Painful consequences of USR closure

As far as Middle East operations go, US Robotics’ wasn’t exactly the most enormous in the market. But the closure of its regional office is still a kick in the teeth for the local channel

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By  Andrew Seymour Published  August 3, 2008

As far as Middle East operations go, US Robotics' wasn't exactly the most enormous in the market. But the closure of its regional office is still a kick in the teeth for the local channel.

UK management visited Dubai the week before last to sort out the company's distribution strategy, which now becomes even more important given there is no longer any USR staff on the ground to oversee the business. The Middle East office, along with its Turkish hub, recently got the shove in a move that has cast doubt over USR's ability to profitably address emerging markets in the wider EMEA territory.

Closing a regional office is always a risky decision to take. For me, if channel partners are going to function effectively then vendors need to have a local presence. Proximity is key to understanding the issues keeping partners awake at night and getting a handle on local market dynamics - particularly in a region as intricate as the Middle East.

Obviously you could argue that this hasn't made a difference in US Robotics' case. A failure to achieve the fiscal targets set by its owners, Platinum Equity, has been cited as the reason for axing its Dubai office. How poorly USR was performing, and for how long, is not known, but clearly it was serious enough to warrant the drastic measure of closing the office, rather than finding an alternative solution.

The move is particularly interesting because Platinum Equity has been in charge of the company for three years. The Middle East office is not, therefore, an unwanted puppy that they have just inherited. In fact, they acquired USR shortly after it had reported how revenues from wireless products in the Middle East had doubled.

Even as recently as the beginning of this year, USR's local management spoke proudly of its endeavours during the past twelve months. The extension of its reach in countries like Egypt and Jordan, coupled with the development of specialist VAR partners to handle enterprise-wide wireless deployments and enhanced support for GCC customers, were hailed as signs of its progress.

The only conclusion I can draw from this is that the expectations between owners and regional management were wildly different, or that a lot went wrong in a short space of time.

How quickly the vendor anticipates getting its Middle East business back on financial track is not clear. The office and staff overheads have been removed, but there is no word on whether any other arrangements will be changed to make the books balance. For example, USR admits that the high cost of air-shipping products from Europe to the Middle East is one of the factors that has dragged its bottom line down.

Forging ahead with two Middle East distribution partners, Active and BDL, appears to be a logical step though. Given the company had four distributors fighting over the same pie six months ago, it should mean more available business for the remaining two that are continuing to fly the USR flag. That's the theory anyway.

Yet, while the vendor emphasises that it has not withdrawn from the region, I can't help fearing for its Middle East prospects. For a start, it faces a sizeable task in restoring the battered confidence of channel partners unsettled by recent events. Winning back the commitment of resellers who feel they have been left in the dark over what's gone on won't be easy, especially when many other networking vendors are expanding their local presence in the Middle East.

In a market known to be proliferating at a strong double-digit rate and where the growth is being driven by consumer and SMB segments - primary markets for US Robotics - partners will be wondering why the vendor wasn't able to sustain a four- or five-man office.

Maybe there is more to the office closure than meets the eye? Or perhaps other vendors of equivalent stature are facing the same struggle, but have so far resisted similar action? Either way, the decision to pull the Middle East office serves as a painful reminder that there are no guarantees in this market.

The bigger picture, of course, remains how challenging it is to build a profitable business in the Middle East IT market. It is an issue that really sprang to the surface last year when Tech Data closed its Dubai subsidiary and it persists today.

Unfortunately for US Robotics' channel, it is now paying the price by having to work with a vendor that has deemed it more suitable to serve the region remotely.

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