TOP TRENDS IN CHANNELS: Evolving To Survive — II

In the issue dated December 1-15, 2004, DQ Channels highlighted the evolution

of channels over a period of time giving the distribution business a new

outlook. In this article, we take a look at how solution providers innovate to

make that extra buck and grow within the community. Here is an enumeration of

the trends that germinated in the recent past.

Necessity is the mother of invention" — These are the great words of

an ancient Greek author and philosopher Plato way back in 400-300 BC. What he

meant was that a need or problem encourages creative efforts to meet the need or

solve the problem. The problems and challenges are the same for all businesses.

The channel community is no different. However, over time, this breed of

technically sound businessmen have given their own perspective to the age-old

adage. For them, 'Innovation is the food for survival'. 

The ones who focused on innovation for its growth, survive in this

competitive market. Innovations are not just enough; what also matters are the

ways innovations are put to use. To make that extra buck, the channel fraternity

explored hundreds of ideas in the past. There was only one goal - to grow

profitably. Some worked - some failed!

SLOW DOWN STARTED IT



A few years ago, when the world was passing through a slow-down, IT was the

most affected. It was at that time, when companies began to realize that all is

not well. Even organizations with the best of processes and planning felt the

need to think differently. However, this uncertainty taught many companies to

become organized. Some started with the usual cost-cutting methods like layoffs

and trimming overheads. So did the channel community.

Talks about the cost-cutting exercise adopted by many vendors rang the bell

for many channel partners. Firms operating without any processes started getting

a little organized. And in a couple of years, things were rosy again.

But, surviving in a rosy market is as difficult as surviving in bad times. A

better market meant increased competition. When the going gets tough, the tough

get going. This is exactly what happened in the last few years. The weak ones

withered off. Some partners moved out of the IT business, some got acquired,

some merged with the strong ones, some are on the verge of closing down and some

continue their struggle to sustain.

THUMBS UP FOR 'VALUE-ADDITION'



Increased competition also saw unhealthy competition among partners. Each

one tried to cross each other by undercutting prices. In the race to gather

volumes, channel partners were forgetting the bottomline. Winning deals at any

cost and then waiting for a turnover incentive at the end of the month or

quarter from the principle became a trend.

Thinning margins put some of the big names in distribution business at stake.

Distribution at tier-one was becoming unviable. Here came innovation. To

increase profitability, one after another, everyone started concentrating on

value business. Value-addition was the mantra. Tech-Pacific started it, followed

by the rest.

Today, most of the top distributors have created some value division aimed at

increasing margins. And the positive development of this strategy is that most

of them generate about 15% to 30% of their revenue from the

value-divisions. 

MERGERS AND ACQUISITIONS



As time passed by, industry analysts opined that consolidation is reshaping

channels and will continue to do so in 2005, even if the market does well.

Declining margins is something to be blamed. Those companies wanting to

concentrate on high-margin divisions sell off their low margin business to

financially stronger companies. Stronger companies absorb the losses and add to

its strengths.

Declining margin is something, which channel partners face everyday, but when

it happens to big companies, it becomes news. IBM sold its PC business because

it was less profitable and they wanted to focus on its other profitable

business. A similar situation triggered off some of the big mergers and

acquisitions in the distribution business. The last few months saw some big

mergers in the history of IT channels.

It all started with the merger of Tech Pacific with Ingram Micro, then

Neoteric Informatique selling 50% stakes in its Singapore-based

subsidiary-Neoteric Asia Pte Ltd (NAPL) to Prasad Mamidana who last year bid

goodbye to Ingram Micro. This was followed by the Taiwanese major Synnex

acquiring around 36% stakes in Redington India; Frontline's merger with Accel

ICIM and most recently Rashi Peripherals taking over Zeta Technologies' agency

operations. While there have been mergers and acquisitions happening at one end,

few big names like Almasa, Innovative and Quantus entered the distribution

scene.

THE RETAIL BUG BITES



IT retailing market in India witnessed a growth between 2002 and 2004.

Channel players were investing big money in this segment. Even during the

economic slow down, vendors were focused on getting their partners to go retail.

Higher margins on retailed products emerged as an attractive option for the

channel community. IT products started finding their way into white goods

stores, stationery shops and even shopping malls.

CREATION OF NICHE



Another trend that emerged last year was the shift in the business of

systems integrators. Just like the 'value-addition' part that happened in

the distribution business, few good systems integrators scaled up to become

end-to-end solutions provider. Eventually, every system integrator will have to

follow the solution providing route.

The strong SIs with the right people and financial strength has metamorphosed

into giant companies, with complete ICT expertise. The key to their success was

its focus on the acquiring and building on a particular expertise.

Some solution providers focused on providing complete solutions, either

solely or with the help of other industry partners. Instead of specializing in a

particular area, they focused on the customer segment - industry verticals

such as BFSI, government, education or BPO.

BROTHERS IN ARM



Large companies with branches spread all over the country prefer to work

with a single solution provider than many. This makes it difficult for smaller

solutions providers with their presence in fewer states to win deals. At the

same time, not all have the complete expertise to provide an end-to-end

solution. To overcome this inadequacy, solutions provider came up with a novel

idea - mutual help.

The concept of leveraging on mutual business interests kicked off

successfully with solution providers coming together to provide complete

offerings to customers. Similarly, solutions providers with no presence in other

states started offering solutions with the help of other industry colleagues

present in those states. This also gave small systems integrators a chance to

provide solutions to bigger companies through jobs assigned by their bigger

counter parts.

GOING PLACES



Some channel partners including distributors and solutions providers have

established direct presence in up to 40 cities across the country. Some have

created indirect presence in over 150 cities. For them, this is one way to grow

their business by exploring virgin or less explored cities. According to them,

these are cities with high growth potential. However, they have not ignored

metros, which is still the highest growth region for any channel partner or

vendor.

In its quest to explore newer business opportunities, some have even gone

global. The sign of this becoming a trend is not far off.

Places like US, UK, Middle-East, Africa, Singapore, Malaysia, and other South

East Asian countries are some places where different SIs have set up their

operations.

NELSON JOHNY

PROMINENT CHANNEL TRENDS