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Dubai Computer Group cautions members

Industry association is alarmed at the high inventory level in distribution channel

Rughwani says the DCG is alarmed by high stock levels sitting with distributors.
Rughwani says the DCG is alarmed by high stock levels sitting with distributors.

The Dubai Computer Group (DCG) has warned its members to exercise caution when ordering stock as Dubai-based distributors are struggling to liquidate high stock levels in the local channel.

The local IT trade industry association, which comes under the umbrella of the Dubai Chamber of Commerce and Industry, said business in the last three months including the holy month of Ramadan has been slow due to many reasons, resulting in distributors struggling to liquidate the high stock levels.

The DCG said it is alarmed by this development in the local channel as it has already led to price cuts and some IT products being sold at negative margins. In addition, the DCG stated that the latest development has brought immense pressure on IT distributors in Dubai.

Shailendra Rughwani, president, DCG, said the association was worried about the latest turn of events in the channel as this could lead to product over stuffing, a 'dangerous' trend for the local resellers. "We advise both the distributors and the reseller channel to exercise care and not overstock products because nobody makes any money," he said.

Rughwani said although the DCG does not anticipate any adverse knock-on effects such as 'reseller runaways' as a direct result of the surplus inventory challenges, the association is appealing to members to continue exercising prudence and adhering to the guidelines that govern their DCG membership.

He added that: "We don't foresee any runaways as was the case last year, but there could be defaults or delays in payments from some resellers who still depend on rotation for survival," he said. "We always have advised our members to keep a strict watch on the inventory and not to keep a lot of stock in expected slow months during the year."

He said as credit insurance premiums are already on the higher side in the Middle East region when compared to the low margins on IT products, the DCG would like to urge its members to focus on the long-term benefits and not the short-term gains that may emerge as a result of excess inventory in the Dubai channel.

Rughwani explained that the DCG is expecting a better Q4 this year but all depends on the regional markets as most of the stock is sold for the re-export market. "We hope these markets will pickup and the excess stock in the Dubai channel can be liquidated," he said.

Despite the DCG's warning and appeal to its members, industry analysts have stepped forward with their own thoughts on the latest development, particularly, the impact sanctions on Iran may have on Dubai-based channel partners that have for a long time survived on exporting to that country.

According to a distribution expert that spoke to Channel Middle East on condition of anonymity, the tightened sanctions on Iran, continued political unrest in Syria and general uncertainty in the Middle East IT market has all contributed to the latest events in the Dubai channel. "The situation could get worse if distributors continue to struggle to find market for the excess stock especially because Microsoft is launching its much anticipated Windows 8 operating system in October and OEM partners will soon launch PCs with the new OS," said the expert.