Special report: Direct attack

Growing talk that PC vendors plan to bypass distribution to serve power retailers directly is poised to change the Middle East channel landscape as we know it.

Tags: Acer Computer Middle EastAimaar United Investment and ProjectHP Middle EastJarirToshiba Corporation
  • E-Mail
Special report: Direct attack Binu Thomas, Toshiba.
More pics ›
By  Andrew Seymour Published  August 2, 2010

Earlier this year, HP risked the wrath of its Saudi distribution partners by beginning a direct relationship for PC hardware sales with power retailer Extra, the second largest consumer IT supplier in KSA. Noises being made elsewhere in the market suggest it is only a matter of time before others follow suit.

Notebook specialist Toshiba, for instance, is planning to work directly with key retail accounts in the region and, like HP, intends to initially start with Saudi Arabia. Other major brands in the region, such as Acer, are watching developments carefully as they assess the merits of an approach that promises certain advantages, but which ultimately threatens to leave channel opinion divided.

Toshiba’s head of sales for the Gulf region, Binu Thomas, believes moves by vendors to engage in direct relationships with power retailers is quickly becoming a “trend” that is only going to gain momentum.

Although he declines to reveal which retailers Toshiba is currently negotiating with, he admits the company aims to begin transacting directly with select retail partners before the year is out.

“We’ll basically have 10 named accounts in the region and we will manage them directly,” he confirms. “Right now they are managed semi-directly and the fulfilment happens through the distributors, but at a future stage we will go directly with the power retailers.”

Those words will no doubt strike fear into the hearts of distributors that generate a significant chunk of their business from selling to the retail channel.

As one UAE-based distributor lamented: “Distributors spend a lot of time and effort building relationships with these retail outlets and providing support to bring the business up to speed. If a vendor comes along and takes that business direct, it is very difficult to make up what you have lost.”

It’s not just the reduction in revenue that threatens to hit distributors where it hurts — they also face the prospect of being left with a higher cost structure than the market opportunity now affords them if investments they have already made internally to manage a specific retailer are no longer warranted.

What’s more, buying power is also at risk of being negatively impacted because if a distributor purchases large quantities of products to sell into the market on the strength of a particular retailer’s orders, its ability to buy and stock becomes compromised if the vendor then takes that account direct.

Saudi distributor AIM has had to cut down its laptop orders since HP started working directly with Extra to avoid over-stocking.

“Extra was an important customer because it bought 70% to 80% of HP’s notebooks from us,” says Suhail Al Tawil, business manager at AIM. “After going directly we requested the vendor to reduce our quota, and they did that.”

Add a Comment

Your display name This field is mandatory

Your e-mail address This field is mandatory (Your e-mail address won't be published)

Security code