Think small - choosing the right vendor

What benefit is there in retailers and distributors working with smaller vendors? Channel Middle East recently hosted a workshop and this question was one that inspired heated debate.
Think small - choosing the right vendor
By Julian Pletts
Sun 24 Aug 2008 04:00 AM

What benefit is there in retailers and distributors working with smaller vendors? Channel Middle East recently hosted a workshop and this question was one that inspired heated debate.

It is an interesting one as it has been boiling under the surface for sometime thanks to the IT market in the region experiencing such rapid expansion. It is clear that retailers in the Middle East, particularly in prominent markets like the UAE and Saudi Arabia, focus on big name products. It seems an obvious choice: go after the HPs, Toshibas and Acers because their brands are strong and they are almost guaranteed to shift boxes.

The problem is, for the channel, that is a crowded road to take and you can all too often end up gridlocked in a vicious price war with competitors. This situation is made all the more tense when vendors continue to loudly trumpet the differentiation tune.

In this scenario, distributors might be better off thinking small for a change, since these vendors can offer them a better way to carve out a unique path by offering products that no one else does.

Every year the region draws a wealth of smaller vendors that are looking to establish their brands in the Middle East. Normally, the first step they take is signing a distribution partner that has the market experience and know-how to represent the company.

This is not just the case in the consumer sector. Take the enterprise networking sector for instance. There are not many months that go by without distributors like FVC announcing that they have inked contracts with manufacturers from outside the region to work as sole representatives.

But this willingness of the distribution channel to work with vendors that don't have a name in the region is not always forthcoming. In fact, many take a rather hard line. Instances have recently come to light when smaller vendors have approached some of the major Middle East distribution houses and found them to be less than open-minded, demanding the vendor guarantee at least US$1m of sales a month.

This target might be achievable for larger vendors but it is not realistic when it comes to niche manufacturers. In other global markets such as Europe, distributors would not generally set such unreasonable targets, and would do everything they can to convince the vendor that they would add as much value as possible.

Fierce competition in the Middle East forces distributors to ask for such a guarantee, in an effort to safeguard their position. Many do not realise that the best way to offset competition is to sport a balanced portfolio, one that combines mass products with the more niche items. This is where the larger global markets have gone and as the Middle East market continues to mature a mixed portfolio is something distributors have to consider especially, as working with smaller vendors can often be a valuable investment.

The first value, as already stated, is differentiation in offering a product or service that no one else does. Also, smaller brands often provide a strong unique selling point and offer the retailer greater margins on their investment.

Then there is the control that the distributor will have over the evolution of that product and its brand in the region. The distributor will be afforded a larger role in the development of the brand and any growth the brand sees will directly correlate with its own success. This, it is hoped, will precipitate a longer-term relationship between the vendor and the master distribution partner.

Of course, working with small vendors comes with its own pitfalls. There have been instances when distributors have put a great deal of time and money into developing the awareness and breadth of a new brand in the Middle East, only to see that partner jump ship when the region becomes big enough for it to warrant a greater presence.

Nevertheless, as part of the call for differentiation, it is short sighted to count out any avenue or possibility for an edge over the next guy. It is even more relevant as some large vendors, with the power to pull more strings, are calling for a greater level of solutions selling from the retail channel and ironically, developing a mixed portfolio which includes small brands is one important way to do this.

Distributors need to be more open to delving into product areas previously unexplored. They do need to be careful about how much they invest in smaller vendors because there are potential problem areas, but if they sidestep these issues, signing some lesser-known names might just be a gamble that really pays off.

Julian Pletts is the assistant editor of Channel Middle East.

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