Doing the channel a favour

Vendors can’t shirk from the serious distribution decisions they need to take

Tags: Channel developmentSaudi ArabiaSeagate TechnologyUnited Arab Emirates
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By  Andrew Seymour Published  November 8, 2009

Less is sometimes better - at least that seems to be the theory that Seagate is subscribing to after recently slashing the amount of distributors carrying its products in the Middle East.

There have been numerous alterations to the distribution landscape this year, but the nature of the hard drive vendor's channel restructuring is arguably as significant as anything else that has taken place so far, if only because it illustrates the need for vendors to adapt to the changing conditions before them.  

Seagate is candid about the driving forces that have shaped what is undoubtedly a bold move to scale back the amount of distributors it works with.

Firstly, it recognises that there are no longer any guarantees when it comes to the size of the market, and secondly, that there is a real danger of jeopardising partner profitability by persisting with a model that was established when the market was in a very different phase.

In an industry where it seems vendors will go to any length to keep up the pretence that everything is rosy - even to the extent of claiming that a recession actually plays into the hands of their company - it is refreshing to see Seagate come out and acknowledge the challenges that it faces.

Over-distribution remains an undesirable element of life in the Middle East channel, and indeed something that Seagate itself has been accused of on more than one occasion.

To understand why this issue has become so significant you don't have to go back very far. In the days when the regional IT market served up what felt like boundless growth, vendors understandably appointed additional partners to ramp up their volumes without any real concern that it might get in the way of true market development.

More credit lines and more stock points signalled more sales for most suppliers - or at least that was the philosophy until the region began feeling the cold frost of the global downturn.

Suddenly, the dynamics that have traditionally driven vendor-distributor relationships have become invalid as far as some categories of the market are concerned.

That is a factor that Seagate finally recognised, and others are too. They know that if the right amendments aren't made, then at some point the franchise becomes unattractive. And when that happens, distributors either put their efforts into other parts of their portfolios or lose interest altogether.

It could be argued that some manufacturers have taken the opposite approach by expanding their distribution channels this year in a bid to fill gaps in their coverage and, more pertinently in my opinion, to flush extra credit into the market.

That may well be true, and it is certainly a practical step for some product types - especially as a short-term tactic - but the word in the market is that more and more vendors are coming to the conclusion that rationalising their distribution channels is the best way to solve the dilemmas confronting them. 

Ultimately, there also comes a time when vendors have to settle down with their partners and form sustainable relationships. Vendors talk freely about partnerships, but more often than not what they are really alluding to are mere trading arrangements. 

To return to Seagate specifically, what is not known is the criteria that was used to determine who would stay and who would go. Certainly, the three distributors that remain - Almasa, Asbis and FDC - all stand out as classic components distributors, whereas Logicom and Metra, besides being major HP suppliers, both preside over much wider brand baskets.

It wouldn't be improbable to assume that Seagate has opted for the companies that it believes can offer the most focus on the system builder and retail markets. That said, while no distributor likes forfeiting a brand, I doubt if Logicom and Metra will be losing too much sleep over it. I'd hazard a guess that Seagate was worth no more than 5% of either organisation's business given their respective portfolios.

I'm sure the trio that have held onto their Seagate rights, meanwhile, are pretty content with the outcome. Any distributor will admit that the fewer competitors there are fighting over a franchise, the better it is for them. 

It does raise the stakes for all three though, particularly as they are no longer in a position to play the ‘over-distribution' card if they fail to deliver the results expected of them.

Will Seagate be the last vendor to decide that its distribution channel needs refining in the current environment? I very much doubt it. If channel profitability is as important to vendors as they proclaim, then some brave decisions will need to be taken when it comes to matching appetite with capacity in the Middle East.  

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