start to build up channel breadth and so we tell them what is required and they then say ‘no’, carry on as you were before.||**||

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