Managing a channel business
IT channel partners feel the immediate effects of any technology trend change in market forces or business operations and have to adjust their channel strategy. Given the rapid pace of change in the IT sector, how should solution providers be managing their businesses?
The last five years have seen a fundamental shift in the IT market in the Middle East. New technologies have emerged and taken hold in the enterprise space, often thanks to the increasing consumerisation of IT, which has raised expectations of performance and outcome among decision-makers. Mobility, and the perception that business systems should be available at any time, regardless of the location of either the end-user or the data itself, have had a profound effect on corporate buying patterns.
And for the channel, charged with meeting these expectations, the change has been equally profound. As 2016 stretches out, full of promise, channel partners are facing a host of opportunities. But success depends on the strength of the business they have been able to build around key trends – cloud-based everything, wireless services, virtualisation – while staying nimble and flexible enough to evolve with these new technologies and business models.
At the same time, they must continue to wrestle with the traditional channel bugbears of financing and supply-chain management, improving their service offering, and making the most of their vendor relationships to ensure that they are constantly developing the right skills and expertise to take new solutions to an impatient market.
As John Ross, general manager at Oki Middle East, India and Africa, pointed out, channel partners are responsible for delivering the best possible service and after-sales support to the end-customer. If they offer poor service, such as late invoicing or delayed responses to queries, the reputation of the brand suffers – not great for strong vendor relationships.
“Another issue relates to channel partners giving priority to competitive products,” he said. “This can be managed by building relationships and motivating partners – not only by offering incentives based on revenue targets but also when communicating with them. For example we provide rebates on targets achieved, and communicate the advantages of dealing with us so that [partners] are fully committed to our products, rather than otherbrands that they stock.”
“With the explosion of technology adoptions in 2015, one of the major effects on the channel is the required rate of marketing to match this growth,” said Ross McLetchie, director of sales MEA at converged IP solutions distributor Mayflex.
“Some channel partners depend heavily on their vendor suppliers to compensate where internal resources simply cannot keep pace. In order that the channel business grows with the vendor’s portfolio of offerings, it will be even more important in 2016 for the channel to not just increase the level of marketing collateral, but also the quality.”
McLetchie said channel partners will have to invest more in pre-sales activities to generate sustained demand – and in delineating between pre-sales and delivery, to prevent subsidisation.
“Most enterprise channel partners are familiar with their clients’ operations, but moving forward into 2016, they will need to understand the ways in which technology is impacting on their clients’ competitive environments and market opportunities.”
And those clients are increasingly demanding. Daniel Nargunam, business unit manager at distributor Global Solution Networks, said that those demands are emerging alongside an IT environment which, despite so much of it being offloaded to the cloud, is more complex than ever.
“With the consumerisation of IT, customers tend to think IT is an easy task, while it’s not, if you want the work done professionally, securely and in a sustainable way,” he said. “At the same time, not all distributors have accepted their new role in the channel to support resellers way beyond the traditional VAD concept. That’s why Global has been pioneering the ‘solutions distribution’ concept. We fill exactly that gap and ensure our partners are winning more business, while staying competitive.”
Vendors have their role to play, of course. Rui Silva, channel manager, Middle East, at Alcatel-Lucent Enterprise, said resellers must focus on suppliers and solutions that give them the best profitability – and have the courage to move away from the same thing that everybody else is selling, to domains and niches where they can excel.
“It is the partner’s responsibility to create his own niche and specialisation,” he said. “In the beginning of 2015, we committed to our channel community that we would make it simpler to do business with us, but we still have a say on who we want to recruit or not. The biggest concern I see in the market is that most of the big vendors are not concerned with the partner’s margin. Their main focus is to close the business regardless of the cost to the partner.”
However, financing remains one of the greatest challenges. According to Stephan Berner, managing director at enterprise security specialist Help AG, credit terms and availability are typical irritants for the channel in the Middle East.
“In the region, channel economics are such that resellers are very dependent on value-added distributors to help them finance large deals,” he said. “This is because unlike the West, banks and financial lending institutions in the Middle East are still quite reluctant to finance IT deals. This is due to their lack of confidence, which is largely because the expertise in this area is missing. In mature markets, IT leasing and financing is the norm, and both banks and the channel benefit from well-established procedures. In the region, however, the banking sector has yet to come of age in this respect.”
This is something that is only likely to change as the market matures, but meanwhile channel players have another dilemma to address: whether to stay focused on hardware sales or developing new business models to stay relevant.
Berner said that it should be evident by now that competing simply on price is no longer feasible. It slashes profit margins and drains the motivation for the channel player to provide top-quality work. Services, increasingly, define the channel’s future.
“Many organisations cite the lack of skills to be a roadblock, while in fact it is just that they are not willing to invest sufficiently in attracting and retaining people who are well qualified,” he said. “With the right skills available in your resource pool, you can begin to offer new services and a high level of value addition which helps create new revenue streams and keep your organisation at the forefront of innovation.”
At another VAD, Shifra, managing partner Ahmad Elkhatib said channel partners also need to focus on the end-user, making sure that their integrated hardware and software solutions will actually meet real-life requirements. Their localised expertise should fill gaps that the vendor cannot expect to bridge alone.
“To satisfy current market demands and empower channel efficiency, partners should focus on processes to help them develop, manage and optimise sales opportunities,” he said. “Technical proficiency, product expertise, business intelligence and partner agility are the key pillars that play a crucial role when it comes to winning customers and building long-term relationships,” he said.
“As the consumerisation of IT is one of the most significant trends, affecting mobile device management, application management, data protection and IT security,” he continued. “Resellers have plenty of opportunities to enhance their business portfolio and grow the pipeline. To be competitive, they should address relevant messages to enterprise customers, and focus on end-user pain points. For example, [matching] the advantages of BYOD and consumerisation with a strategy that reduces security risks, financial exposure and overall management chaos.”
The low barrier to IT market entry in the region has not always served the reputation of the IT industry well. Oki’s Ross said it is all too easy for a junior player to become commoditised. If you can avoid this by pushing the best quality end-to-end solutions out to your customers, even wafer-thin margins will grow, customers’ running costs will come down and loyalty will grow – leading to repeat business.
“We believe that barriers to entry aren’t as low as we sometimes think they are in the Middle East,” he said. “That said, there are many competitors in the region and more often than not, it does the market a lot of good.
“Because of competition, the technology behind products will only get better and better. Customers will then be able to procure a better product at a better price. At the end of the day, healthy competition makes sure that only the absolute best in terms of technological advancement and services is retained.”