Running scared?

I don't think it's an exaggeration to say that there is a growing level of apprehension in the Middle East channel as companies try to work out how current global economic events are going to impact their business

  • E-Mail
By  Andrew Seymour Published  November 2, 2008

I don’t think it’s an exaggeration to say that there is a growing level of apprehension in the market as companies in the Middle East channel try to work out how current global economic events are going to impact their business.

There has been a noticeable change in market sentiment throughout the last couple of weeks alone. As recently as the end of September, vendors and channel partners spoke optimistically of their outlook for the final quarter of the year. Most were dismissive of outside developments proving harmful to their prospects, adamant that the IT channel here was largely — though not entirely — shielded from the financial ‘crisis’ taking place in the major western economies.

But as the true global picture has become clearer, anxiety levels have increased and there has only been one topic on everybody’s lips.

The bulk of vendors, distributors and resellers I have come into contact with over the past fortnight are bracing themselves for some kind of fall-out from what’s happening — but, infuriatingly, the general consensus is that nobody is quite sure how or when.

The current predicament is undoubtedly the most frustrating period for the channel because companies are essentially in the dark over what the future holds. Speculation takes precedence over fact and conjecture obscures any effort to properly forecast.

It is times like these that the lack of transparency lamented by many commentators really does make life more complicated for the market. Certainly the guessing games are likely to increase as companies endeavour to assess the health of their customers, and those customers evaluate their own customers, and so on.

Two months from now it’s safe to say that channel companies will be occupying a far stronger vantage point from which to determine the actions they do or don’t need to take. The irony, of course, is that the damage may have been done by then.

So what can we expect to see in the meantime? Well, clearly a stronger degree of caution is likely to be exercised by all but the most aggressively-minded outfits. There is widespread acknowledgement that greater diligence is required during uncertain times, and while incidents of panic-behaviour are plausible, the call for calm seems to be resonating around the market.

As far as I can see, any storm that brews in the channel here is going to be influenced by two main factors. The first is the ability of vendors, and particularly distributors, to finance the channel as usual. IT traders in the region are watching the distribution fraternity closely for signs of changes to their terms, while wholesalers are understandably paying that bit more attention to how they can minimise risk.

With the IT market hugely dependent on the availability of credit to function, and the distribution business reliant on sufficient working capital, the consequences of banks and lenders pulling back could be disastrous. As we have seen before, any dramatic movements that occur from a financing perspective are liable to cause a domino effect given the number of sub-distribution layers — and the extension of credit between these layers — that exist.

The other key factor is linked to how things pan out at end-user level. Irrespective of credit availability in the Middle East channel, the market still needs end-customers to be spending money on IT and pushing ahead with projects.

It would certainly seem reasonable to anticipate customers taking a more frugal approach to their budgets next year, possibly even delaying expensive projects until their confidence in the global economy returns. This trend may not be evident among local buyers, but it’s conceivable that the regional branches of multinational corporations will be instructed to take a more prudent approach for the time being.

Vendors remain in defiant mood nevertheless. I’ve heard executives from several large IT heavyweights — including Oracle, EMC and HP — argue that their sector of the market is best-placed to overcome any potential softness. Oracle believes companies are more inclined to embrace the savings-benefits that ERP promises during leaner times, EMC reckons security and storage are just too important to disregard in any climate, while HP is adamant that consumers will curb spending on other luxuries than put off that new PC purchase. Clearly something has to give.

Whatever the outcome, many channel players appear to have accepted that the market is likely to encounter some unwanted turbulence in the weeks ahead. How companies are able to deal with it when it arrives is what’s really going to matter.

Add a Comment

Your display name This field is mandatory

Your e-mail address This field is mandatory (Your e-mail address won't be published)

Security code