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Sun 17 Feb 2008 01:22 PM

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Power play

Middle East information technology distributors could be forgiven for feeling apprehensive about what the future holds for them.

Middle East IT distributors with any inclination for keeping an eye on proceedings in more developed markets could be forgiven for feeling mildly apprehensive about what the future holds for them.

Intense consolidation among larger players and the disappearance of more modest contenders that have fallen victim to scale - coupled with an overwhelming penchant among vendors to streamline their distribution channels - has led to an unsettling few years for IT wholesalers berthed in regions such as Western Europe.

Of course, such pressures and competitive challenges are not foreign to distributors in the Middle East - far from it in fact. You only have to look back on Tech Data's remarks when it exited the market last year and listen to local distribution bosses lamenting wafer-thin margins and over-dependence on vendor rebate programmes to understand the effort it takes to make a distribution operation run profitably.

Yet, for all the usual enduring concerns and fears, and even taking into account the trends that have come to typify those established markets I've mentioned, the role of the Middle East distribution is becoming more, not less, important. Consequently, the need for a distribution channel that is healthy, competent and, above all else, diverse, remains as poignant as ever.

With many vendors preferring to operate scaled down operations in the region, distributors are commonly performing more than just a basic product supply function, while the desire of these same vendors to create a footprint in multiple markets is equally pertinent to the vibrancy of the sector. Furthermore, the explosion of a consumer sector dominated by physical retail outlets is a perfect foil to the durability of the commercial market when it comes to driving demand for distribution services.

Factor all this into the equation and it is not difficult to see why there are at least 25 pure IT distributors in the Gulf region achieving more than US$40m in annual sales. Furthermore, the majority of them are adamant about the steps they need to take to enhance their propositions and increase competitiveness.

If you need proof of this then make sure you grab a copy of the forthcoming issue of Channel Middle East, and feast your eyes on the 2008 Power List. The Power List - which is now in its fourth year and features a comprehensive rundown of the largest Dubai-based distribution houses and leading wholesalers in Saudi Arabia - provides a compelling insight into the strength of the Middle East distribution sector.

What's clear from this year's Power List is that there are some formidable distribution companies in the region providing a deep reach into a number of difficult markets and serving a sprawling sub-distribution and reseller community.

Distributors' objectives are dramatically changing too. The emphasis now is on cultivating a high touch relationship with key reseller accounts, automating more of the business and putting together programmes that truly keep dealers engaged. Channel development has become central to the distribution game, although it's also noticeable that wholesalers are taking an increasingly measured approached when it comes to deciding which vendors they align with. The days of tying up with somebody just to add another zero to the top-line are drawing to a close.

While there are myriad opportunities for growth, the distribution channel is by no means naïve when it comes to the battles it faces though. As one distribution source said last week: "The challenges are the rising costs of operating a distribution business versus the pressures on margin. There needs to be a minimum turnover per head to justify the cost, so that means having a slicker operation and a more automated operation."

Given the increasing sophistication and efficiency that the region's leading distributors are visibly building into their operations, such challenges are likely to be regarded as just another set of hurdles that must be cleared in the ongoing race for profitable growth.

What are your thoughts on Middle East IT distribution? Do you think the distribution channel is in good shape or is it losing its significance? Contact me on +971 4 3910 889 or andrew.seymour@itp.com

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