Targeting Turkey

Regional spectators may find the challenges facing the local Turkish channel are more than familiar.

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By  Andrew Seymour Published  June 21, 2008

"More than 70% of the Turkish stock market is owned by foreigners so if the stock market reacts a certain way in the US, the same trend will follow in Turkey."

The volumes now evident in the Turkish market support a vibrant throng of local IT resellers and integrators dotted throughout the country. Istanbul wields the most influence, accounting for around 70% of national IT spend, but the cities of Izmir and Ankara - the latter of which serves as the location for central public administration - are also important hubs.

These are the three major areas, but as a vendor you have to have a wide coverage of the country through channel partners because of the number of SMEs based in other places," said EMC's Findikoglu.

Urcar at HP offers some insight into the reach of the local reseller community. "When it comes to the number of channel players in the Middle East there are probably 3,500 to 4,000, but in Turkey there are 7,000 registered resellers, of which 5,000 are active," he said.

Some pundits even suggest the amount of resellers operating in Turkey could extend to more than 8,500 when you include dealers of both IT and office equipment.

With this in mind, the significance of local relationships in the Turkish market is possibly even more pronounced than the Middle East. "For a start there is a local language here," commented Uygun at CA, which works with 14 key in-country reseller partners.

There is also a tendency for people to work with people they know quite well. If a distributor worked for HP for three years and then switched to IBM, everybody would buy IBM because of the person selling the brand," he said.

Such bonds between individuals and companies in the reseller channel have been severely tested in recent times, especially in the traditional IT dealer segment, which has lost ground to retail companies targeting the low-hanging SME fruit.

Izi Kohen, general manager at Arena, a distributor for brands such as Acer, Seagate, Gigabyte and Juniper that now makes 40% of its business from the retail channel, believes resellers are, however, hitting back.

"I think SME customers have become aware that they need service, and so what we've seen is traditional resellers realising that they need to offer services such as installation, maintenance and security," he explained.

The Turkish distribution sector is fairly straightforward to map with the likes of Index, Arena, Akora, Kont and Penta clearly representing the broadline contingent and offering extensive coverage of the market.

Kont, for instance, is aiming for revenues of US$400m this year, while Arena, which grew its business 28% during the first quarter - a period that many other companies insist was sluggish - expects to surpass last year's US$535m turnover by at least 30%.

Companies such as Armada, Cizgi, Infronic and Hizli Sistem, meanwhile, are all specialised distributors with more modest turnovers between US$100m and US$300m.

It is not uncommon for distributors to generate more than half of their orders online, illustrating the willingness of the Turkish reseller channel to embrace this method of purchasing.

Like the Middle East, a sub-distribution channel exists in Turkey, although its vitality is debatable. "The sub-distribution market is not very strong because the profit margins are very low on their side," said Berk at Logicom, which is aiming to cap its second year in the Turkish market by posting sales of US$30m this year.

Sub-distributors are really only successful on a regional basis, such as those that work in the eastern part of Turkey which is not covered by the main distributors."

Traditionally the Turkish distribution channel has been dominated by local companies. HP's Urcar speculates that acquisitive Western distributors that ventured into Eastern Europe during the time of EU expansion and failed to get the returns they wanted may consequently have shelved any Turkish expansion plans they had.

"On top of that there are factors like regulations and debt collection conditions, which can make the Turkish market challenging," he admitted.

Arena's Kohen concurs, citing collections, risk management and cashflow as issues that make the Turkish distribution market a tricky place to operate. "There isn't a widespread availability of receivables insurance in Turkey either," he noted. "It's very expensive and doesn't work properly."

Evidence suggests that the local stranglehold on the distribution channel will begin to weaken in future years.

There is every chance that Arena could still entertain the ambitions of international suitors after an earlier deal with a foreign distributor collapsed, while sources claim that both Akora and Armada are keen to seek investment.

The value space - which is said to be expanding faster than the 20% market average - has proved to be the most popular destination for newcomers so far.

Networking outfit Westcon entered the Turkish market last year by acquiring 50% of Netex, a US$50m Cisco, Nortel, and 3Com distribution house, while only last month, Itway, a South European security distributor, took over local Nokia and Websense distributor Intellect to get its foot in the door.

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