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Tue 1 Nov 2005 04:00 AM

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Time to market

What’s the length of time between an African distributor operating out of Jebel Ali placing a product order with a vendor and eventually delivering the kit to an end-user (and getting paid for it)? Go on, have a guess.

What’s the length of time between an African distributor operating out of Jebel Ali placing a product order with a vendor and eventually delivering the kit to an end-user (and getting paid for it)? Go on, have a guess.

It’s a very long time in an IT market where products evolve at lightning pace and prices change on an almost daily basis. And it’s still so long that it’s wreaking havoc on distributors’ ability to finance sales expansion and achieve a decent return on capital employed.

I spoke to one East African distributor recently about the time it took from committing to purchase a product in Jebel Ali to eventually delivering it to an end-user in countries such as Kenya, Tanzania or Ethiopia and receiving payment for the goods. The answer was a staggering 90 days when you consider the credit terms given to customers — sometimes even longer depending on factors such as customs and logistics problems. The same is true for product destined for North Africa as well.

90 days! That’s one whole quarter of a year, and if this truly is the case, it is little wonder that distributors are struggling to finance sales expansion in Africa, hold stock on the ground and encourage in-country second tier channel development. Imagine how much capital is required to grow a business that has four inventory turns per year. Imagine how much capital is tied up if a distributor decides to develop a local stocking point and hold a decent amount of kit.

How does the 90 days break down? First off there’s the time between placing the order in Jebel Ali and receiving the kit. Typically, shipments then have to be consolidated into containers before being shipped out of Jebel Ali. The transit time itself is longer than 20 days and then there is the interminable wait for the product to clear customs in Africa. After this, the product has to be moved on the ground before eventually being supplied to the customer.

A great deal can happen in 90 days. Product prices can deteriorate rapidly, customers can change their mind or alternative suppliers can source the product from somewhere else — often resorting to grey product — in order to steal the deal. When all is said and done, product lead times that stretch to 90 days increase the financial burden for distributors in these markets and also make forward planning an absolute nightmare.

Vendors need to be aware of these issues and help the genuine distributors attempting to grow business in emerging markets such as North and East Africa. They need to show an understanding of the current limitations that exist and support these partners in terms of the prompt payment of rebates. They also need to look at the possibility of drop shipping product in-country to ease the financial and logistics burden for in-country distribution partners.

It is too easy for vendors to say that these markets lack the critical mass to justify the financial investment required to support distributors on the ground. Failure to make the necessary investment is an invitation for grey channels to flourish and authorised distributors to become increasingly disaffected about the value derived from driving legal business and long-term channel development policies.

In many ways, Africa remains one of the last untapped regions in terms of genuine channel development and the formation of meaningful partner structures. The product flow remains chaotic, availability and service remain major issues and the actual demand for products — driven mainly by government and large account tenders — can be spiky.

The tenders themselves also remain cause for concern in Africa. In the European Union, it is now illegal for governments to specify a particular brand in tenders. To get round this, it is possible to put down such a detailed specification in terms of component speed and feeds that only one vendor has the product that matches the requirements. This still appears to be the way that tenders are set up in many parts of Africa according to informed sources on the ground.

East Africa and North Africa have the potential for tremendous growth and vendors need to stand up and be counted alongside the distributors they believe have the will and the ability to drive market development. This means providing financial assistance, marketing support and developing channel models that take into consideration the unique characteristics of the market at present.

Simultaneously, vendors need to clamp down on the product flows that are undermining this drive for in-country channel development — be it grey, black or even fake. Africa remains a difficult continent to get to grips with and understanding the pricing and channel dynamics at work is a tough challenge. Those vendors that wake up to the possibilities first — and work alongside their channel partners to address the challenges that exist — will be the ones that reap the greatest long-term rewards.

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