BOTTOM LINE BLUES: Partners Pace Up To Business Crunch

Channel business has dropped by 30-40 percent in recent times. Partners' indiscreet pursuit of prize-winning schemes and overtrading has added to the problem. It is time partners did business according to their capacity. Any further erosion of bottom line could sound the death knell.

Partners are an unhappy lot with the overall business dropping by 30-40 percent, and in some cases, going up to 50-60 percent. Only few have managed to maintain their sales volume.

The biggest hit came in during October last year when major hardware and software users like corporates, SOHO and the SME segment started cutting down IT spends as a part of their cost reduction program. Result? Inventory ordered a few months ago, started piling up with the channels, blocking their funds.

Grave-digging schemes?

Why do vendors devise promotional schemes? Well, it is largely to increase or enhance sales. But just how beneficial are they in the long run? Take for instance, Samsung's "Mercedes se mobile tak" scheme which ran from November 2000 to March 2001. This was exclusively aimed at channel partners enticing them to win mobiles and a Mercedes Benz car.

During this period, several partners started selling sacrificing their margins under the belief that they would recover the money through prizes. Some people even discounted the selling price, hurting their own business. This is what happens when distributors pressurize their partners to achieve sales targets. In most cases, the people at the receiving end are dealers, resellers and the

SIs.

So who is the culprit in this scenario? Is it the vendor who devises the scheme to push his sales, or is it the channel partner who goes all out to win the prize, at the cost of his own bottom line?

Anil Jagasia, MD of Savex Computers feels that it is the channel that is solely responsible for this state of affairs. "Partners definitely increase sales and revenue at the time of promotions as compared to pre-scheme period. However they should try and sell according to their capacity, instead of discounting prices indefinitely."

Manoj Wanvari, Director, Growmore Computer Services too agrees with him. "Excess supply and fancy schemes are major reasons why channels often overstock. Usually it is the immature players who fall for this trap," he says.

Excess inventory pose the problem of obsolescence as well as blockage of funds. Needless to say, the Samsung scheme gave a whack to partners who tend to learn things only the hard way.

Tiding over crisis

Crises bear solutions too, which is evident from the measures some partners have taken to tide over the financial crunch. Survivors mainly resorted to different measures like controlling inventory, balancing outstanding payments and focusing on other areas of business.

One company, which put to use these techniques, is The Best. Says Sandeep Parasrampuria, Director, "We knew that the market was slowing down. We knew that the only way to beat this slump was to have a tight control over our inventory and payments."

SI and reseller Sam7 Computers and Networks, whose business has dropped by 50 percent, started focusing more on annual maintenance contracts to generate additional revenue. The company increased its AMC revenue from Rs 6 lakh a year ago to Rs 14 lakh. Says Sampath Iyengar, Director, Sam7, "We try to meet our monthly overheads with the revenue from

AMCs."

Some dealers and distributors decided to play the number game and went for expansion of their channel network. This helped them tap potential areas. But, they paid attention to choose only those partners who were financially sound. In certain other cases, it was bundling of products that balanced business.

Rajiv Sethi of Liberty Automation hit upon the novel idea of holding demos at prominent outlets on the outskirts of Mumbai. At Panvel, which is a stopover point for tourists on their way to Goa and Pune, he put up a demo center for HP computers near a restaurent. Over 3000 people visited the center for three days. Twenty walk-ins were converted into orders.

The other place that Rajiv targeted for a similar demo was a 2000-family inhabited housing colony at Nagothane. Rajiv sold 20 Compaq Presario PCs there. "The advantage of these strategies is that we are not eating into someone's market share," says Rajiv. "Rather, we expand our own market to overcome the slump. We can sell 50 PCs a month if we continue this initiative, which we will." He also points out that there was support from his principals during these demos.

In fact, vendor participation plays a very important role when the channel itself starts devising new strategies to survive. Though MNCs operating in India faced a similar slump worldwide, some of them like Samsung, HP and Compaq, have come to the help of its partners. Samsung, for example, funded its dealers for promotional ads to enhance sales in April-May.

Maintaining bottom lines

Only well thought out strategic decisions and moves would help in business, especially in a crises like this. For instance it might not be sensible to switch over to software when the whole economy is suffering.

One of the options is to seek out more profitable products and newer customer segments. Selling low-value products might not bring in more profits. Therefore, channels should start concentrating on high-margin areas like networking and services.

Also one should look for profit in every transaction. Says Umang Mehta, CEO, Roop Technology, "One transaction's loss can take away the profit of all other transactions."

In the end, what truly matters is taking a close and hard look at the bottom line. Going blindly after lucrative and high-target oriented sales schemes can, sometimes, erode one's financial stability completely.

So, before venturing into such 'promising' schemes, it pays to be a good judge. For one wrong step in business is all it takes to lose one's position in the market.

Saji M P in Mumbai