What are your vendors worth?

It was inevitable that this year’s Distree XXL event in Monte Carlo was going to be dominated by the financial crisis, the credit crunch and what businesses can possibly do to avoid the gaping holes that have opened up underneath many of their markets

Tags: Distree EventsEconomic crisisUnited Arab Emirates
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By  Julian Pletts Published  February 15, 2009

It was inevitable that this year’s Distree XXL event in Monte Carlo was going to be dominated by the financial crisis, the credit crunch and what businesses can possibly do to avoid the gaping holes that have opened up underneath many of their markets.

The tone at the event, which brought together leading members of the EMEA distribution channel, including a large Middle East contingent, was however, far from downcast.

Of course, almost every other question posed to me in conversation was, when will the slump end? This is a question that most distributors would pay a fortune to get the answer to right now, but at least members of the EMEA crowd seemed to feel able to rise to the challenge.

Recruitment of new vendors to the portfolio and the strengthening of existing channel ties seemed just as important to them now as they have ever been and a central part of mounting this defence. But vendors, it appeared, are going to have to fight tooth and nail to prove their worth.

Similar to how the financial crisis has given tenants in Dubai previously non-existent bargaining power with real estate owners, distributors now find themselves in a much stronger position to dictate terms when signing new vendors.

One pre-eminent expert in distribution channels made it abundantly clear that distributors must be even more critical in their analysis of what every vendor partner they work with is contributing to their business. Among many other points, it was suggested that a large number of distributors are not aware of the internal growth capacity each vendor affords them. Simply put, this means the percentage growth that doing business with a specific vendor will allow them to grow their own business in the future.

Apparently, some vendors, though seemingly a good business prospect on the surface can be dragging down a distributor’s internal growth capacity without them even knowing. It is not unheard of for a vendor to take up over 50% of a distributor’s attention and resources but in return drastically drain a partner’s internal growth capacity. And let’s not beat around the bush, there is no absolutely no room to be dragging deadweight right now.

Prior to the credit crunch, and having talked to many channel players hailing double-digit and exponential growth, it was refreshing to hear that not only is it unreasonable to make such claims, even if times were vibrant, it is also unrealistic and denotes a lack understanding of real growth potential. It is apparent that business managers in the channel need to know exactly where they can actually afford to grow right now and in the future. This is a complex calculation and one that we shall be explaining in coming issues of the magazine, but suffice to say, it is a calculation that is at its most pertinent right now.

The other trends to come from the EMEA channel get-together was that, although recession news abounds, it is not necessarily as bad as all that. Research and analysis house GFK took to the stage to present a cautious but optimistic outlook on the market. Although it was heavy on the details with EMEA-wide data considered, the analyst said candidly that yes, this will be an incredibly difficult year for the regional IT market that will hamper the distribution channel, but it is by no means the end and there are plenty of statistics to suggest the IT market will rally.

According to GFK, if distributors make the right decisions — such as the aforementioned careful consideration of what a vendor really offers — then there are plenty of opportunities to be had, and there is no question that 2009 can still be a successful year for most.

There were also hints that the Middle East IT market, although perhaps discounting the UAE, may not have been as adversely affected by the crisis as the more mature markets. For instance, one worried local distributor from a smaller market in the Middle East inquired during a panel discussion as to the signs of the crisis to watch for out for in terms of the distribution business.

If there was a message to emerge from this year’s Monte Carlo channel gathering it would be that the market is going to have to get accustomed to the difficult trading climate, but vendors are also going to have to work harder to prove their worth to the channel as distributors become more forensic in analysis of the names in their portfolio.

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