The distribution dilemma

It is going to be a massive year for the Middle East distribution sector in 2007. The market might be expanding at a rapid rate, but it is no longer enough for companies to just allow themselves to get carried along by the tide. Embracing change and skilling up will help some distributors stay ahead of the game. But there's a whole lot more they'll need to be doing too.

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By  Andrew Seymour Published  December 27, 2006

It is going to be a massive year for the Middle East distribution sector in 2007. The market might be expanding at a rapid rate, but it is no longer enough for companies to just allow themselves to get carried along by the tide. Embracing change and skilling up will help some distributors stay ahead of the game. But there's a whole lot more they'll need to be doing too.

In last week’s editorial I considered what life could be like for vendors in 2007 as they shape their Middle East strategies for growth. For many, the emphasis will be on refining their reseller networks and developing closer ties with the partners that really deliver true value around their products and services.

This will all be played out in an environment where, for a number of manufacturers, the new priority is adding resources in more locations around the region. There is little doubt that Dubai will continue to serve as the primary base from which vendors address the Middle East markets, but more emphasis will finally be given to providing better direct support in markets such as Egypt and Saudi.

So what kind of impact will this have on the distribution channel and how can we expect to see this sector evolve in 2007? The good news is that distribution will remain as fundamental to the market as it ever has been, both in terms of the conventional functions it provides and in its ongoing role as a support vehicle for the reseller channel.

Cast an eye over other parts of the world and you will soon discover that there are many IT markets where vendors impose strong direct policies and retain a number of big tier-one relationships. The structure of the market isn’t conducive to that type of approach here, meaning the role of distribution is less in danger of being undermined.

As far as I see, distributors will be entering the New Year with two issues firmly at the front of their mind: what enhancements can they make to strengthen their proposition to the reseller, and how can they improve their bottom line? Get the first one right, and the second usually follows.

One intriguing feature of the Middle East channel, in my opinion, is that the vitality of the market means distributors are not bound by a specific template that they must follow in order to grow. By that, I mean there are multiple ways in which distributors are developing their business, whether it is Empa strengthening its offering in the power retail sector or Tech Data widening its enterprise portfolio. 'Adding value' is a term that still carries far more scope in the Middle East than it does in other regions.

We are set to really see the concept of a ‘solution play’ emerge in 2007 as distributors re-adjust their sales strategies and market themselves as providers of multiple solutions, rather than holders of boxed stock. This approach is very different from cross selling or up-selling — which are often just logical steps that a sales person needs to take to convince the customer to spend more money.

Solution sales truly test the internal skills level within a distribution organisation, which fits nicely into the issue of ensuring staff are specialised. As markets across the Middle East gradually become less transactional and more solutions-based, those distributors that have heavily invested in technically certifying internal staff will be well-placed to prosper.

Another key topic in 2007 will be financing. Cisco recently struck a deal with a number of banks to provide additional inventory financing in emerging markets, while more than half of respondents to one of our recent quick polls believe they will struggle to source the capital they need to grow their business in 2007.

Like it or not, distributors — along with better support from vendors — have a huge role to play in this issue. Financial management in Middle East distribution is quickly evolving from extending a customer’s monthly credit terms to actually providing a structured financing plan to help a reseller embark on the delivery of a six-month contract.

As vendors demand more from their partners and competitive forces within the market increase, the Middle East distribution sector will demonstrate new levels of sophistication during the next 12 months. More services will be automated and brought online while several companies will be able to increase efficiency and drive down cost by moving to state-of-the-art logistics facilities.

This begs the question of whether 2007 will be the year when more distributors from outside the market use acquisitions as a method to move into the Middle East?

I find it slightly ironic that plenty of foreign-owned IT companies are quick to acknowledge the region as a booming market and yet so many established distributors from the US and Europe continue to buy one another rather than turn to the Middle East. There are multiple reasons for this ‘stay-away’ mentality, not least the geopolitical situation and the fact that we are operating in an era of ultra-intense corporate compliance. Let’s face it, this region isn’t as transparent as a lot of companies would like it.

Perhaps, too, there is a fear among some outside distributors that there is too much risk attached to making an acquisition in this part of the world. Many are probably aware that they would not be able to exert their own organisational values and culture in this market, and therefore they feel the idea is not even worth exploring. If this is the case, it should not be taken as a criticism of the market. In fact, it leaves local distributors with a massive opportunity to become even more proficient than they already are.

Best wishes for a happy and successful New Year, and as ever don't hesitate to contact me with your news and views on the market. E-mail andrew.seymour@itp.com or call +971 4391 0889

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