Exception to the rule

The components sector occupies a unique place in the Middle East IT channel, despite a lack of large value add.

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By  Andrew Seymour Published  April 20, 2008

The components sector continues to occupy a unique place in the Middle East IT channel, even if it's not exactly a domain that lends itself to copious quantities of value add.

As any distributor of CPUs or hard drives will avow, trading in PC kit is a delicately-balanced game of volume and bulk, where the emphasis is on dodging daily price fluctuations to make two or three percentage points in gross profit.

Needless to say, a components vendor's engagement with its channel partners is fairly ingenuous when placed side by side with a security vendor or an enterprise mobility specialist, for instance. Discussions centre on allocation and sales-in. Credit provision rarely strays from the agenda. And forecasting means everything.

So why am I pointing this out? Well, the trend that continues to gain momentum in the wider Middle East market is for vendors to build stronger channel foundations in individual markets, typically by appointing in-country distributors capable of taking care of local affairs.

With indigenous distributors keen to extol the virtues of their local knowledge and relationships, and many of the large regional second-tier names finally putting down roots in markets outside of Dubai, there has never been a better time for vendors to develop local channels in the region.

The advantages of the in-country model are well documented. Local stock availability and enhanced on-the-ground support is a prospect that vendors understandably find appealing. Components vendors are no different.

In fact, several manufacturers have already formed channels outside of Dubai and continue to follow their peers in other product sectors by seriously exploring the viability of harnessing more local distribution points.

But is this model really going to stack up in the components market or are components vendors simply going to find that a lot of extra effort won't actually lead to that much gain?

It goes without saying that Dubai remains at the heart of the regional components channel, whether it's serving as a hub for the Middle East and Africa, or housing the sales and logistics operations of influential distributors and traders.

This is one part of the world that can cope with the fact that crestfallen local PC assemblers are waving the white flag because there is enough retail and re-export business to keep things moving - which is precisely why I have my doubts that components vendors looking favourably upon in-country distribution will be able to realise any meaningful benefits.

I'm not denying that it makes sense to embrace in-country distribution in markets such as Egypt, where a fruitful local assembly business prevails. However - and this is another major sticking point - the potential of this model can only be fully realised if the vendor has its own people in that country to support the distribution channel and cultivate the relationship. Unfortunately for the majority of components vendors, that isn't the case because their model doesn't necessitate the need for extensive local sales and marketing hubs.

Factor in the issues that can arise from shipping direct to individual countries, not to mention the economies of scale involved, and it is difficult to see how components vendors can plot a convincing channel strategy that doesn't encompass Dubai in some way or another.

Increasing numbers of IT vendors in the Middle East are enjoying the merits of deploying a blended regional and in-country set-up, but with volume still the defining factor components vendors are going to have to accept that they are the exception to the rule for a good while yet.

Components Kings

Check out the next issue of Channel Middle East for an in-depth look at some of the issues facing the regional IT components channel and the trends impacting local suppliers.

We'll also be publishing our rundown of ‘Dubai-based components executives you need to know' - those individuals working at vendor or channel level who are shaping the direction of the components market in the Middle East.

So if you know a hard drive hero or a graphics card guru that deserves to be on the list why not drop me an e-mail with their name. You can contact me at andrew.seymour@itp.com or call +971 (0) 4391 0889

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