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Distributors go back to basics to overcome slump

Market survival is all about doing the simple things well, claim leading IT distributors

Distributors are having to work harder for their money as they seek to protect their positions in the market.
Distributors are having to work harder for their money as they seek to protect their positions in the market.

The region's largest IT distributors are taking a back-to-basics approach to business as they attempt to ride clear of the difficult trading conditions that have disrupted the market throughout the past year.

Faced with stalling demand and a highly constrained credit environment, distributors are scrutinising every aspect of their operations in a bid to keep costs under control and ensure they do not become financially over-exposed.

For most distributors that has meant an enhanced focus on controlling working capital and cash, as well as a closer analysis of operational efficiency.

"It is important to manage your business at a micro-level by going into more detail instead of just delegating," said Mario Gay, general manager at components and enterprise distributor Mindware. "Today I think you need to look at things through a magnifying glass."

Research carried out for the recently-published 2010 Channel Middle East Power List revealed that the combined annual revenues of the 15 largest Dubai-based distributors operating in the market increased just 2.7% last year.

That figure compares with 24% the previous year, indicating the extent to which the distribution sector has felt the force of the economic downturn.

Speaking before his resignation as CEO of Emitac Distribution last week, Amer Khreino said the financial crisis has taught the distribution channel some harsh lessons.

"Today it is very difficult to claim that distribution is not about credit facilitation, financing the business and logistics services, but these are the classic deliverables - no distributor can sustain business without them," he said. "But during the crisis we learned that these principles could only get you so far. To retain customers requires a good rapport, market recognition, commitment and loyalty, as well as the right product mix."

Nicholas Argyrides, general manager at HP and Cisco distributor Logicom, agrees that keeping sight of what customers need is crucial to prevailing in a market where new challenges are coming from multiple directions.

He believes relationships and pre-post sales capabilities have emerged as the fundamental principles of distribution. "If you are able to make customers look at you in a way other than as a discount shop then it is the best way to work, especially in today's climate," he commented.

"Pre- and post-sales support, whether it's education, timely deliveries, RMA or something else, are the things that make a customer loyal to you, even if your prices are a couple of dollars higher."

Without doubt, distributors have also had to quickly adapt to an uncertain credit environment. The withdrawal of cover by many credit insurers has forced distributors to either take additional risks themselves or walk away from accounts they suspect may not be able to meet their obligations.

Raj Shankar, CEO at Redington Gulf, rates credit management alongside logistics and working capital management as aspects of the distribution business which need to be handled carefully during the present climate.

"Credit management is especially important in the Middle East and Africa, where you have to give credit," he said. "But credit management isn't about refusing credit - it is about giving credit but collecting your money."

Faisal Jamal, COO at Despec, also says distributors have to become experts in credit and finance.

"Credit insurance companies are not giving the kind of insurance coverage they used to - or if they are the prices are expensive - so you have to have effective and structured credit control," he warned. "Customer reach is important too. If you don't analyse your customers properly you may become over-centric on a certain type or a certain region," he said.