Frayed relations

If the economic downturn has blown a frosty wind into every relationship throughout the IT channel in the Middle East during the last 12 months, nowhere has it been felt more acutely than in the always-sensitive affair between distributors and credit insurers.

Tags: CreditDespecEmitac GroupEuler HermesUnited Arab EmiratesWestcon Group Incorporation
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Frayed relations Jaison Korath, Despec Mera.
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By  Piers Ford Published  October 25, 2009 Channel Middle East Logo

“But to know this market, it is very important to understand the dynamics and customers. It is not just reading the financials, but knowing their way of operation. I would like to see them looking at each customer more personally. And be more interactive about developments on the database. It may be better to have some kind of alert rather than chopping limits over night — which creates a nightmare for the business plan!”

Westcon’s Lockie would second that. After promising so much, he suggests, credit insurers have been too quick to adjust their coverage in response to the deteriorating financial climate — and this has compromised the value of credit insurance as a business tool.

“Initial limits and safety nets were much higher than we had traditionally been willing to offer and I feel this was as much down to poor intelligence from the credit insurers as it was to prudent risk management from ourselves,” he said. “We now find key territories where we have to self-insure, use other financial tools or simply not [provide a] service due to these changes. It is simply impossible to find any single insurer with a risk profile and appetite that covers our region entirely, even given our conservative business and risk profile.”

Almeida and Bolourchi both insist that despite the rise in premium costs — the inevitable consequence of a rocky market, which will reverse when conditions improve — their organisations are retaining clients and generating new business in the IT distribution sector. Not all distributors share Westcon’s capacity for self-insurance.

“There is no guarantee in this environment or even in a favourable market environment that buyers with strong performances in previous years will not fail; the market has already seen evidence of this,” said Almeida.

“Alternatively, even if a distributor’s credit management team has done an excellent job, buyers can still go bust. Since margins are low in the IT sector, even a single large loss can put a seller into financial difficulties. Some distributors who had signed up for credit insurance have already witnessed the value behind this service and mitigated their credit losses,” he said.

“We are looking for transparency from the buyers,” explained Bolourchi. “They are aware that if we have financial information and understanding of their business, we will be more likely to be able to approve credit for their suppliers. We are finding that they are willing to be transparent with us and trust us with the financial information they provide. Unfortunately, where we have no data, it is impossible in this climate to maintain high levels of cover.”

And in the end, all roads seem to lead back to transparency. If credit insurers can raise their intelligence levels as high as possible, their response to individual clients can be more considered and — as distributors agree — they can consolidate their role as key players in the regional IT channel model.

“I am confident they will play a great role,” said Khreino at Emitac. “It won’t be a free ride, though. Credit insurers must learn from this past period to define attractive packages for distributors and understand their industry in order to drive mutually profitable businesses in the future. Premiums will continue to be crucial in deciding whether or not to buy a policy. So I don’t advise them to take the easy route of jacking the premium up to justify higher credit coverage.”

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