Which way is the distribution market going?

Distributors profiled in this year’s Power List although upbeat about growth prospects, paint a gloomy picture for the second half of 2015 as problems in hardware trading persist amid political instability in some parts in the Middle East.

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Which way is the distribution market going? ((ITP Images))
By  Manda Banda Published  June 22, 2015

This month Channel Middle East reveals its 2015 Power List, our annual research and ranking of the top IT distributors in the region, based on revenue.

In putting this list together, I interviewed a lot of senior executives within the IT distribution segment, and was left wondering if business within this sector is on the mend or distributors will have to drastically change their business models in order to stay afloat.

The reasons for my mixed impressions stem from the fact that while majority of those featured in this year’s survey grew their revenue, it’s the profitability concerns they shared with me that have led me to believe the market still seems to be in limbo to some extent.

In fact, a few executives told me that their reseller partners are anxiously awaiting for the nuclear deal between Iran and the six nations, which may eventually lead to the lifting of sanctions and the opening up of the Iranian market as something that may boost IT hardware trading in the second half of 2015.

The revenue figures for 2014 told a promising story, with distributors making this year’s Power List ranking making up over $7bn in sales.

Most of the distributors saw considerable growth, some saw modest growth with a few witnessing a drop in revenue.

While most distributors see areas to be positive and have been evolving and transitioning their businesses to embrace more value-based and solutions distribution, the ongoing instability in Iraq, Egypt, Yemen and Libya is causing consternation for those that are dependent on the export market for their survive.

Although not all is doom and gloom, distributors remain concerned about the pressure on margins. And while they acknowledge this will continue to be a bane for all channel stakeholders, it’s the reluctance by many resellers to create sustainability in their businesses that distributors have bemoaned in the channel.

Most of the distributors argued that resellers in the Middle East are still doing business on a seasonality basis rather than cultivating new untapped markets and sustaining their growth based on expertise and understanding of the markets they are playing in.

Of course, the figures we have compiled are from 2014, and we are already six months into a new year, which has brought with it some significant changes to the regional distribution channel.

While PC sales have been sluggish in the market over the past 24 months, the tablets sector, which 12 months ago was soaring, has seen a slow down amid consolidation happening rapidly in this market segment.

Large screen smartphones [phablets] on the other hand, have continued to experience growth with most smartphone vendors including Apple offering wide screen handsets.

This has led to those distributors that 18 months ago launched their own private label tablet and smartphone devices to scale down their product portfolios in line with the changes happening in the market.

In addition to all these technology and product positioning changes, distributors have continued to promote better credit management, financial transparency practices and, better stock and inventory forecasting.

With events of reseller runaways a few years ago instilling a more savvy approach to financing and credit management, distributors are always going to have to risk as they go after new and possibly more volatile markets. In the end, it comes down to the old adage of distributors planning for the worst and hoping for the best. It seems that the element of risk and the uncertain picture of which way the distribution market is headed is going to continue for a while.

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