Buoyant mood subsides in regional channel

The 2014 Channel Confidence Survey paints a fourth quarter outlook not quite as hopeful as in 2013

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Buoyant mood subsides in regional channel ((ITP Images))
By  Manda Banda Published  December 2, 2014

This month we reveal the Channel Confidence Survey findings from our annual study on the health of the regional IT industry.

The research provides insight in how channel stakeholders (vendors, distributors and resellers) see the market prospects in Q4 and how they are preparing for what is to come in the year ahead.

This year’s results paint a pale picture of a market that started resiliently at the beginning of the year, only to see that positiveness ebb towards the end of 2014. So what is behind this soft market outlook?

From the results, it’s clear that IT channel players are slightly less confident in Q4 growth prospects than for the same period last year.

The poll quizzed regional vendors, distributors, systems integrators, resellers, IT consultants and retailers on the state of health of the Middle East IT marketplace and asked them to make some predictions for the coming year.

The vast majority (81%) of survey participants represented either a vendor or a distributor. Some 86% of companies had offices in the UAE, 19% in Saudi Arabia, 15% in other GCC countries. A further 14% had operations in the Levant region and 11% in North Africa.

While the findings look rosy on face value, speaking to channel players to get in-depth understanding and reaction of what is happening on the ground, has made me to come out feeling that the buoyant business mood that characterised the IT industry at the start of 2014 has receded slightly in the market.

That’s not surprising given that some markets like Iraq, which were holding so much promise at the start of 2014, have been dragged into a civil war, while Egypt is only beginning to mend now.

Not all is bad as channel players still have hope. When asked “How confident are you that trading levels during Q4 will be stronger than the same period last year?” 85% expressed some level of confidence, compared with 86% last year. However, in the 2014 poll, 51% described themselves as “very confident” compared with 49% last year.

But in taking genuine steps forward in the market, has the IT channel done enough to develop new revenue streams? Will the lingering political instability in parts of Levant and North Africa continue to impact the rest of the market?

Whether the regional IT market is getting better or not, product margins continue to weigh heavily on the markets mind. Indeed talk of margins declining in the channel has been around long enough and it seems this will not change. What is interesting this year though, is the fact that lack of credit availability was not seen to present the greatest threat like last year, an indication perhaps that the market has cleaned its act around credit schemes.

Given the amount of commercial products being sold in retail, e-tailers and other e-commerce sites, margins will continue to get thinner as competition continues to grow.

From those polled, 38.36% said pressure on margins was the issue that posed the greatest threat to the health of their business, while 19.18% cited lack of market visibility.

As much as expecting trading levels to pick in Q4 this year, it seems the regional channel is also expecting profit growth in the last quarter of the year. From those polled, 91.97% said they were budgeting year-on-year profit growth during the quarter with 10.96% expecting an increase in profit of more than 30%.

The overall business climate may be improving but as channel firms look to new markets, those that will survive and stay ahead of competition are businesses that have a clear strategy and vision to develop new business, focus on the bottom line rather than concentrating on revenue alone.

Players in the volume game may survive, but for how long? Unless channel partners are adapting their businesses to the changing market dynamics, they will find staying afloat in the coming years quite hard and that is something they should revisit.

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