Cisco's gamble

You’re a billion dollar manufacturer in need of a new distribution partner in the Middle East. So who do you appoint? How about a company that currently has no customer base, no visibility and no track record in the region. Sounds absurd? Not if you’re Cisco, which has done exactly that by signing an agreement with Comstor. But while it’s a curious step to take, it’s one that would be foolish to dismiss.

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By  Andrew Seymour Published  December 6, 2006

You’re a billion dollar vendor in need of a new distribution partner in the Middle East. So who do you appoint? How about a company that currently has no customer base, no visibility and no track record in the region. Sounds absurd? Not if you’re Cisco, which has done exactly that by signing an agreement with Comstor. But while it’s a curious step to take, it’s one that would be foolish to dismiss.

Given Comstor’s Middle East operation is still in the process of being established and new boss Steve Lockie isn’t set to take charge until April, it is far too early to judge if Cisco’s appointment of distributor Comstor as a regional partner is a tactical masterstroke or another classic case of a company desperately trying to make a model that it deploys in Europe fit just as neatly in the Gulf.

However, considering the unconventional nature of the deal — let’s face it, most vendors usually pick a company already operating in the local landscape when selecting new distribution partners — Cisco is clearly convinced that it is making the right decision. According to sources close to the agreement, the formation of the relationship in the Middle East was a move very much engineered by the vendor, rather than the other way round.

Now, there’s no getting away from Cisco’s somewhat chequered past when it comes to its distribution line-up in the Middle East. Two and a half years ago its regional structure was blown apart when an investigation into the implementation and management of rebate and incentive schemes saw the vendor part company with two of its former senior distributors in the region, as well as some of its own employees.

More recently, Cisco officially acknowledged that the CAD and CDP model that has come to successfully define its European distribution model had been phased out in the Middle East. It is only to be expected that some parties will therefore regard its decision to sanction the opening of a Comstor office in the UAE as something of a risk.

But it might not be as big a gamble as it first appears. The relationship that Comstor parent Westcon has with Cisco in Europe and the US is intimate to say the least. Comstor is a business totally dependent on Cisco, while Westcon — which has even absorbed Comstor in markets such as the UK and now boasts a Cisco contract itself — carries an army of manufacturers with products complementary to the US-based vendor. In its last financial year, Cisco contributed a massive 59% — or US$1.3 billion — of Westcon Group’s sales.

The understanding Comstor has of the Cisco brand is second to none and that will undoubtedly make the initial stages of its arrival in the Middle East a smoother process than it could otherwise have expected. One of the advantages stacked in its favour is that it will be able to introduce a sophisticated level of technical knowledge and support to the networking market, which can only be beneficial for the local reseller channel.

Just as importantly, it should be in a position to offer the kind of dedicated financing services crucial for large networking projects that can take months to deliver.

New entrants to any sector of the market in the Middle East usually face an uphill battle to build contacts and credibility in the marketplace. But the whole structuring of this deal suggests to me that Comstor will receive a phenomenal level of support and hand-holding from Cisco, which naturally has a vested interest to make it work.

Remember, this is an agreement with implications way beyond the UAE market. Cisco has made no secret of its attachment to the Saudi market, where it is investing US$265m over the next five years to ramp up its coverage in the country. That plan includes taking its headcount from 60 to 700 people. It is obvious that it is going to need its distribution structure to scale with that if it has any chance of meeting the ambitious targets it has outlined.

I believe this whole issue of capacity and customer reach — not just in Saudi, but in the wider Gulf area — forms the very crux of why this agreement initially came to surface in the first place. While it’s a sorry indictment of the Middle East distribution market that Cisco felt there wasn’t an adequate partner from within the region that it could appoint, the truth of the matter is that it needs somebody it can rely on to provide the additional skills and sales power to support a Gulf business growing at a staggering 50% a year in revenue terms.

The more I think about it, the more it seems like a smart move. However, there are clearly some massive challenges ahead for Comstor. The appointment of former Tech Data Middle East boss Steve Lockie is a shrewd move, but much will depend on the calibre of senior management and sales executives with regional knowledge that he can attract to the organisation.

That emphasis on local touch also applies to the OneDefense and OneVoice channel programmes that the company plans to introduce to the region. Simply drop-shipping those schemes into the Middle East won’t work; they will need careful modification to ensure that regional idiosyncrasies are properly addressed.

Meanwhile, Cisco distributors in the region I have talked to claim that their feathers are unruffled by news that Comstor is on its way, citing the strong growth that they are enjoying with Cisco as proof that relations with the vendor remain as harmonious as ever. This is a region that isn’t suffering from the over saturation associated with other territories and that means the appointment of a new distributor isn’t necessarily as painful as it might be elsewhere.

That doesn’t mean they are not vulnerable though. As I see it, there are still three potential issues that these guys can’t escape from. The first is that even though the market is growing, they still face the risk of losing customers to the new distributor on the scene, particularly in smaller markets where the networking channel is mainly carved up by just a few large corporate reseller accounts. Secondly, I’m sure they are quite anxious to see if Cisco’s desire to have Comstor over here will result in it receiving preferential treatment. If so, how do they deal with that? And thirdly, Comstor is going to need to recruit good staff with local networking distribution expertise from somewhere!

There may be ample room for another Cisco distributor to operate in the GCC region, but there’s no getting away from the fact that it is going to make the Middle East networking channel an intriguing sector to follow over the next six months, if only to see if Cisco’s gamble pays off.

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