Cash business takes bite out of credit crunch

Recession or no recession, working as a distributor in what is renowned as a capital intensive business has always been stressful. So how are established channel executives like Rashwan Arabi, managing director at Dubai-based components distributor Computec Class IT, working to maintain margins and survive the shakeout?

Tags: Computec Class ITUnited Arab Emirates
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Cash business takes bite out of credit crunch (Dmitry Dolzhanskiy/ITP Images)
By  Julian Pletts Published  April 11, 2009 Channel Middle East Logo

How has business been in recent months?
We have to admit that in the distribution business we are facing tough times. We cannot just hide our heads in the sand. The industry is in a better position than some, but previously it was unfair to us. Other industries were making virtual money without showing real value or true performance.

Prior to the financial crisis, did vendors have unreal expectations of what distributors were able to do?
Yes they did. Some understand the current situation and have learned their lesson, reducing their expectations to fit the real situation.

So gone are the days of vendors quoting double-digit growth and driving hard targets?

Absolutely. I feel we are in a different place now and our work will be judged solely on true performance and not inflated growth. If you work hard, focus and are down to earth, then you will get results.

How have vendors changed the way they work with the distribution channel in recent months?
Nobody is pushing big quantities of product through the channel at the moment. This change has come from the vendors themselves. For instance, VGA card vendor Nvidia has been cutting supply so they can control the market and not overload it. Even with flash manufacturers — traditionally an over-subscribed market — the supply has been controlled. They are not just dumping goods here and there. Samsung and other vendors have also cut supply and this is a wise move that will ultimately save their business and ours.

There have, however, been instances of traders in the channel having to give their products back to distribution partners...
Yes, there have been. There is a transition period where the vendor will expect that as a result of their steps, the price will stabilise and even go up. But at the channel level it is not easy to accept that the price will go up or even just not fall anymore. In this period we have to be patient until it returns to how it was before the crisis and partners will be able to accept that prices might go up again. I see that the vendors’ steps are working, however.

Have credit terms and the ability to get insurance changed since last year?

Of course. This is one of the most important factors. Security companies are really affecting our industry and because of that business will shrink. As a distributor I am being controlled by the vendor and by the insurer who is dictating my ability to give credit.

Should distributors such as Computec Class start building the cost of giving credit into prices?

That is already the case. We have a price for cash dealing and one for credit-insured business. We have been dealing in cash for a long time and only started giving credit in August last year. That means we are experts in cash dealing. Even when we started the credit policy we didn’t prioritise it, we encouraged our customers to deal with us in cash. We give them advantages to do so, such as good price and availability.

How can you possibly plan for growth right now?
Cost-cutting has become a concept for us. Using capital in a smart way is important and so is only working with vendors you can make the most from. When we were planning for this year we were confused what to do, but decided to focus on our strengths. I’m not necessarily talking about vendors, but about focus on a particular category. For instance, if we’re good in media we will focus on that. It relates to the strength of partners too. If we’re strong in an area we will drop vendors in other areas.

What sort of time frame are you putting on your current business strategy before reviewing it again?

We review our plans quarterly. We cannot afford any mistakes in 2009 so we have to review our business every month or day by day. I noticed something strange during 2008 and that was that we were making a lot of profit and losses at the same time. It was unbelievable. So we thought, how about we drop customers that make us lose out? We are going to watch it carefully. If a product or customer causes us to lose, we don’t need them.

Have you been having to micro-manage your channel’s work?

Indeed, we have to. I want to invest more in sending my guys to local markets to see the customer and participate in local events. That is a good investment, rather than dropping prices and fighting with the customers. It leads to nothing. We have to be closer to the customers.

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