Calling the shots

The number of distribution appointments announced each month just goes to show how importantly vendors regard the expansion of their channel coverage in the Middle East. In a region where the direct model doesn't really have a major role to play except in parts of the enterprise sector, a solid distribution structure is pre-requisite to success in the market place.

But it also goes without saying that relationships between vendors and distributors can fall apart as quickly as they are assembled. There has traditionally been a belief - within the vendor community at least - that distributors are fair game and so long as there is a product to sell, then there'll always be a middleman to sell it.

This theory might be accurate in a market starved of competition, or where price volatility is less acute, but in the cutthroat world of IT distribution the same rules do not apply. The point I'm coming to is that as distribution becomes more sophisticated, the value that vendors bring to the table is falling under increasing scrutiny.

I've had conversations with several distributors in the past week, all of which are distinguished names in the market, and there is a noticeable and very pressing shift in their attitude towards brands that don't really bring anything to the business. The message they are emitting is that vendors which fail to add any meaningful value to their portfolios will no longer be tolerated.

The intensity of their sentiment is particularly significant. We all know distributors have been shouting from the rooftops about their commitment to profitability for the last couple of years, even though the reality of the situation is much different.Yet judging by the tone of the executives in question, it is clear that a sea change is taking place. Established distributors are at a stage where they have built a customer base and a certain level of collateral. If a vendor can't produce a business plan that is compelling to the distributor from a financial and market development point of view then you are going to see distributors walk away from the relationship.

Nobody is more vulnerable to this trend than up-and-coming vendors, whose Middle East strategies have been to dump a load of stock at the distributor's door and expect them to get on with it. If the volumes are small, the gross margin barely touches 3% and the payment terms are cemented at 30-days, then it's going to be six months before the distributor has even recouped the costs of hiring a product manager for that line! Suddenly you can see why distributors are beginning to take a tougher stance.

Few distributors are fond of making a song and dance about splitting from vendors, but expect to hear tales of several parties quietly doing away with various brands over the next few months. If the volumes, margins, payment terms and stocking costs don't add up, then you're going to see more distributors scrapping deals they perhaps would have persevered with in the past.

Tech Data brought the issue of profitability firmly into the limelight prior to its withdrawal from the Middle East earlier this year. It ended agreements with PC vendors Acer, Fujitsu Siemens and HP, citing profitability as the overriding factor for its decision. Whether it was truly down to profitability - or simply a condition of its agreement with suitor Aptec that those brands were excluded - is not entirely clear, but at the end of the day it succeeded in raising an issue that many other distributors have skirted around for fear of creating tension.

Mark my words, the balance of power is changing. Larger Middle East distributors based in Dubai and Saudi Arabia are not as prepared as they used to be to roll over for the sake of adding a few million dollars to their top line every year. Conventional market dynamics decree that there will always be a willing party to take on a brand or a product line, but if IT vendors want commitment from distributors they genuinely revere then it is time for them to evaluate what they are giving in return.