The US$2 billion secret

News that the self-styled leader of refurbished Cisco equipment is exploring the possibility of increasing its exposure to the Middle East will undoubtedly have grabbed the attention of the Cisco channel in this region.

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By  Andrew Seymour Published  August 19, 2007

News that the self-styled leader of refurbished Cisco equipment is exploring the possibility of increasing its exposure to the Middle East will undoubtedly have grabbed the attention of the Cisco channel in this region.

Network Hardware Resale (NHR), which is on course to make sales of US$170m from selling pre-owned networking equipment this year, has largely conducted business in the Middle East on a reactive basis, but is now in the process of assembling a small Arabic-speaking team at its Dutch HQ to specifically target the region.

If its growth plans come to fruition then it could represent the first step towards establishing a much stronger presence in the region, possibly by way of a local sales office or even a warehouse. The US-based outfit, which was set up more than 20 years ago by an ex-IBM executive, holds no fears about widening its geographic footprint having recently set up a hub in Singapore to serve the Asia-Pacific markets.

The channel for pre-owned, used and refurbished networking is a curious one. Those at the heart of it maintain that the discounts they offer against manufacturers' list prices are an appetising proposition for corporate organisations keeping a careful eye on their expenditure. Research carried out by Gartner Dataquest three years ago suggested the value of the market had already reached a whopping US$2 billion.

Senior executives at NHR's EMEA operation estimate there are around 500 companies in the world trading in secondary networking equipment. However, it describes fewer than 30 of these as "serious" players, and alleges that its nearest competitor is less than half its size at around US$50m to US$60m sales a year.

Despite being a far from fledging industry, it is unsurprising that the most common challenge facing companies in the secondary channel is the connotation that they must be dealing in defective products. Those who are established in this game vehemently oppose that suggestion, stressing that products are rigorously tested to ensure their condition - that's if they aren't unused surplus products in their original packaging anyway.

But what distinguishes this channel so vividly from others is that it effectively competes with the very manufacturers and brands it represents. Although vendors such as Cisco don't actually condemn the secondary channel, they urge customers who choose that route to only purchase from authorised sources or through their own official refurbished programmes, rather than via providers they don't endorse. The unwritten truth, of course, is that vendors would rather firms didn't buy refurbished or unused surplus equipment at all, but rather spend their dollars on spanking new equipment.

So, if NHR or any other secondary networking provider for that matter got their act together and set up shop in the Middle East, what would it mean for the regional channel? Clearly it wouldn't change the dynamics of the market overnight, but at the same time it would be a mistake to entirely dismiss it as a threat, especially when the whole sales model of these companies centres on their ability to offer compelling discounts.

At this point in time there are no guarantees that NHR will develop any form of meaningful business in the Middle East, but the revelation that it claims to have recently enjoyed a sharp rise in demand from end-users in this part of the world should be enough to make authorised resellers feel a little anxious. The company says Saudi and the UAE have been its most receptive markets so far with a high proportion of sales coming from IT resellers - suggesting the product is then being resold again in the market.

I personally find it surprising that NHR hasn't already moved to establish an office in Dubai. The unquestionable trading and re-export nature of the market coupled with the proximity of multiple African territories and the fact that price continues to have a massive influence on buying behaviour, seems like the ideal conditions for such a company to prosper in my opinion.

It goes without saying that many organisations still want to purchase nothing but first hand equipment from authorised resellers they know and trust. But in any market there will also be a steady band of prospective buyers tempted by cheaper second hand alternatives. The ability of refurbished providers to unlock these customers is what authorised networking resellers in the Middle East need to guard against.

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