Should the local channel brace itself for more runaways
The recent exit by Barium Technologies LLC from the local IT channel after the company allegedly left over $10m in debts has raised fresh fears
The Dubai Computer Group (DCG) has called on its members to exercise caution when dealing with IT traders, wholesalers or any company involved in the sub-distribution of IT products.
The warning comes after several resellers have exited the local channel leaving behind debts.
Is anyone really shocked by the latest spate of reseller runaways? The disappearance of Barium Technologies LLC has left a huge financial black hole in the channel but the warning signs were there for all to see for several months prior to the owner’s actual decision to flee the UAE. Now the channel needs to move on and take the appropriate steps to prevent this type of incident from occurring in the future.
Barium Technologies LLC was until its demise in December 2015, an IT reseller and trading company that operated from Dubai’s Bur Dubai business district. The company’s disappearance comes barely three years after it was established following Barium’s failure to meet its debt obligations, Channel Middle East was told.
The Dubai IT channel doesn’t lack for reseller businesses exiting the market, but Barium Technologies’ demise from the local channel will bring more uncertainty and pressure to a market that experienced sluggish channel sales for the past two years.
Founded in 2011 in Dubai, Barium Technologies was until its demise a specialist reseller and IT hardware exporter to the Middle East, South East Asia, Africa, Central Asia and Europe. In addition, the company was a partner of several top tier one IT multinational brands.
Sources familiar with the matter have told Channel Middle East that the owner of the company fled to India last month after his company is alleaged to have failed to meet its debt obligations, which are estimated at over $10m. Barium Technologies is alleged to have owed several Dubai-based top IT distributors, IT traders, banks and financial lending institutions millions of dollars.
Vasant Mengheni, founder and CEO at Touchmate, said while it’s sad to see any company close, the current problems being experienced in the local IT market require business owners to exercise prudence and transparency when doing business. “The impact of runaway resellers dumping stock in the market creates serious problems in terms of the ability of those remaining to sell the product at a decent margin – in turn impacting their ability to service their own outstanding credit lines,” Menghani said. He said some advice to resellers in this situation is: “It’s vital to communicate with your creditors and financial partners at all levels, to keep them informed, and ensure you do not default on a promised payment. It is much better to say that you will be late in a payment than to hide, avoid calls or, worse, bounce a cheque.”
Menghani urged resellers operating in Dubai’s Computer Street to give clear and honest reasons - after all, your creditors and other financial partners would rather see your business succeed than fail and you still owe them money.
He explained that Touchmate as part of Quality Group of companies has been in the market for over two decades and in that time, the company has been guided by the ethos of doing business honestly, transparently and with care. “There is no doubt that the current problems in the local channel need a shared strategy to address the source,” he said. “At the moment, there is no foolproof measure available to prevent this. However, I do believe there is scope for greater cooperation between companies and especially for associations like DCG in sharing vital information about potential runaways.”
Pundits say credit defaults are nothing new, however, if the frequency increases markedly, it creates an environment where doing business and financing huge projects gets very expensive.
Shailendra Rughwani, president at DCG agreed and added that: “We have come to know there are lot of affected parties and some of them are members of DCG as a result of Barium’s demise.”
Rughwani pointed out that unconfirmed reports indicate that the amount Barium Technologies is allegedly owing companies [IT distributors, IT traders and banks] is above $10m.”
Rughwani explained that although Barium Technologies was not a member of DCG, some of the association’s members have lost money as a direct result of its demise. “DCG had arranged a meeting for all affected parties on 22nd December 2015 at Grand Excelsior Hotel in Dubai, which was attended by about 35 people including those directly affected by Barium’s demise and other reseller runaways in the market,” he explained.
Rughwani pointed out that it was decided to form a smaller group specific to the defaulter and pursue the matter further with the help from the Indian embassy and other legal channels.
Industry pundits say the latest round of reseller runaways that the local channel is experiencing highlight a much bigger problem not just for the IT sector but most SMEs in other sectors in the country.
The UAE seems to be the main country in the Middle East that is affected by reseller runaways. The situation, pundits point out, tends to get worse when markets are suffering as those that flee the country are owners whose companies have become bankrupt.
Hesham Tantawi, vice president at Asbis META and an Advisory Panel member at DCG, concurred and said Barium Technologies’ demise from the local channel is sad but not unexpected. “The latest exit has just put the spotlight back on the local IT sector from banks, credit insurance firms and other financial lending institutions,” he noted. “This will put more pressure on local resellers that are in the market as the cost of financing certain project-based deals will go up making it extremely difficult for them to survive in an already precarious business climate.”
Tantawi said it’s not just IT-focused SMEs that have been affected by access to credit facilities as the food industry is going through a similar scenario as credit facilities have been cut drastically or completely withdrawn. “Our own research has found that financial lending institutions provide less than 4% financial support to SMEs in the UAE,” he observed. “We need to do more about this and engage the relevant stakeholders to bring up change that helps small businesses to grow and flourish.”
Tantawi added that while the latest development is sad for the Dubai channel, it highlights the need for greater cooperation between all stakeholders in the channel and most importantly, to lobby relevant authorities so that solutions can be found to the current problems in the Dubai IT channel.
Rughwani concurred and said the DCG has been in continuous discussions with credit insurance companies and distributors, and has been advising its members to be very cautious in extending credit in these volatile market conditions. “We expect and hope banks to be more considerate towards the IT Industry,” he said. “Also, the DCG has come up with a new initiative to arrange bi-monthly business networking events starting from January 2016, which will allow members to exchange information that helps to make doing business more secure and transparently.”