Opinion

To consolidate or not to consolidate?

The calls are not just getting louder but come at a time when more distributors in the Middle East are getting exposed financially and are finding out that credit insurance premiums have gone up, while most distributors have come to discover that their credit limits have been cut.

 

Having weathered the channel credit crunch in 2009, distributors in the Middle East region have had it tough and those that have stayed afloat have had to achieve this by streamlining their business model and operations.

 

Is consolidation the answer and perhaps long overdue in the Middle East IT distribution sector? Should regional distributors consolidate their operations to become more relevant and compete on a global level with multinational distributors like Avnet Technology Solutions or Westcon?

 

While there are no easy or straight forward answers to the questions raised, a confluence of factors suggest that a consolidated distribution industry with fewer players would benefit the Middle East IT channel more than having a proliferation of players that are not only diluting their own margins but are constantly engaging in meaningless price wars.

 

Having many players in the distribution sector in the Middle East IT market weakens regional distributors more than it does to their multinational counterparts. Any addition to the number of distributors has an effect on the whole sector in that the smaller, weaker ones tend to disrupt the channel by chasing after existing deals and not growing the market through new clients, transactions or geographies.

 

So, as the Middle East IT market continues to evolve with the retail sector taking centre stage, most IT vendors are seeing and using the retail channel as the preferred route for selling a lot of their commoditised and, plug and play IT products. The “super” retailers in the region not only have capacity to hold stock is some cases, but have greater footprint giving vendors the region wide exposure and reach they need.

 

With the retailer sector and super retailers emerging as the alternative “distributor,” smaller independent, regional distributors and sub-distributors will find doing business in the Middle East a lot harder going forward as they will not be able to compete with these retail powerhouses in the region.

 

By consolidating the distribution sector, the IT channel will not only see stronger and more resilient entities that will enable future growth but also reduce the over distribution and dilution of vendor brands in the Middle East.

 

With most multinational vendors, such as Cisco, which over the years has been leading the pack in streamlining its distribution channels in favour of fewer partners that have a global or multi-region footprint, it is vital for distribution powerhouses in the Middle East to start thinking along universal lines if they want to remain relevant to their vendor partners.

 

As I would like to engage more with you, please let me know what you think about consolidation in the Middle East IT distribution sector. I can be reached at manda@cpidubai.com

 

This is not new but the question whether IT distribution in the Middle East region should consolidate or not continues to linger. As signs of a turn-around in IT spending slowly begin to show, there has been increasing calls on regional distributors to consolidate their operations.

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