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Thu 23 Oct 2008 04:00 AM

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Jordanian channel gets tactical

Resellers in the Jordanian market are going through something of a transition period as they dilute their emphasis on product sales in favour of cultivating a comprehensive value added services offering.

Resellers in the Jordanian market are going through something of a transition period as they dilute their emphasis on product sales in favour of cultivating a comprehensive value added services offering.

Stirred by the growth of the local IT sector and frustrated by the decline of hardware margins, many dealers are striving to identify new revenue streams that will guarantee a stronger level of sustainability.

This shift in direction has been quickly seized upon by vendors and distributors eager to ensure that the growing throng of local VARs receive the support they require.

While many resellers rely on product sales, most of them have reached the conclusion that there is no money in moving boxes and that professional service is the way to drive margins.

"The reseller market has developed considerably in the past couple of years as the resellers' focus has expanded from mere product sales to value added concentration," remarked Michael Papaeracleous, executive director of distribution at Cisco specialist Logicom, which has had a local presence in Amman for the past seven years. "This is in addition to new products being adopted by the resellers and developed in the market," he said.

For some, the advancement of the Jordanian channel was always inevitable given investments by manufacturers to empower local trading partners.

"The reseller market in Jordan is quite developed, especially for major vendors whose early initiatives and market organisation have paid off recently," commented Mohammad Dahleh, general manager at Acer, Microsoft and HP reseller Scientific for Computers and Systems (SCS).

"While many resellers rely on product sales, most of them have reached the conclusion that there is no money in moving boxes and that professional services is the way to drive margins and move forward."

One company which is ideally placed to endorse that observation is HP consumables reseller Integrated Standard Solutions (ISS). It estimates that the Jordanian market has consistently expanded at a rate of 20% during each of the last five years, and in 2007 the firm launched a professional services division in an effort to target value sales.

ISS' general manager Khaldoun Borini admits the Jordanian channel landscape now contains several established enterprise names with solid integration and services capabilities.

"The reseller market in Jordan has seen major changes in the last couple of years," he reflected. "You now see large solution providers such as STS and E-STARTA, as well as many value added resellers like SMS and CCS."While talk of rapid transformation appears to be well-founded, it would be a mistake to assume that the days of fervent box-shifting and scrapping over margins are a thing of a past. Resellers are still guilty of starting price wars rather than protecting or enhancing their profit margins. This can largely be blamed on the dynamics of the SMB market, which remains inherently price-sensitive.

"Numerous IT companies selling into the SMB channel are still putting minimal investment in resources and marketing because, in most cases, price ends up being the determining factor," admitted Logicom's Papaeracleous.

Christian Assaf, channel sales representative for the MEA region at hard disk drive vendor Seagate - which has a local sales manager serving Levant partners but no physical office in Jordan - insists it is important for resellers to explore new opportunities higher up the value chain as the commodity battle will continue to be fought on a price basis.

One of the problems with the distributors is that they have been giving privileged prices to hypermarkets such as Carrefour or to the large power retailers, which has hurt the smaller resellers.

"Resellers should start promoting high-end products as there is a market for such products," declared Assaf. "Most resellers are focusing on entry-level and fast moving items when customers can get their requirement from Dubai or any other country in the region where it is available," he added.

The advice that vendors are dishing out to partners elsewhere in the Middle East clearly applies in Jordan too, especially as the insular market landscape leads to intense competition.

"Differentiation is essential in this highly competitive market," said Khaled Kamel, general manager at Lenovo Middle East.

"In addition, the channel needs to ensure that it delivers the highest quality service to its customers - focusing on support and compiling the best overall solutions for the end-user base at the best possible value."

Lenovo isn't the only vendor to call on the local channel to show more initiative. Printing vendor Epson also urges partners to consider the bigger picture.

"Just like any other market, resellers need to maintain an aggressive sales force in order to open up the market and knock on the door of new business opportunities as well as ensuring product availability and reach," said Middle East boss, Khalil El-Dalu.

While such words of wisdom make sense, it remains to be seen if more resellers are inspired to move beyond their comfort zone. Papaeracleous at Logicom says too many dealers have come to expect vendors such as Microsoft to close and deliver deals to them on a plate - a habit he labels unhealthy.

"This practice is actually detrimental for resellers as they miss out on the skills which will enable them to build up and close deals for themselves," he blasted.They therefore become less valuable in the chain and end up making lower profit margins.

Nevertheless, if the recent level of development that has shaped the market persists, the Jordanian channel should find itself laden with golden sales opportunities.

There are thought to be more than 1,200 IT companies in Jordan and collectively they serve an IT sector worth around US$250m a year.

PC vendor Lenovo points to the significant upturn in PC adoption inspired by schemes such as the ‘PC for every citizen' initiative, which it fulfilled through in-country reseller partner Jomotrade.

"Before the announcement of the PC for every citizen initiative, PC penetration was at 65%," reflected Kamel. "Since then, there has been a huge uptake in units and also awareness levels around technology. However, the biggest challenge is achieving more widespread penetration in rural areas that are not as accessible as the larger cities."

Further to widening PC adoption, the core market sectors central to any thriving IT channel are enjoying rampant growth.

Corporate clients, which collectively represent the largest IT spenders in Jordan, continue to demonstrate a solid appetite for technology, while government and education initiatives have put a considerable amount of business the way of PC and peripheral suppliers.

To compound that, the SMB and retail markets are also experiencing rapid growth, with the latter now hosting several new entrants to rival established retail chains such as PC Zone and Fun Directory. Smart Buy, a power retailer with a 3,000 square metre showroom, and hypermarket giant Carrefour, have both outlined plans to launch more stores after recently opening outlets in Jordan.

"Those two key players have reshaped the IT retail market in Jordan," commented Naji Al-Moubarak, retail and distribution division manager at Jordanian Dell and IBM reseller STS.

CAD software developer Autodesk highlights the real estate and construction sectors as major catalysts of its progress in the country, adding that a "burgeoning" cash surplus from the thriving oil and gas industry is also playing a significant role.

"As these developments drive the need for efficient design software that addresses the requirements of a rapidly-growing economy, we have been utilising the opportunities within the Jordanian market," said Radwan Al Jarrah, channel manager at Autodesk Jordan.Storage giant EMC, which works with partners Intracom and ISS in Jordan and could open an office in Amman next year, admits to being excited by expansion in the telco sector, where talk of a fourth GSM licence is rife.

It also insists demand in the banking arena for consolidation and disaster recovery solutions is creating a need for its products.

"The Jordanian market's dynamics are a bit slower than Saudi Arabia and the UAE, but it has shown significant improvement on what we have seen over the past few years," said Qais Gharaibeh, general manager for the Gulf and Levant at EMC.

"There seems to be a healthier economy than what we have noticed before and customers are looking at bigger spend, and are thinking about projects of sizeable value."

Epson, meanwhile, reveals the tourism and construction sectors are behind strong sales of its scanners, printers and projectors. General manager El-Dalu hails Jordan as one of the most important markets that it serves in the Middle East, but admits there is still room for progress to be made.

"The major challenge facing us and any other major IT manufacturer is that there is insufficient awareness and poor understanding of using IT as a business tool to improve productivity and efficiency," he said.

Assaf at Seagate believes that although the Jordanian market's population of six million people makes it small in comparison to neighbouring Saudi Arabia, it is still expanding at the same double-digit pace. He suggests the IT market could actually benefit from some of the IT-exempt customs levies that have been imposed in KSA.

"Taxes and customs formalities are the biggest challenges facing the Jordanian market," said Assaf. "If the government can follow the steps taken by other countries such as Saudi Arabia on the IT sector, the market will grow much faster."

Sources say high tax rates on sales encourage some parties to under-invoice, or worse still, resort to smuggling in order to bring products into the market at a cheaper price.Duty charges on some goods, including MP3 players, projectors, rack-mount cabinets and DVI devices, range from 10% to 30%. Reports claim that US$98m was taken in IT-related taxes in Jordan last year.

Other factors also influence the performance of the market, such as inflationary pressures in the wake of rising oil and raw material prices, and political developments in surrounding territories such as Iraq and Palestine.

"Jordan has been known to be impacted or influenced by the surrounding political situation across the region and the dynamics of the economy sometimes depends on that," acknowledged Gharaibeh at EMC.

"Usually when there is a crisis across the Middle East the Jordanian market goes into a ‘watch and see' phase, and then eventually some investment takes place. Then, when everything is going smoothly, the investments carry on until they saturate. It is a bit of a unique dynamic that vendors have to be aware of."

When it comes to the second-tier channel, market watchers report a reduced dependence on sub-distributors as vendors increasingly look to use the services of in-country wholesalers.

With the market clearly expanding, it would not be unreasonable for distributors to look favourably on the prospect of establishing a local presence. Earlier this year, mobile devices distributor SIT Distribution opened a facility in Amman to serve Jordanian customers.

Dahleh at SCS, who quotes Emitac and Logicom as the most visible disties in Jordan, believes SIT is still in the minority, however.

"The distribution channel in Jordan has suffered several setbacks with the absence of key players such as Tech Data, while others have chosen not to make a local investment and were terminated by vendors," he said.

Conversely, there are suggestions that the presence of more local distributors is having an adverse effect on channel purchasing behaviour.

Al-Moubarak at integrator STS explained: "One of the problems with the distributors is that they have been giving privileged prices to hypermarkets such as Carrefour or to the large power retailers, which has hurt the smaller resellers. Consequently, those resellers have turned to the UAE to directly import in order to get equal or better prices."While the extent of inward investment made by IT distributors will shape the market, it is more likely that the ability of the channel to perform will be influenced by the commitment of vendors.

Networking vendor Cisco recently doubled headcount at its Technical Assistance Centre in Jordan to 55 engineers in a boost for the market, while the likes of Microsoft, HP and Acer have also invested in local resources.

But, as a general rule, the majority of IT vendors appear satisfied with directing affairs from Dubai - at least until the capacity of the market warrants a strategic rethink.

Borini at ISS insists that a vendor's commitment to the Jordanian market isn't simply dependent on how much office space it obtains, however.

"I think we need more focus in Jordan as there are many times when we see that programmes in the Gulf region are not applied here," he lamented. "Also, the scale of the business expected from the vendors when executing targets and programmes often fails to consider the size of the market."

Should the Jordanian market maintain its promising ascent, it may even cure one of the age-old problems facing the channel: the emigration of local IT talent.

"Jordan has some of the most qualified people in the region, but unfortunately they prefer to go to more mature markets like the Gulf where they are offered better packages and greater exposure to international companies," protested one source.

If the level of foreign investment continues to rise and the multinationals further reinforce their local presence, it could just be that the Jordanian market is worth staying around for.

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