By Alex Malouf
Vendor financing enables channels to capture business that otherwise would be out of reach. Despite the allure of growing beyond capital constraints, Middle East channels have been slow to take up the potential of vendor financing and offer schemes to customers. The flexibility of such programmes can tip the balance in favour of one particular vendor.
Financing benefits|~|farid-sabbaghside1.gif|~|“We believe that those further down the channel should be the ones to offer finance, particularly resellers, as they have the final call on the deal,” says Farid Sabbagh, channel manager at Fujitsu Siemens Computers|~|Finance is of huge importance to the channel particularly when business is booming. In the Middle East finance between channel tiers is common and very popular but end-user financing seems to be a mirage in the desert. There appears to be little interest and even less market demand for customer financing. Long-term payment plans — a popular option in other parts of the globe for both large corporate deals and also everyday consumer sales — have been largely overlooked by the channel in the Middle East.
The benefits to be gained by using finance are varied. Channel partners can expand beyond capital structures and do deals that would not have been possible when not using financing. Customers, especially corporate clients, appreciate the flexibility which is inherent in credit schemes. It is a win-win situation for all those involved.
End-user financing may appear complicated, but the process is straightforward. Michael Collins, general manager at Dell Middle East regional business, explains: “Financing is actually very simple. It is just a matter of the approval process. After that it is almost as if the consumer is going to get the finance themselves by agreeing to the proposed rate and the pre-paid contract.”
Customer finance can be broken down into two areas: credit for consumer purchases and financing for corporate enterprise tenders. Interest is increasing for consumer deals such as purchases of PC systems and laptops. Financing methods are available and are popular in countries such as Lebanon where there is a growing population with no fixed income (such as students) and a strong banking sector. “Our retail outlets, such as Computer Care and Jumbo Electronics, have installment-based promotions through banks,” explains Farid Sabbagh, channel manager at Fujitsu Siemens Computers (FSC). “Anybody can buy a laptop and choose financing. They can select a 24 month payment option. This is very successful in Lebanon but not in the GCC.” ||**||Difficult Climate|~|krishnamurthyside2.gif|~|"It is a case of us coming up with innovative ideas and we try to manage the risk on behalf of financial institutions,” explains Krishna Murthy, general manager at Acer Middle East|~|The Gulf has proved unreceptive to consumer financing partly due to shopping habits. “If you look at the Lebanese market, where financing has been successful, if the consumer wants to pay US$1000 to US$1500 in one go then they will struggle. But in the GCC this is not an issue as it is not so difficult for an end user to put that kind of money on the table and negotiate a discount with the reseller. There is financial liquidity in the Gulf and incomes are much higher. Financing is not required as people pay for purchases in cash.”
Another obstacle to financing in the Middle East in general, but particularly the Gulf, is the attitude of financial institutions. It is common practice for corporate tenders to include credit facilities and for customers to pay after a certain time. Issues arise when finding a backer to underwrite these large deals. In countries where the banking sector is developed such as in Lebanon, financial assistance is easy to come by. But in other locations finding a bank to provide help can prove difficult.
Despite being faced with major obstacles from financial institutions, Acer’s channel partners have won a raft of large tenders from corporate and government institutions. “There was an agreement between one of our partners and the Higher Colleges of Technology (HCT) for 2,000 PCs,” says Krishna Murthy, general manager at Acer Middle East. “A tender was signed but the bank wanted more assurances. We had to come up with a solution for the deal to proceed as the bank was not interested. It is a case of us coming up with innovative ideas and we try to manage the risk on behalf of financial institutions.”
Enterprise customers and consumers do have some choice when it comes to financing, but there is very little in the way of SMB financing. One or two governments do aid the SMB segment with offers and financing incentives, taking the onus off the channel, but in most of the Middle East there is a woeful shortage of credit options for a sector clearly in need of financing.
“The SMB market is difficult from a requirements perspective,” surmises Michael Collins at Dell. “Large customers want installed products and a means to improve all elements of managing and owning their hardware. Right down at the bottom, consumers are concerned about disposable income and the channel should be making it easy for people to afford purchases. In the middle there is a wide space and I don’t know how attractive financing would be in the Middle East for small start-up companies.”
The SMB space in the UAE is benefiting from access to financial programmes which are backed by the country’s rulers. These SMB programmes are very pro-active in their communication with small and medium sized businesses and they offer attractive loan packages at low rates. The channel has been slow to respond, but with the terms offered by the government-backed schemes there is little incentive for vendors, distributors or resellers to offer similar schemes. A fixed repayment time of 30 days is offered by some specialist SMB resellers but there is little else to choose from. HP has included plans to offer finance schemes as part of its SMB initiative but as yet the vendor has not come up with the financing goods in the Middle East.
There is debate among vendors as to which tier in the channel should offer customers financing options. Most vendors in the region pass on the responsibility to distributors and resellers. “We believe that those further down the channel should be the ones to offer finance, particularly resellers, as they have the final call on the deal,” says Sabbagh. “If it is a big deal, we will manage the negotiations. But mainly we keep this to the reseller.”||**||Who drives the channel|~|Michael-Collinsside3.gif|~||~|A few vendors disagree with this line of thinking, most notably Dell. The American giant is famous for its direct financing schemes in the US and Europe, where it offers financing directly to customers via the internet or through telesales. Dell has been investigating the possibility of setting up similar financing schemes in the Middle East.
“Typically a vendor should take responsibility for offering financing directly to the end-user and drive the market accordingly,” says Collins. Vendors will take a minimum risk on financing large deals. But even a champion of vendor financing like Dell is struggling to push through its philosophy in the Middle East and push through vendor financing schemes regionally.
“Given the fact that there is no market demand and it is not very popular, what has ended up happening is that financing has been addressed by our partners on a country-by-country basis,” explains Collins. “Aside from Lebanon, financing is not popular in the Middle East. Despite Dell being globally strong in finance, we haven’t invested time in creating finance programmes for our customers here.”
An answer to breaking the Middle East’s apathy to financing schemes may be found not in Europe but to the East. Acer has brought in security assessment experts from India to reassure local banks who are not accustomed to working on consumer financing programmes. Acer’s Krishna Murthy explains: “One matter which we must consider is the default rate. Bankers cannot judge this accurately as what we sell is a consumer item. So what we have done is to bring in experts in insurance and specialists in risk management for consumer finance from the New India insurance company. There are millions of consumers in India, and these people have a vast amount of experience in managing financial risk taking. We have worked with them to finalise a fine premium percentage which has made the whole financing package easier to implement with the banks.”
With vendors not so eager to effect changes in the market, it is up to customers to press for financing options. Corporates must lead the way here, as they have the muscle to change the way that business is done in the channel. This is apparent in the bidding process for tenders from governments and large corporations. Large companies stipulate the financial terms under which they will do business. “With government and enterprise deals, they tell vendors what they want — credit facilities and payment after a certain number of months,” says Sabbagh at FSC. “It is always in the tender and we have to give them what they want. We cannot say ‘no’ due to the size of the business but obviously it costs us money.”
If customers see vendors going that extra mile to offer them a good deal, then it seals their relationship with that company and sets them apart from the rest of the industry. Consumers should also be pushing for more financing options at low interest rates, to increase their purchasing power and gain a value-added service from the channel.
The channel should see financing programmes as a goldmine. It ties customers into a relationship with a certain company and brand. Financing turns what should be a one-off deal into a long-term commitment by the customer to the vendor, increasing the possibility of adding revenue from that client. FSC’s Sabbagh explains: “Fujitsu-Siemens Computers is a hardware vendor. In most projects, our customers are not only buying a box. They want people to install the hardware, to give after sales support, services and maybe integrated solutions. So we need to work with our partners and get them to give us support.”
As the IT market in the Middle East becomes more crowded, customers of all types will be looking for value-added services. Vendors who are biding their time in offering finance to end-users should note that others are drawing up plans to offer customers more purchasing flexibility and a raft of choices for how they pay.
“We at Dell will wait for a while to introduce financing into the consumer space as the need is not there at the moment,” says Michael Collins at Dell. “But I am certainly very interested in exploring financing options with our large corporate customers, to see what interest there is in improving procurement management and ownership. It is more than just financing. Through financing’s byproducts customers will gain a whole host of benefits.”||**||