Local touch|~|levantdanyrahme200.jpg|~|Dany Rahme at Computel|~|The Middle East remains a series of individual markets and despite the best efforts of regional distributors, the importance of local touch can never be underestimated. As part of its regular tour of the region to gauge the market temperature, Channel Middle East caught up with senior executives in Jordan, Lebanon and Syria to find out the major issues affecting the Levant channel.
Anyone viewing the Middle East IT channel as a single market fails to understand the individual characteristics and cultural issues that actually define channel development on a country-by-country basis. While the Levant IT market remains comparatively small compared to the Gulf States, it certainly possesses huge development potential and is also making great strides in the deployment of advanced technology.
The fact that many of the local channel players are focusing on end-user installations — as opposed to sub-distribution, re-export and box-shifting — has led many to develop an extensive repertoire of software and service skills. A prime example of this trend is Computel in Lebanon. With 30 years experience in the Lebanese IT market, Computel has carved out an impressive niche as a provider of advanced technology solutions and a supplier of comprehensive post-sales service and maintenance.
“Computel studies, designs and implements infrastructure, sites and disaster recovery plans,” explains Dany Rahme at Computel. “This also includes establishing secure internet and intranet links. The IT market in Lebanon remains relatively small compared to the Gulf market with a fairly shy IT investment climate at present. It is expected that once Lebanon regains its independence — expected this year — an economic boom will happen and thus enhance the IT expenditure.”
Rahme’s comments allude to an important factor that crops up again and again when talking to IT channel players in the Levant — namely the political situation in the region. For many in the IT channel, it is this area alone that will determine whether or not the true potential of the region is actually realised. Despite this backdrop of uncertainty, vendors and distributors continue to push ahead in the Levant to evolve the channel model and develop a clearly defined partner landscape.
||**||Vendor interest|~|levantmousleh200.jpg|~|Ayman Mousleh, president at Cham Data|~|Distributors with local knowledge are becoming a sought after commodity by vendors as they place increasing emphasis on in-country distribution that truly supports the development of the reseller channel. In Syria, Cham Data has established a solid reputation as a powerful distribution outfit and formed close relationships with major vendors such as Gigabyte and Western Digital.
Ayman Mousleh, president at Cham Data, explains the business mix: “Cham Data has a strong market share in many segments of the Syrian market. We estimate that we hold 40% of the motherboard market, 50% of the hard drive market, 30% in VGA cards, 30% in memory, 20% in cases and 35% in scanners.”
Given its powerful position at a local level, it is little wonder that Cham Data has started to eye the potential benefits of an increasingly regional outlook. In late 2003, the company opened its first foreign operation in Jebel Ali with a view to establishing business relationships in multiple countries across the Middle East. In addition, Cham Data has also established its own brand, Xeed, covering a wide product portfolio including VGA cards, memory modules, cases and speakers among other items. Mousleh has a clear strategy for the year ahead: “We will put more efforts on specific items where we believe we can increase our market share,” he said. “And we will start selling some new items such as CPUs and notebooks. At the same time, we believe that putting even more effort into out Jebel Ali operation will allow us to achieve strong results for 2005.”
The markets in the Levant continue to grow, although not as fast as many people had earlier anticipated. Nevertheless, the consensus view is that any short-term softness will soon give way to a long-term boom in IT investment.
“In 2004, Computel profits climbed 37% compared to 2003 despite shy growth in the overall Lebanese economy,” says Rahme at Computel. “We are expecting a similar growth this year thanks to our focus on IT services. The Lebanese economy is not expected to show a decent growth this year due to the very fast events that are happening right now, which will definitely reflect negatively on IT companies. We are investing heavily however for 2006, which we expect to be booming on all aspects.”
Vendors have definitely started to wake up to the opportunities for channel-led growth in the Levant. Partners operating in the region now receive regular visits from major vendors and can also attend vendor-led seminars and receive sales and technical training where necessary.
||**||Spending power|~|levantchannel200.jpg|~|Motaz Abu Rumman, general manager at Oasis|~|Beirut has seen an influx of vendors in recent years looking to tap into the local market and reach out to the local channel. “Microsoft has a strong channel strategy thanks to their day-to-day presence,” says Rahme. “Now Computer Associates is opening an office in Beirut as well. We are seeing a trend for vendors to invest in local presence in Beirut along with a proper support structure for vendors allowing them to drive their business forward in the region.”
Despite the limited size of the Levant market, margin pressure already exists in the channel. According to Mousleh, the margins in Syria are actually worse than in Lebanon and Jordan due to the number of importers and sub-distributors pushing product into the market.
With spending power still constrained in many sectors — especially at a consumer level — the Levant markets boast a thriving local assembly market that still accounts for the majority of PCs sold. PCs for homes initiatives, frequently involving the government, incumbent telco and local assemblers, have sprung up in the Levant. Jordan Telecom has unveiled a PC@ Every Home initiative offering an affordable purchase plan for consumers.
Jordanian retailer Fun Directory has teamed up with ART, the assembly operation of regional distribution giant Almasa, to spearhead its participation in the scheme. Khalid Abu Ayyash, general manager at Fun Directory, explains: “We offer more than one configuration to the users, and our ART systems will enjoy three years warranty and excellent after-sales support.”
Local assembler Oasis has teamed up with Samsung to build PCs that can be sold as part of the promotion. Motaz Abu Rumman, general manager at Oasis, says: “There will be three main models and all the systems will come with a two-year warranty and full after-sales support provided through our quality service centres.”
Increased PC penetration at a consumer level is also a driving force behind the development of a structured retail channel in the Levant. At present major cities still boast a multitude of independent retail outlets, but power retail chains such as Fun Directory in Jordan are beginning to emerge. Rahme claims that the Lebanese retail sector is also starting to mature as the total addressable market for notebooks and desktops reaches critical mass. The retail channel is also providing a valuable route-to-market for A-brand vendors such as Acer, Dell and HP as they look to grab market share from the local assemblers.
||**||Credit challenge|~|levantsyriaretail200.jpg|~|IT retail in Damascus|~|One issue that continues to afflict the Levant channel — and indeed the wider Middle East — is credit and financial transparency. According to Rahme, cash flow remains a major issue for most customers in Lebanon and this means that they put an increased emphasis on the ability of their IT providers to inject credit into the supply chain.
The delicate credit situation remains a deterrent when regional distributors assess the pros and cons of setting up local operations in the Levant. Resellers on the ground reckon that those regional distributors that have taken the plunge may not be making money at the moment and have actually been spurred on by a belief that their first-mover advantage will offer long-term rewards as the market matures.
Distributors and resellers operating in the Levant want vendors to take a realistic view of the market and set targets that correspond to the in-country conditions and demand dynamics. They also want an intelligent pricing policy that supports their in-country channel development efforts and allows them to make a reasonable margin. For many, the persistent problem of software piracy means that their business remains dominated by hardware sales making the margins available a daily cause for concern.
Despite the present political uncertainty that exists in the Levant, the local IT channel is convinced that the long-term outlook is bright. Many are laying the long-term foundations for growth now and want to work with vendors that fully support their local efforts.
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