Channels overflow

Solution providers and channel partners around the country have this common
diatribe: a lack of clear policy on part of the vendors when it comes to
appointing channel partners. The consequences are an increase in unhealthy
competition amongst channels and a decrease in partner profitability. A lot of
partners feel that vendors appoint channels on an ad hoc basis just to fulfill
their targets without any consideration for the partners. There are also those
that feel that loyalty programs are just hogwash and many partners are now
either moving to a multiple vendor scenario or are shifting business focus to
areas that require lesser dependence on vendors.

Pradeep Jhawar, Director, Bard Roy Infotech, an SP based out of Kolkata says
"Vendors don't have a concrete policy when it comes to channel partners. On the
retail front their policy is a lot more clearer but when it comes to channels it
is not so." Bard Roy is an HP Premier partner and also an HCL sub-distributor
with an annual turnover touching around Rs 33 crore and growth of 10 percent.
Anil Saxena, CEO, Wireworks which has sales of around Rs 50 crore and a healthy
growth of 20 percent shares his views on the matter. "I am a partner for Cisco,
Emerson and in my opinion, vendors do not have a clear policy on channels
especially regarding the qualification criteria for appointing new partners. It
seems that as a partner if you can just provide business and coverage, that is
enough for vendors."

Factors like the behavioral aspects, go-to-market strategies and expectations
of what to do and what not to do are not clearly spelt out by the vendor for its
partners. Also what the vendors will do for their partners besides offering
pricing support, collateral is not defined properly. "Vendors need to ask
themselves questions like do we have a role to play in growing demand, or can we
make investments in our existing partnerships to tap the opportunities out there
or can we invest in our own resources to add offices or sales presence in
different places? Do they come out with any sort of concrete strategy saying at
the end of the year, the partner's margin and RoI will be so much?" asks Saxena.
"The kind of maturity that one sees in vendor's policy for partners in FMCG and
consumer durables is rarely visible in IT," he continues. Delhi's Team
Computers' Ranjan Chopra agrees, "I have not seen the maturity required by
vendors to understand that their policies are actually detrimental to the
overall market." Team Computers principals include HP, IBM, 3Com and D-Link
among others.

Numbers game: no quality

Teknomex Solutions, a Dehradun-based SP with revenue of around Rs 1.5 crore,
addresses both SMB and corporate customers. According to Vineet Jain, Partner,
most vendors appoint more channel partners to penetrate the market just to play
the numbers game. "They have to appoint partners on an ad hoc basis just to meet
their targets for the local market so the only question they ask us channels is
if we can commit on delivering certain sales numbers, if we cannot then they
just move on to someone who can," says Jain. Applying the Pareto principle to
channels, would reveal the true nature of ground realities opines Saxena, "A lot
of managers sitting in India have to show their overseas managers that they have
grown to a 500 point of sale presence within just six months because it sounds
good when they do. However if they were to do an 80:20 analysis, they will find
that only 20 percent of the partners bring in 80 percent of the business."
Chopra adds, "There is a problem of desperation on the part of vendors in trying
to meet quarterly pressures and so they appoint more partners than required.
They do not realize that they can get into the trap of over distribution which
is ultimately counterproductive for them. They try and distribute their risk
because they do not have confidence in the partner's ability to perform. This
results in overkill of the market potential."

Rajeev Goel, Director, Intec Infonet, New Delhi does business of around Rs 50
crore and is a networking SP with principals like Avaya and Juniper. Goel
believes that some vendors try to be fair to their partners while others just
run after numbers. "The underlying problem with vendors is that they have
targets to make up and the profitability of the channels is not a part of their
KRAs. It is a policy of 'to each, his own', so one cannot expect vendors to look
after partners. Channels will have to fend for themselves," says Goel. The brand
pull in Goel's opinion also has a factor to play. "Vendors whose products have a
big brand pull will feel that they are doing all the work in driving the
business and that channels are merely agents, so there is no need to take care
of them. In such a case, they try to get as many partners to fill in the space
as possible," says Goel. According to Saxena, vendors just indulge in mere
emotional sales talks at the beginning, but if they see that partners do not
perform, they don't hesitate to move on to other partners. "For a lot of
vendors, if a channel has two certified employees and one pre-sales person then
they qualify to be their partner. Are these the parameters to decide? "
questions Saxena.

Consequences

Jhawar feels that such policies by vendors promote unhealthy competition. "The
issue arises when the market demand is 500 and the supply is 1000, vendors just
dump goods into the market, creating a situation of excess supply resulting in a
lot of unhealthy competition amongst channel partners where they have to bear
losses in order to just compete in the market," says Jhawar. Jain of Teknomex
agrees, "To meet the sales numbers put forth by vendors, we have to undercut our
margins despite doing most of the front ending work with the customer." He also
feels that the competition is cut throat even if you are from an upcountry
market like Dehradun. "At least in metros like Delhi the market size is big
enough to compete and customer's decision makers are mainly based out from such
locations. Out here however, the market is small with few corporate customers
having a presence and even those who are her prefer to engage with bigger SIs
based out of metros. So the competition for players like us is huge. When it
comes to SMB customers, the unorganized players also compete with us," says
Jain.

Xpress Computers, an Intel Premier Partner and a Microsoft Gold certified
partner, has registered revenues of Rs 10 crore. Chetan Shah, MD of the
Mumbai-based SP says that he is not directly affected by vendor policy but does
address the issue from an industry perspective. "When it comes to appointing
partners who promise to bring in the numbers versus certifying partners, vendors
are on a separate track. When it comes to product resellers, there is a degree
of haphazardness without much thought being given by the vendors when it comes
to tying up with partners. This results in unhealthy competition as more
partners means over dumping of products in the market. A lot of these guys are
not tuned to sell the product and since they cannot compete on skill, there is
rampant price undercutting which goes unchecked," says Shah. "When it comes to
our own business, we are impacted indirectly by partners who do not really have
the competency to provide solutions and handle certain pressures. Price is their
only USP and that is where they try to score," he continues.

The situation is also similar for retail channel partners. Abakus
Technologies based out of Nagpur is a retail partner with revenues touching one
crore rupees. The proprietor, Dinesh Agarwal says, "We have been selling PCs and
laptops for around 16 years now, but we are treated on par with other retailers
who have just entered the market. Just recently, Dell launched a 'Chaalis pe
chaalis' scheme wherein if you sell 40 laptops, you will get a 40-inch TV free.
You get special prices for schemes like this, so dealers who normally do not
sell Dell, pick up these at the special prices and often go elsewhere and charge
the normal price which means they get higher margins." According to Agarwal,
many dealers in Nagpur are facing a tough time especially from fly-by-night
operators who try to make a quick buck. "There are these dealers who buy in bulk
at lower rates from bigger cities like Mumbai and Pune and come here and sell at
prices that are lower than what we offer. Sometimes it can even be Rs 2000
cheaper, but that is a big difference from the customer's perspective, so
obviously he will buy from such dealers and in the end we suffer," gripes
Agarwal.

Brand switching is yet another consequence of this feels Saxena. "Partners
will switch either to competing brands taking with them their established
customer base or move to other higher margin brands. Since dealers influence the
buying decisions of customers, such a switch can adversely affect the brand they
just left," he says. "I have seen especially in the networking side, where many
small partners invested and built the market, after which bigger partners who
get greedy come and take over by killing the smaller players who do not have the
financial muscle to compete," says Chopra of Team Computers.

SP response

In a scenario where the relevance of the channel partner is called into
question, Jhawar of Bard Roy, feels that it makes more sense for partners to
move into more value-based avenues like retail or system integration. "We
ourselves have moved into the retail front and in just a year or so, around 10
percent of our revenue comes from retail. You have to move into avenues where
the value of a partner is still relevant or else you won't survive," says Jhawar.

Chris Cajee of Anderson Computers based out of Shillong has experienced
firsthand the high handedness of vendors and as a result has had to make a shift
in his business model. "Around three to four years ago we shifted our focus to
just providing IT training services however prior to that we used to be channel
partners for hardware and software vendors," says Cajee. His company which is
majorly into providing training solutions in the e-governance sector had to do
so because of the way they were treated by their former vendors. "We used to
deal with a few vendors and while we were loyal to them, we were not taken care
of similarly, and so there was no point in continuing our loyalties with them. I
would definitely say that one of the reasons why we had to change our business
approach was because we were not making any money by partnering with such
vendors. Now on the other hand, we are not tied down to any vendor and we can
still do business," shares Cajee.

Echoing a similar sentiment, Saxena of Wireworks feels that such an approach
can never generate loyalty from channels. "If this is the vendor strategy when
it comes to choosing partners without looking at their quality, then you will
find that partners will move from one brand to the other just as vendors change
partners. Many channel partners are entrepreneurs and are professionally
qualified with prior experience working for IT companies and so they are smart
enough to know how to bite the bullet. They know that if required they can just
change their brand portfolio without thinking twice. Vendors say that because
customers are not happy with a particular partner they have to change. Have they
ever asked why the customer is not happy with the partner? Do they realize that
many times the customer is at fault and not the partner," inquires Saxena.

Changing one's business model is one way to counter this yet for most, this
is not viable. In such a case, it is better to focus on what value you can add,
advises Aziz Balsara, MD of Mumbai-based Leading Network Systems. "Price is not
the only major factor which compels customers to buy. The relationship you share
with your customer or potential customer is important and determines whether you
get repeat business or any business at all. Partners who are new in the business
may find it difficult to compete but personally we have not faced any problems
because of vendor policy because we focus on offering value to our customers,"
says Balsara whose principal vendors include Cisco, CommScope and President.

Solutions

According to Jhawar, the market pie is being cut too fine by vendors and
instead there must be a more systematic approach where the number of players are
justified for the size of the market they are competing in. "If the total market
size is 600 units, then the vendor must decide that they will appoint three or
four partners who can each target around 150 to 200 units, so that everyone can
make business," says Jhawar. Jain of Teknomex feels, the solution is for vendors
to make investment in channels, "For those partners who have proven that they
can sell, vendors must invest more in helping them develop their business so
that ultimately they also benefit instead of just appointing more partners,"
says Jain. Concurs Agarwal of Abakus, "Vendors just dump products in the market
making us reduce our margins if we want to sell. On the other hand they must
invest in us to increase their sales." Chopra also feels that investing in
partners can help the vendors. "Instead of investing in appointing more
partners, vendors should invest in partners business and also they should be
patient and understand that their relationship is more like a marriage where
they will be both ups and downs and should not just abandon their partners at
the drop of a hat. Vendors should also ensure that they should match the
solution and deal size to match with the size of the partner," says Chopra.

Saxena feels that partner quality should be the focus for vendors and not
just merely adding numbers. "Vendors should appoint partners who are like-minded
and possess the required skillsets. They should qualify the right partner by
seeing if the potential partner can provide the assured minimum level of
service, whether they can make the minimum investment in people, service," says
Saxena. He also suggests that vendors should adopt partner-friendly programs
like they do in countries in the West. "Why should channels in India get treated
like this just because we are a fast growing economy?" asks Saxena. "Partners
abroad get many benefits and are able to sustain profitability because of the
way the vendors take care of them. The same should apply for the channel
ecosystem here," he continues.

Finally, the verdict is clear: channel partners across the country have a
bone of contention with vendors when it comes to their policy on appointing new
partners because it has an impact on both their top and bottomline. But are the
vendors listening?

John Jacob

johnj@cybermedia.co.in