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In-country coverage has long been cited as a necessity for companies that want to achieve success in the Middle East market. But is it really practical for vendors and distributors to have permanent resources in multiple countries, especially in today’s uncertain economic environment? Channel Middle East asked different tiers of the channel how they interpret the situation.

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By  Andrew Seymour Published  September 11, 2009

In-country coverage has long been cited as a necessity for companies that want to achieve success in the Middle East market. But is it really practical for vendors and distributors to have permanent resources in multiple countries, especially in today’s uncertain economic environment? Channel Middle East asked different tiers of the channel how they interpret the situation.

We spoke to SM Hussaini, general manager at Almoayyed Computers and Ahmed Ashadawi, CEO and president at Al Falak, for the VAR view; Raj Shankar, CEO at Redington Gulf and Faisal Jamal, COO at Despec for the distribution perspective; and KV Narayanan, distribution manager at HP Middle East and Thierry Chamayou, business development manager for the Middle East, Pakistan and Turkey at APC by Schneider Electric, for the vendor lowdown.

A lot of vendors still serve the Middle East market from a single office in Dubai. What are the advantages and disadvantages of this approach?

SM Hussaini:
From our perspective as a systems integrator and VAR it is an advantage for the major MNCs to have some sort of local in-country presence because visibility matters and customers want to see the companies and products that they are eventually going to deal with. In terms of the disadvantages of basing everything out of Dubai, we have been seen a lot of travel restrictions this year due to the recession, swine flu or other things, and at times that doesn’t really sit well with the business demands. Most of our partners today only seem to be travelling if there is a strong business case involved.

Faisal Jamal: If vendors are forcing distributors to go in-country then the logic should apply that they also need to go in-country. This doesn’t mean that logistics need to be in-country because a lot of the time there are distributors to play that part. But they do need to have people on the ground to visit end-users and resellers. The hands-off approach — or the approach from Dubai — can be difficult because an end-user wants to speak to the vendor to feel comfortable that the product or solution is right. A lot of the vendors are making plans to go in-country, whether it is Epson, HP or Samsung. They are looking at in-country clusters or regions that feed out of a regional office, which in the long-run is good.

Thierry Chamayou:
The advantage of having a single office in Dubai is that when you start hosting everybody under the same roof you tend to get quicker implementations of associate decisions. It is also more cost-effective because one set-up is always going to be less expensive than four or five. Coming from a sales and distribution background, I would say the disadvantage is that you are not close to the customers, apart from the Dubai-based ones, and this is something they require. If you don’t go for local presence then your strategy is not entirely addressing the potential or expectation of the market.

How important is it for a distributor to have an in-country presence? And what constitutes a true in-country presence?

SM Hussaini: If distributors handle logistics properly then it hardly matters whether or not they are based in-country. If a good distributor has a strong supply chain and availability of products in multiple locations then we don’t see a reason why they should be present in-country. Having a distributor in-country would be much more relevant for companies who have small operations or who are into fast-moving products for the SMB sector, but for larger players it does not really make a huge difference. For example, in our case we generally deal with the principal directly, although there is a role played by the distribution channel and the channel development partners.

KV Narayanan:
If you look at the overall growth of the market and the various route-to-market segments then the dynamics vary between Dubai and some of the other countries, so in-country investment becomes critical. In markets like Kuwait and Qatar the enterprise portion of the business contributes quite substantially to the overall revenue gained from these countries so to address this space effectively you need to have a local presence. In the volume space, products tend to have a faster turnaround, which calls for in-country stocking. If you are not carrying the right product at the right time you are missing an opportunity, so from that respect it is critical to have an in-country investment although it may not have to mirror a complete regional presence. People have the bandwidth to multi-task. A product manager could also become a sales manager as and when required, but the operation should not be a one-man structure. Support, finance and credit management functions should be done locally, and you should be in a position to transact business in the local currency where required.

Raj Shankar:
If you want to get into a business that is long-term and sustainable then it is extremely important to have in-country operations. In the past it probably made more sense to operate out of Jebel Ali — and I’m not referring to Redington but the market in general — because wherever there are high duties and taxes there is a general tendency to arbitrage. Now, with more countries getting into lower taxes and uniform duties, there is a clear merit in having stock in-country because there is no other serious arbitrage that can happen. It is all about operational excellence and supply chain efficiency.

Are there any areas or functions that are better centralised? Or should vendors and distributors always look to develop fully-fledged subsidiaries in each country?

Ahmed Ashadawi: A distributor’s job is to serve a need between the vendor and the end-user. The old model of being an agent, sitting down and receiving commission is disenfranchised. If you have no value add sitting between the end-user and the vendor, you have no job. That means you must have soldiers on the ground that do a lot of what the end-user needs. There is also continuous market creation to think of because there are new products coming out that you need to create a market for and you cannot do that remotely. ‘Centralised or not centralised’ depends on the nature of the business and the maturity of the customer. In distribution you have got to have one central store that you ship from daily and along with that you need to have the HR and the finance functions centrally.

Raj Shankar:
Each distributor is different. We feel it is best to manage some of the back-office functions, such as order management, out of a centralised function. Having one central order management team but delivering the products to different locations would make a lot of sense. Similarly, it makes sense to drive what we call the back-end management — or the receivables management from the vendor — centrally. Marketing campaigns or programmes can be kept central though these are implemented for each country, according to the need. We simply look at in-country as a sales office that gives us close proximity to the customer, while the operation out of Dubai gives us close proximity to the vendors. That is why our business managers and product managers are based in Dubai and our channel sales teams are located in each country.

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