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Evolving to Survive

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DQW Bureau
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Value addition has become the name of the game in the struggle to get bigger

and better in the distribution business, a surefire strategy to get that edge

over the rest

Four years ago, when Tech Pacific, now part of Ingram Micro, created a value

division within its organization-the first of its kind for any national

distri-butor-the feedback was more sceptical than positive. Some characterized

the decision as the company's "moving away from its core expertise".

However, with falling prices and margins, there was no better way for the

distributor to ensure profitability. Others didn't take long to follow suit in

setting up their own value divisions: Micro, SES Tech, Neoteric, Iris and Rashi

Peripherals. 

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The last few years have seen IT distribution take on a new avatar as pressure

on margins increased: the entire channel right from Tech Pacific at the top to

the smallest reseller at the bottom of the distribution chain, took another look

at their business model. The result was the transformation of few top national

distributors into value-added national distributors.

Today, of the 12 truly national distributors, at least eight are into

value-added distribution. "Distributors are seeing the benefits of this

model and trying to build one that has higher margins," said K Jaishankar,

CEO, Tech Pacific. For some, it is adding a basket of products that ensure high

value addition. For others it is providing pre-sales and after-sales support and

technical know-how on integration of the products.

Yet others specialized in specific product categories, while a few have

chosen to provide industry vertical expertise. Setting up proof-of-concept

centers and engaging certified personnel within the organization are other ways

of how distributors have added value to their business.

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"A value-added distributor enabled systems integrators in providing the

right solutions to customers. It is in no way com-peting with the solution

provi-der by doing direct business with buyers," said Jaishankar.

"Selling value products as a business is surely growing. The market is

demanding value proposition in every products they buy. In coming years, selling

value will play an important role than selling the products," said Krishna

Prasad, CEO, SES Technologies.

Moving away from the traditional "push" approach of a box mover to

the pull app-roach is not an easy task.

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According S Narendran of TVSE, most distributors have not taken up

value-added busi-ness consciously, but have been forced into it because of the

nature of the products and principals they have tied-up with.

Some traditional solutions providers, who usually don the role of a value

provider, have their doubts about following this model though. Gaurang Bhat,

Director, CDP India, a Mumbai-based solutions provi-der informed, "There is

no doubt that 'value-addition' is the need of the hour. But doing both

volume distribution and value distribution is not easy."

While vendors evaluate a distributor on the basis of his reach, logistics and

financial capabilities, there are many companies who do not have their official

presence in the country. For such vendors it becomes all the more impo-rtant to

have distributors who will do that extra bit to push their brand. In such cases,

distributors are the ones on whom systems integrators can depend on for the

know-how, and who can in turn pass it on to customers.

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Integration to Provision



While distributors wear the value provider hat, another trend that has

emerged in the last couple of years is the shift in the business of systems

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

distribution business, smaller systems integrators have scaled up to become

end-to-end solutions providers (SP).

The strong SIs with the right people and financial strength have

metamorphosed into giant companies with thoro-ugh ICT expertise. These include

Allied Digital Services, Ontrack Solutions, Orient Technologies, Omnitech

Info-solutions, SK International, Wysetek Technologies, Sai Info Solutions,

Accutech, SK Inter-national, KayBee Infotech, Team Computers, Nirmal Data-comm,

Lauren Technologies, and many others who have created a niche in providing

end-to-end solutions; be it networking, storage or security solutions.

"The thin line that diffe-rentiates a systems integrator from a solution

provider will soon disappear," said Rajeev Mittal, Director, small and

mid-market solutions and partners, Microsoft. According to him, the entry of the

latest techno-logy is bringing in newer players to the market, thereby

increasing competition. This is also making existing players invest in the

skill-up process. "However, what will drive each one's business is how

efficie-ntly they take care of the custo-mer," said Mittal.

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Any SI getting into the solu-tions business will have to learn patience and

gear himself for effective response manage-ment, efficient servicing

capa-bilities through onsite support, sharing knowledge through continuous

training of perso-nnel and educating customers.

Consolidation at the Top



All that talk about consolida-tion in the distribution indu-stry came to a

head with the most important event of the year in the history of IT

dis-tribution-the announcement that Ingram Micro had acqui-red Tech Pacific.

The complete integration of the two com-panies is expected soon.

With this development, channel partners are a confu-sed lot. They are worried

about the credit policies of the new entity. Resellers now have fewer options in

terms of being able to pit one distributor against other, helpful in bargaining

for better business terms.

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However, Jaishankar of Tech Pacific expects the impact of the merger to be

positive, assuring channel partners that the new entity will continue to give

them the highest level of commitment, just like it used to before. Whilst this

happens, other smaller distributors are hoping to become strong players in terms

of finding favors among principals.  

Though mergers and acqui-sitions have become a way of life outside India, the

same may not happen frequently here in the channel business, purely for the

reason that existing companies here do not have any real value to offer, either

in terms of R&D capabilities or a unique asset base for acquirers.

However, what industry obs-ervers feel is that weaker distri-bution outfits

may get weeded out. "But, this surely is not going to be trend," said

Tejas Shah, Zeta Technologies. Che-tan Shah of Xpress Computers feels

consolidation is good.

Squeezed between the consolidation of distributors and the shift of SI and

resellers to solutions providing are tier-11 resellers, also called

sub-distributors or master resellers. Industry experts believe that the going

will get tough for this tier.

"Sub distributors are certa-inly under jeopardy as they do not bring in

any significant value-addition other than stocking/availability and as the large

stockists today follow a direct marketing model, there is no space to co-exist.

Rese-llers, on the other hand, will be conduits to reach the user and will

therefore flourish. Perhaps they will be forced to specialize in select

goods/segments to sustain their presence as the situation evolves," said

Sujit Singh of Dax Networks.

Echoing the same senti-ments Chetan Shah said, "The number of people in

this tier will decrease. Financially stro-nger companies will survive, while the

remaining will choose to close down because of the thin margins."

Resellers like Creative Com-puters and Pacific Infotech, Mumbai-based

companies that have traditionally been hard-core resellers, have scaled up to

involve SI activities in their organizations. A few others like Radiant, SP

Technologies and JayDee Electronics have gra-duated to become master resellers

for various brands.

A few master resellers aspi-ring to become national distributors are also

slowly upgrading their infrastructure and logistics. "From being a city

player to become a nati-onal player is not an easy task." Said Narandren of

TVSE. Today most national distributors have a network of at least 30 bran-ches

across the country.

Acquiring these numbers required enormous effort and patience from master

resellers and sub distributors.

The market also saw the arrival of regional distributors (RDs), but this

concept did not gain popularity, with vendors sticking with the ND model for

their distribution require-ments. The RD model was envisaged as a

"kick-starter" for many small resellers to grow big. LG Electronics'

policy of appointing RDs throughout the country helped them establish a name for

them-selves in the market, with many never-heard-of resellers getting a chance

to come in to main-stream distribution.

However, LG's policy of continuously evaluating its RDs on performance saw

the exit of non-serious players and the entrance of newer upcoming resellers.

Beyond the Metros



Another important trend that has become very pronou-nced in the last two

years was the emergence of smaller towns and cities as potential markets. These

markets are growing at a good pace, tho-ugh the metros are still a better place

to get volumes.

"In the midst of high competition in the metros, distributors are

proactively trying to reach out in smaller cities and towns as these areas

represent high growth and a untapped market segment for many of them,"

informed Shah. Sujit Singh also agreed, "Distributors are steadily making

investments in all the necessary resources to elevate and manage themselves to

meet the end-to-end solutions of end-customers."

Over the years, most NDs have created a presence in most big cities to

leverage this opportunity. However, the top 12 NDs put together cover only 30-40

percent of these growing cities. "About 60-70 percent of the market is yet

to be explo-red," said Narendran. Which essentially means, NDs have a long

way to go. "The sooner they explore these regions, the better their chance

to enjoy the fruits of these untapped markets," he added.

The survival-of-the-fittest process means ambitions run high too: there are

10 or 12 national distributors today, with a set of over 3,000 sub-distributors

aspiring to bec-ome national distributors, followed by a large number of

resellers waiting to become master resellers, often inching towards systems

integration hoping to become complete end-to-end solutions provi-ders. And

survival will devolve only upon the ones with the most to offer.

Nelson Johny in Mumbai

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