Channel Conference: Financing schemes and how to broaden credit access to partners
Channel leaders offer solutions on how to build business credibility in the reseller channel
IT leaders from the regional channel have again reiterated calls on how stakeholders can address the thorny issue of channel financing schemes and credit insurance.
The discussion, which took place at the recently held Channel Middle East Conference at Grosvenor House Dubai Marina, saw more than 200 channel stakeholders meet to discuss a number of supply-chain challenges that tackled a range of topics through the keynote address, presentations and expert panel sessions.
Samer Karawi, managing partner at Galal & Karawi Consulting, who moderated the panel discussion on ‘Channel Financing Schemes' opened the debate by wanting to find out how difficult it is to finance IT projects in the Middle East region.
Shailendra Rughwani, president of the Dubai Computer Group (DCG), said the matter of channel financing and credit insurance is and has been a thorny issue in the regional channel for some time now.
Rughwani said five years ago, at the peak of the global financial meltdown, the channel witnessed a lot of resellers running away from the market with huge unpaid debts. He added that the scenario contributed to banks, financial lending institutions and credit insurers to start viewing the IT industry as a high risk sector to finance any big projects.
Rughwani said looking at the Dubai market, it's still seen as a high risk segment for banks, credit insurers and other financial lending institutions.
He pointed out that part of the problem with credit accessibility in the channel has to do with the companies entering this sector. "A lot of companies entering the reseller segment are trying to create top line with no bottom line focus," he noted. This, Rughwani said, has contributed to market volatility and the fact that margins on most IT hardware has continued to be squeezed creating more uncertainty for distributors and financial institutions.
Rughwani told the audience that part of the solution to issues with financing schemes and credit terms has to do with having enough capital to start a business. "As DCG, we have already starting cleaning up the Dubai channel all in an effort to promote the sector to consumers, distributors and vendors," he said. "Through the programmes we are rolling out with our members, we are creating and bringing back the credibility that is required for the entire reseller channel to be viewed favourably in the market."
Martin Uchytil, finance director, Dell Middle East, agreed and said accessing credit in the regional channel especially for smaller resellers remains a challenge in the market today.
Uchytil said although that's the case, Dell has has developed a solution for smaller companies that can't get bank or distributor help when it comes to financing certain IT projects.
Uchytil pointed out that there is a certain amount of risk with any IT implementation. "Let's not be naive, credit terms or IT financing models aren't for for everyone, there has to be strength in the project being funded," he said.
Uchytil said another concept where Dell has helped its channel partners in the region was where a trustworthy institution was the customer, so that helped the partner to get funding for the project. "As an example, one customer in the UAE was willing to put down assets of the company as collateral to receive credit. This jump started the company and they became very successful and are still going strong up to now," he explained.
Uchytil urged delegates to focus on finding lasting solutions to the challenges that the regional channel faces when financing big IT projects in the market. "At the end of the day, we are all here to build sustainable businesses," he said.
Khalid Laban, board advisor, at regional distributor Oxygen Middle East, who contributed to the debate as a delegate suggested that the channel should form an alliance where they work work out how to increase margins. "We are the only sector in the economy where vendors [manufacturers] are dictating to us to take the lowest margins," he said. "Why should we be told to add 5% or 10% margins? Why can't the market dictate the issue of margins?"
Laban said the issue of delayed payments is always going to be there for as long as customers are not paying the reseller or systems integrator on time. "In KSA for example, when was the last time you got paid on time," he asked?
Laban added that the regional channel is still seen as a high risk sector because customers do not respect their payment and credit terms.
Karawi, disagreed with Laban and said, forming an alliance to fix margins in a free economy is not only uncompetitive but goes against the principles of a free market economy. "Margin fixing is not an answer to accessing credit, as this is a free market with free competition," he argued.
Karawi urged delegates to look at other ways that would develop credibility in the regional channel, educating owners of reseller businesses on the importance of having and maintaining audited books and managing credit terms prudently as ways of helping the market to clean-up.
Another solution offered to address the credit schemes issue was to help partners develop business acumen and financial management by ensuring that they are able to provide audited financials for their businesses to would be lenders.
Bharadwaj Kalyanasundaram, head, Credit and Risk Management at regional distributor Redington Gulf, said when it comes to project financing, there are many ways to do that in this region.
Kalyanasundaram said the value addition a distributor brings to the table when extending credit to qualifying partners should be explained upfront.
Kalyanasundaram said distributors do help partners in negotiating better finance rates with banks depending on the strength of the project.
DCG's Rughwani agreed and reiterated that the way the local channel conducts its business needs to change and that will attract banks, financial lending institutions, credit insurers and even venture capitalists to finance the whole sector.
Rughwani explained that it's easy to finance a seven-year-old company, but what about SME start-ups? "This has to come from distribution and that's where distributors as middlemen come in," he said.