Under pressure

In SA, the cost of doing business is high, skills are expensive and hard to come by, and the sheer size of the country makes logistics management costly. Yet some industry players say government spending on ICT infrastructure, the continued strong business opportunities and economic growth in light of the 2010 World Cup, and improved education facilities are fuelling sectors of the market that have been stagnant for some time.

Are things on the up? According to local IT research group BMI-TechKnowledge, the South African IT market grew 4.4% from R43.9 billion in 2004 to reach R45.8 billion in 2005. The IT services market grew 4.8%, the packaged software market grew by 3.7% and the total hardware market grew by 8.5% in 2005. Above all, the research firm says the IT market is expected to grow at a CAGR of 5.8% to reach R60.8 billion in 2010.

Paul Booth, an independent analyst and founder and shareholder of Global Research Partners, says SA`s CAGR is, in fact, higher than the global average of 6%. "Market conditions are very favourable at the moment, and I believe our CAGR is 8% to 9%."

MANAGING SUPPLY AND DEMAND

According to local distributors, the old distribution adage of `stack `em high, sell `em low` simply doesn`t work in the South African market. Distributors today have to play a vital role as the middleman between manufacturers and resellers.

"Having the right product, enough stock, and selling at the right price is not enough to survive the distribution channel anymore. It`s all about adding value," says Gary Naidoo, MD at Sahara Computers.

"Quality products and creating and understanding market demand is what grows a vendor`s brand, market share for resellers, and business for us," says Naidoo. "Pricing remains king, but swap-out product stock, warrantee and technical repair facilities for resellers are also key ingredients in the distribution game," he says.

Naidoo says in order to sustain a healthy reseller base, distributors have to add value through incentives, training, skills development and roadmaps so that they understand how to take the products to market. And very often, it`s the incentive programmes that jolt resellers into action.

Arnold Fourie, CEO at Pinnacle Micro, echoes Naidoo`s sentiment: "Distributors have a bigger role to play than ever as value-added distributors." He says that over the thousands of registered resellers, it`s only a few hundred companies that are proactive in the market and drive Pinnacle`s business utilising its partner programme.

"The distributor today acts more like a vendor than a logistics partner. We find that the software and hardware offerings are becoming integrated and are a lot more complex to deploy. Our roles have changed in a way that we have to act as technology architects to colour in the full picture and help the reseller offer a complete solution to the customer."

CASTING THE SPELL

David Drummond, MD at Acer South Africa, says vendors have to remain lean, mean logistics machines to contain costs and ensure that there is enough margin to pass on down the chain. A vendor has to forge ties with resellers through partnership programmes and incentives to keep the numbers ticking over.

He says the secret to Acer`s success in the channel is its low operating expenses, and a good gut feel for what the market wants when it comes to product forecasting in the local market.

"When players look at the channel for the first time, they soon realise that a lot of vendors no longer manufacture their products, but are brand managers and forecasters in the market sourcing components globally and bringing products together, sometimes using a diverse group of manufacturers. Vendors have to predict what the market is looking for, and the short product lifecycle of technology products makes forecasting a thrilling experience," says Drummond.

As a vendor, Drummond says Acer finds that its resellers that are successful are the ones that drive their own strategies rather than adopting a `victim of circumstance` attitude. Resellers have to be focused on the market segment that they service, and not be too complacent with a `build it and they will come` mantra`, says Drummond.

He says that in the notebook and PC business, consumers are more confident to purchase these products directly in retail, knowing that there is service and support available from the vendor if anything goes wrong. This has greatly impacted smaller resellers, typically with a customer base of less than 50. They find that they do not push enough volume to invest in skills and high-end value added services.

AT THE COALFACE

Big, value-added resellers, such as Datacentrix and Business Connexion, describe the market as favourable. But then they have some independence from distributors because they can order products such as HP and IBM goods from international sources, which eliminates the logistical and finance problems smaller resellers experience.

Other resellers paint a different picture. Some say they often struggle to get the best pricing from distributors to ensure there is margin to spare, and getting stock on time to ensure a satisfied client often proves difficult. Often distributors do not offer courier services outside major cities and the resellers bear the brunt of the cost of distribution and the fact that there is not much differentiation between the players.

However, Benjamin Mophatlane" rel=tag>Benjamin Mophatlane, deputy CEO at Business Connexion, agrees that market conditions have improved and that businesses have not spent on information technology products and services in recent years, and the emerging market is booming.

"There has been an improvement in the strength and stability of the rand, but this doesn`t mean increased margins. Resellers were squeezed for margins in previous years when the market was tough, and now require specific focus on market areas, and look at consolidation to bulk up their products, services and specialised skills muscles," says Mophatlane.