The Middle East’s Channel Wellbeing

It has been yet another bumpy year for the Middle East channel, with a promising outlook at the end of 2010 turning into uncertainty due to the local upheaval of the Arab Spring and the ongoing global economic climate.

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The Middle East’s Channel Wellbeing
By  Manda Banda Published  November 23, 2011

It has been yet another bumpy year for the Middle East channel, with a promising outlook at the end of 2010 turning into uncertainty due to the local upheaval of the Arab Spring and the ongoing global economic climate. But where is the channel ecosystem heading to in Q4 2011 and 2012? Just how confident are channel companies about the Middle East market? What do they think about the wellbeing of the Middle East channel marketplace?

The 2011 Channel Confidence Survey brings you the answers to the business and market climate in the Middle East channel.

How did trading levels during the first half of 2011 compare with the same period last year?

The channel market in the Middle East region has continued to remain unpredictable in the first half of this year despite the fact that overall market conditions have continued to improve after the turmoil that happened in 2009 as a direct result of the global economic meltdown. The fact that 40% of respondents who took the Channel Confidence Survey indicated that they had reported double digit growth goes to show that the trading levels in the first half of 2011 have improved immensely. Although the channel has seen solid trading levels in the first six months of the year, uncertainty has continued to linger on as some reseller companies especially in Dubai have exited the channel because of the market squeeze.

What is your main financial priority during the second half of the year?

In spite of how the economic climate has altered in the past year, the channel’s priorities still remain the same. Focusing on business profitability and increasing revenues continue to be top of the agenda among most channel companies in the Middle East. About 28% of respondents said focusing on profitability, while 32% indicated sales as a top priority in 2010. However, compared to this year, 40% of companies that participated in the survey have indicated that profitability is a priority focus for their business with 20% indicating increasing sales is a key focus area for their business. If events of the last three years have taught organisations to manage their businesses better, then the 13% of firms that indicated cash flow management was a priority, demonstrates just how companies are moving forward to manage their businesses prudently.

How confident are you that trading levels during q4 will be stronger than the same period last year?

The first half of this year might not have lived up to expectations, but the channel community in the region is extremely confident that Q4 will spur growth to ensure that 2011 ends on a high note. About 80% of those polled said there were ‘slightly confident’ or ‘very confident’ that the business and trading levels in general would be better in Q4 2011 than the same period last year, while 6% were unconfident about the market climate. Just 14% of the total respondents indicated that there were uncertain about their business prospects in the fourth quarter.

If you are budgeting for a year-on-year increase in sales during q4, how strong do you expect this growth to be?

As vendors and distributors continue to urge their partners to put profitability at the core of their business operations, most of the vendor and distribution companies operating in the region, are rolling out programmes that are aimed at helping partners to take their businesses to new heights. The good news is that most channel players in the region are expecting trading levels to soar in the fourth quarter. 86% of those polled indicated they were budgeting for year-on-year profit growth during the quarter, with 13% expecting an increase of more than 30%. About 14% of respondents said they weren’t expecting an improvement in sales.

Which of the following issues presents the greatest threat to the health of your business?

Whether or not the market conditions are showing signs of improvement this year or not, product margins have continued to be squeezed. This decline in margins has been especially pronounced for products that have crossed or converged with consumer electronic offerings. 30% of those polled said pressure on margins posed the greatest threat to the wellbeing of their business in the Middle East channel, while 20% indicated that few business opportunities or new project roll outs was a threat to their businesses. Interestingly, the number of companies that cited lack of credit availability has gone up this year compared to the 2010 figure of 5%. This year 10% of companies said lack of credit posed a threat to their business. This is not surprising given that distributors in the region have been tightening credit facilities.

Which of the following issues poses the greatest risk to the health of the overall market?

When it comes to issues affecting the health of the Middle East IT channel, majority of those polled this year cited over competition in the region as one of the greatest challenges that poses risk to the well being of the market. 26% of respondents said reduced credit availability was posing a risk, while another 26% felt delayed payment from customers was an issue that posed risks to the health of the channel in the Middle East. Only 7% of respondents cited unpredictable end-user demand as an issue that could jeopardise the overall market performance in the region.

How would you assess the overall financial health of the Middle East channel at present?

Most IT analyst and research firms have continued to predict that the Middle East will continue to record double-digit growth putting it way ahead of other emerging markets around the globe. But, fears over the overall market’s health have continued to persist despite this buoyant outlook that analyst firms have painted. 40% of respondents polled said the overall financial health of the region’s channel was not healthier or unhealthier than usual. This result shows the challenges that most in the region face when it comes to financial transparency and other issues closely related to this. About 17% of respondents said the channel was ‘very healthy’, while 23% still feel the financial status in the region’s channel is unhealthy.

How would you currently assess the ability of your customers to meet their payments?

Cash flow management and accounts receivables continue to be a challenge for companies involved in the IT solutions selling business. Failing to stay on top of your accounts receivables can lead a company to have serious cash flow problems. About 66% of companies polled indicated that they have fewer concerns over the ability of their customers to meet their payments, a major improvement to last year’s figure of 36%. 20% of those who answered this question said they either had ‘more concerns than usual’ or were ‘extremely concerned’, exposing the level of apprehension that stills lingers on despite the channel companies making huge strides in this regard.

What are your company’s hiring plans this year?

Although the market has remained somewhat volatile over the last three years, that hasn’t dampened the will and determination among companies to hire and retain top skills in the region. About 40% of companies that answered this question indicated that they are still actively recruiting although more than half of those polled said that they had put their employee recruitment programmes on hold. Only 7% of the companies that answered this question said they plan to reduce their workforce. Interestingly, those that plan to downsize were mainly distribution companies. This indicates that their operational costs need to be in check constantly if they are to run and manage profitable distribution entities.

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