Cutting the power

The Dubai-based distribution market grew less than 3% last year

Tags: United Arab Emirates
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By  Andrew Seymour Published  February 28, 2010

If you want a statistic to understand how much the Middle East distribution market was knocked off its stride last year then how about this: the collective revenues of the 15 largest Dubai-based distributors grew 2.7% in 2009. The growth rate for the previous year was 23.7%.

It might be a little over the top to suggest the Middle East is losing its appeal as a so-called ‘growth' market - other regions had it far worse last year after all - but it does shine some light on how tightly the market has been squeezed in the space of 12 very difficult months.

To put it into further context, that 2.7% growth is the equivalent to just US$129m in value terms - a mere US$8.6m per distributor if you want to break it down even more.

Confirmation of the rate at which sales through the distribution channel slowed down comes from the research we've been carrying out for our 2010 Power List, which will be published in the upcoming March issue of Channel Middle East.

The Power List comprises the 15 distribution houses that we believe are responsible for generating the largest volumes in the market today. In value terms, they accounted for combined sales of US$4.877 billion last year, marginally up from US$4.748 billion the year before (a rise of US$129m as I mentioned).

The fact that the market even managed to grow at all last year will be considered by some to be an achievement in itself given the circumstances, but distributors that have been used to attaining double-digit growth quite effortlessly may not find it so easy to share that sentiment.

Of course, this 2.7% figure has to be taken for what it is: an indication of how the market fared based on a sample of the companies accounting for the bulk of transactions that take place in the regional distribution sector today. And it is fair to say ‘regional' because although the companies are all based in Dubai, the majority of them generate a large portion of their business from markets outside of the UAE, such as Saudi Arabia, the Levant and Iran.

At the same time though, it can be misleading to make assumptions.

For a start, the figure is an aggregated one so it most definitely doesn't mean that every distributor increased their business 2.7%. Some grew, some didn't, some remained flat.

The reality of the situation is that top-line performance varied more dramatically between companies than ever before, and there were all sorts of reasons for that.

Distributors with greater exposure to markets seemingly less impacted by the downturn, such as Egypt and Saudi Arabia, were undoubtedly afforded more respite. The same went for distributors pegged to product lines that maintained traction irrespective of the economic conditions.

Extensive changes at vendor level also played a bigger factor than at any time before. Although end-user appetite slowed, vendors still dished out franchises quite freely - if only as a method to increase the supply of credit in the market and solve the problem (albeit temporarily) of rampant over-stocking in the channel.

Such decisions affected the top line of some distributors. For others, it clearly made up for any organic decline in business that they would otherwise have seen.

Finally, it should also be noted that several distributors deliberately followed a policy of focusing more closely on profitability and risk management. That led to them actually sacrificing some of the low hanging fruit if they felt it could put the health of their business in jeopardy.  

So what of this year, then? Well, the sentiment in the distribution channel does seem to be improving, although lingering fears that the global economy could still suffer a ‘double dip' are preventing anybody from taking anything for granted.

It looks likely that 2010 will remain something of a transitional period for the channel as distributors (and vendors) continue to rethink their strategies and adjust their internal operations to keep costs in check.  

That said, considering the fierce ambitions of distributors in this region, and the fairly solid signs of recovery that the IDCs and Gartners of this world claim to be observing, it wouldn't be a surprise if in a year's time we are talking about a sector that is back to enjoying double-digit growth again.

The 2010 Power List, featuring an insight into the strategies and prospects of the 15 largest volume distributors in the region, will be published in the March issue of Channel Middle East. You can subscribe at www.itp.com/subscriptions by selecting the ‘Technology' magazine category and clicking ‘New Member Signup'.

2822 days ago
Lee Reynolds

Computerlinks grew by 60% 2008 - 2009 fact

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