Back with a Bang

The paradox this year in
the distribution segment was expansion within boundaries and
contraction within geography. This comes from the fact that as
India's top distributors took the route of expansion, both in terms
of reach as well as their product portfolio across the nation. The
trend remained that of geographical limits added by the factor of bad
debts, inadequate credit policy, and some cases of
over-concentration on product lines and categories. The play so far
in the monetary market has been about growth-a much welcomed and
positive sign than the previous year. As the market showed signs of
recovery and the vendors keen on capitalizing from the vacuum in the
market created thereby on account of the blues of FY10, national
distributors took the first opportunity to streamline their process
as well as strategy in formulating the distribution policy this year.

href="http://dqchannels.ciol.com/content/reselleralert/111110306.asp">Ingram
Micro topped the
charts again this time with 35% growth followed closely by Redington
at 32%. The other national distributors, however, as usual do not
seem to have made it yet to the top level as Savex rolled at Rs 1,916
crore (having the largest growth figure at 64% this fiscal) and
Compuage following suit at Rs 1,413 crore. Other distributors
however, kept on rolling in margins below expectations even as
Neoteric, Supertron, and Rashi Peripherals continued a steady pace of
growth. The growth figures however, were not restricted to the
national distributors alone; their regional counterparts too made the
most of it except a few cases like Caltron in the East which
registered a decline by 14%. A stark contrast to that of the previous
fiscal, distributors-both at the national as well as regional
level-seem to have made the most out of the aforesaid vacuum.

FACTORS DRIVING GROWTH

Market recovery at an
estimated 34% positive for the distribution segment, however, is not
the sole factor which pumped in growth for the distributors. Learning
from the past year's 'bad experiences', at least 2 of India's
major distributors did streamline their internal processes with the
correct manpower and talent balance followed by the incorporation of
non- IT products, which has been the game changer as far as portfolio
is concerned. The move came in with Ingram Micro riding high on telecom
fueled by
the return of HP. Although the contribution of telecom products for
the company decreased by 12%, BlackBerry acted as the major player
for the distribution major. Also, it took up distribution of PlayBook
and the BlackBerry Enterprise Solutions which contributed
significantly to its growth. On the other hand, Redington too
profited hugely from its BlackBerry and Apple iPhone clusters. It
even went ahead in helping the setting up of BlackBerry Zones in some
key locales.

VARIED PRODUCT MIX

Overall non-IT business
contributed to about 18% and 2% from services to its revenue whereas
80% came in from the IT space. For FY11, the company had a
consolidated revenue of about Rs 17,478 crore. Neoteric
Informatique too focused over mobility and traditional non-IT
products. Tablets, mobile phones, and related devices were the prime
considerations for the company and from its strategy, it becomes
apparent that Neoteric will be focusing on mobility as 'the option'
for its product mix this FY. It is now a fact that mere computing is
no longer complete and mere hardware offerings are void now; the
trend is to offer a complete package of solutions for the partners
and offer a diversification of product lines. No longer is there a
focus on maximizing vendor tie-ups and increase brands over the same
product mix. Over the fact of product mix, it was a balanced and
healthy year for nearly all the national distributors. Ingram Micro
was appointed as the second ND by
Buffalo following the appointment by Kingston for its DRAM range.
Further, the mix was fueled by the appointment by Western Digital-a
move which will be paying off too well for Ingram Micro after the
acquisition of Hitachi Data by Western Digital. For Redington, it was
a 'more aggressive' year than its largest competitor as it added
Hitachi, Trend Micro, Quest, Brocade, Eaton, Autodesk, ECI, and
components like LG, WD, Strontium, and Kingmax. For Compuage too, the
FY witnessed the addition of Olympus Digicam range besides its
regular offerings. However it was Samsung who made the boldest move
with Compuage by appointing it as regional distributor, Delhi, for
its smartphone range and tablets.

SHIFT ING
GEOGRAPHICALLY

The primary trend,
however, continued to be the shift in geographical distribution.
After HP resorted back to the national distribution model doing away
with the business contracts with key telecom players, major vendors
have been opting for regional exclusive distribution focus. Whereas
key players like Dell and Samsung continued with the regional
exclusive model, new entrants in this strategy like Acer and Lenovo
reaped the maximum benefits out of it. FY11, so far would be most
remembered by the distributors as the age of regional expansion and
national proliferation. India's 2 largest distributors made a
sterling return proving yet again the dictum that 'volume of
business still rules' while other players were left away with
expansions in the region. Although regional expansion does limit the
scope of national exposure, players like Savex, Compuage, and
Neoteric seem to be contented with the trend. So far, as these
distributors have exclusive rights over the likes of HP, Dell, Lenovo
and others, the regional front seems to be a safe bet.

On the other hand, it
needs to be emphasized that new entrants like Asus and others are too
following suit appointing regional distributors and tweaking the
traditional notion of distribution. Although new vendors this FY
preferred to opt for the regional model and Lenovo followed suit
after its internal restructuring, it is the likes of HP and Dell
which kept the flow going. However, what needs to be seen this FY
will be the impact of these 'new entrants' and how long they hold
on to the regional model. Supertron, particularly is of the opinion
that as revenue grows alongwith the company size, these 'new
entrants' will have little choice other than going 'national'.

CHANNEL FAVORITES

Traditionally, HP has been
the channels' favorite when it comes to either distribution or
retailing; this was indeed shaken by
the emergence of Dell in CY10, but HP seems to be back again on the
distributors agenda and over growth terms, Savex seems to have made
the most out of it. Besides continuing to focus over exclusive
distribution rights for the 300-odd HP Worlds pan-India, the return
of the pro-IT distribution policy (both national as well as regional)
of HP helped Savex register the highest growth percentage in the
entire distribution forum. For Rashi Peripherals too, it was a
comeback of business as HP discontinued its ties with 7 out of the 9
former telecom distributors. The game changer of last year, Dell too
has been in the limelight like the previous year coming up with both
printing and mobility products. Routing through the same policy of
exclusive regional distribution that too on the basis of product
lines (based on verticals), Dell managed to register a revenue of Rs
7,666 crore-much higher than expected from last FY's record.

The global 'Protect and
Attack' strategy of Lenovo seems to have been well implemented in
India, bringing the vendor enormous growth at 49%. The bounce back
was primarily the result of the channel policy revision and the focus
over LES. With major government deals on the go and an aggressive
channel expansion plan, particularly targeted on the SMB and the
retail segment formulated in FY11, Lenovo came into focus as being
one of the several channel favorites last CY.

POLICY ISSUES

Back on the core
distribution front, credit policy issues continue to echo since
inception. With Supertron resonating the same factor of 'cheque
bounces' and partners 'not paying up on time', the entire
distribution segment however, is on a stagnant note. Like the
previous year, the distributors did stick to its credit policy while
the channel partners kept on raising the issue of stockpiling and
hoarding. Distributors blame that lack of effective credit control
and policy is resulting in stockpiling and under-valuation of the
commodities for the channel partners while the counter argument often
put up is over the flux in Market Operation Price and trade terms.
Also, distributors have often been blamed for the ongoing scenario of
putting its partners under pressure for hoarding and over the
impending case of DoA.

RISING VENDOR
EXPECTATIONS

An upcoming trend in this
space is the rising expectations of the vendors from its
distributors. No longer are the distributors considered as just
'logistics partners' by the vendor. In the words of Savex, the
vendors now want value added offerings from the distributors, be it
in terms of organizing partner meets, seminars or conferences or
extending themselves as support points and more marketing activities.
The change in pattern stepped in sometime back with most of the
vendors asking its distributors to expand its sales and support base
to the Class B regions. The proliferation, then expected did not
happen so but took time to mature.

Support is no longer
confined to mere sales leads and facilitation of post-sales hold up.
In fact, shortly after the slowdown ceded, partners were in need of
cash and with the distributors not consenting for a better credit
period to the partners, the need was felt to arrange for the cash
flow whereby the partners can sustain the relationship and even
expand their footprint. 'Mutual growth' was the primary factor
behind this move. Redington, as a solution, came up with NBFC which
provided for the financial support program which did expand beyond
Redington and now arranges for finance from a neutral point of view.
Further, Savex fueled the same through its financial support to its
partners initiative whereby Savex indirectly organizes for funding
(namely from banks and financial institutions). Organizing channel
meets has been a norm for the distributors and FY11 was no different.
All the distributors arranged for partner programs, either on basis
of enabling them with better financial or technical training or
felicitating valued partners. Discounts over bulk purchases, freebies
and other benefits also ruled the overall scenario.

Looking back at the market
dynamics of FY11, it seems that issues and crisis points related to
distribution have not changed much over the years but the trend has
undergone significant changes. As regionalization and the advent of a
more potent product mix have come into play, both these factors need
to be put to the test for at least 3 years before conclusions can be
drawn. For the time being, the growth figures and success stories of
the national distributors remain convincing.