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Sun 6 Jul 2008 02:14 PM

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One false move

The Middle East IT domain has for the last ten years become an increasingly attractive prospect for international vendors.

The Middle East IT domain has for the last ten years become an increasingly attractive prospect for international vendors but it seems that only recently have many decided to dip their toe in the region's pool. A great many of them have been aiming to get the best of both worlds - penetrating the market through the sole representation of an agent or distributor whilst not investing too heavily in infrastructure, such as a regional headquarters.

For instance earlier this year Packet Design began addressing the market with lone representation from UAE-based distribution house FVC. The distributor also oversees the distribution for video conferencing vendor Polycom, which has yet to set up camp here. Russian networking security provider Kaspersky Labs is another good example as it harbours offices in the larger global markets but relies on distributors such as Comguard and Golden Systems Electronics to make its presence felt in the Middle East.

However, there are also those companies, often the larger multinationals that address the region's market with all guns blazing. They decide it is best to move staff en masse and will immediately establish an office somewhere like Dubai's Internet City or Silicon Oasis. Vendors often accompany this approach with a huge press conference and the naming of multiple partners to cover the major markets and many of the smaller ones.

One of the most important judgements vendors have to make when looking at entry tactics is channel strategy, whether they are a huge conglomerate or small specialist. It's possibly one of the most significant calls regional managers will ever have to make. If an entry plan is ill-conceived or the parameters of a partnership not properly laid out then at the very least a vendor will struggle to gain traction in the region.

Take the example of SAP AG which famously signed a representation and distribution agreement with unrelated company SAP Arabia. For those who do not know the signing was originally agreed for a period of 20 years, was highly restrictive and among other problems featured no get out clause for poor sales performance. To cut a long story short the upshot of the partnership was that the pair became embroiled in legal battle that eventually saw SAP AG buy its way out of the contract. So the moral of that story is vendors moving into the region have to be very careful about the terms of partner contracts. And from the partner's perspective it is unwise to promise a level of coverage or sales figures that it is unable to deliver.

Not only do vendors have to consider their partner strategy they also have to decide whether to open a local office, install a small staff or even hire a single person to oversee its regional work. The latter example was the tactic unveiled by Cyberoam this week which has announced the appointment of Surender Bishnoi to the newly created position of head of channel sales for the Middle East region. Prior to hiring Bishnoi, Cyberoam has been working in the region solely through the channel and says that instating him is part of increasing its efforts in the region.

This staggered approach to tackling the region is not going to create waves overnight but is a good way to grow a presence in the region over time, with the aid of some dedicated and carefully appointed channel partners. It is however also not without risks. After the appointment of the single representative who will be working out of a ‘mobile office' there is a short interim period of anywhere between a few months to more than a year when the vendor will not see any immediate results and it will be difficult to assess whether its approach to the regional channel is reaping the rewards.

Relying on a distributor, agent or small workforce to cover Middle East advancement is likely to be the business model that is most fitting to the niche players such as the Cyberoams and the Packet Designs. The all-out assault seems to be favored by the larger vendor but I would urge them to think very carefully about how this applies to their business.

Again there is precedent for the downside of such an approach. Recently, when 3Com's global business was suffering, it became difficult for the vendor to sustain its local office here and it was left virtually un-staffed after it saw a large number of resignations. As 3Com was actively involved in the sales cycle this left its partners with a void in the sales process.

So when the vendors talk up the attractiveness of the Middle East market and try to take a bite of the pie, I would advise them to take the time to think long and hard in the preparation stage. It is important to stress that there is no single channel and business model that will guarantee a firm footing or significant returns.

One vendor might be best gently feeling their way with the help of an established distribution partner. Installing a just a single representative to monitor and support the work of the channel could be the best way forward. Or setting up a large office to complement a distribution network, including regional and in-country distributors, might be the way to go. Whichever path vendors finally follow they must appreciate that it is more often than not the partner network that will keep the train firmly on the track.

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