Cogs In A Wheel

Depending on how one looks at it, the business of IT distribution can either
be complex or harmo­nious. Complex, because it needs the coming together of
vendors, distributors and channel partners (V-D-Cs); and harmonious, because
V-D-Cs must unite to make the wheels of the business run.

Going by the rulebook, vendors supply products; channel partners act as a
delivery route to the customer, and distributors who sit in between, serve as a
bridge between the vendors and the channel.

Recent times have witnessed a decline in the channel rapport with the bridge
(distributors) and the vendors, therefore. The channel has many a time cried
foul and accused vendors of eating into the resellers' share of business. Be it
services or warranty, partners feel that vendors and distributors have become
their rivals. And there has been more than one reason that has led to this
erosion in the mutual confidence between V-D-Cs. From direct selling to
undercutting, signing up AMCs to poaching channel manpower, the number of issues
bothering the business seems to increase by the day.

Issues of concern

The ghost of direct selling surfaced in Tamil Nadu and Kerala last year, and
the channel alleged that distributors were selling products at dealer-transfer
price (DTP). According to partners, when distributors sell products at DTP,
customers prefer to buy directly from distributors, thereby bypassing the
channel. This results in huge losses for the partners.

Redington India and Ingram Micro India were accused of selling directly to
customers for the last three years in Kochi. A similar issue caused a dispute in
Pondicherry where Redington was accused of direct selling of spares,
undercutting AMCs and support packs, resulting in a suspension of trading with
Redington across Tamil Nadu for four days.

In another development, Redington faced an allegation from the Kerala channel
partners for indulging in huge undercut­ting on AMC. Affected partners included
Team Frontline, Delta Micro Computers, Data Hard, and Focus Computers along with
dealers in Calicut (Dot Computers) and Trivanduram.

The issue is believed to have started in April 2007, when Team Frontline lost
an AMC worth Rs 7.4 lakh, which Redington got at Rs 4.9 lakh. Additionally, the
distributor was also accused of poaching Team Frontline's service engineers and
marketing executives, and offering them employment.

Partners felt that Redington was trying to make service contracts easier and
get a readymade database. They said that the distributor provided customers with
various service facilities at a lower rate, which further added to their woes.
If that was not enough, delayed credit periods seem to have become a cause of
concern. As a mark of protest, the entire channel community downed its shutters
against the distributor.

Sharing his thoughts on the above imbroglio, Ramesh Natarajan, Head-National
Sales, Redington India said, “Yes I am aware of that issue in Tamil Nadu and
Kerala. We are a very partner-driven company and we ensure that partners get all
the deals. Sometimes however customers having an intention to cut costs tend to
approach us directly for certain deals. Even these we route through our partners
itself. It was one such instance that escalated to this issue.” But he assured
that since then things have long been sorted out between the channel and there
have been no further escalations.

Impact of 'straying' distis

So what is the reason that distributors tend to go directly to the
end-customer? Is it their targets, customer demands to cut costs, or the rising
competition?

All of the above reasons could be true. However, while it is agreeable that
competition among distributors is growing and they have a need to increase
footprint in the market to achieve their targets, ignoring the channel could
imply that a vendor or distributor is trying to infringe on the customer
relationship that his channel partner has developed. Once that happens, the
partner will look upon the principal and the distributor as a looming threat,
and will find ways to exit the situation. This can only lead to wrangles and can
make things difficult for all parties involved.

S Karthikeyan, President, Confederation of Information Technology
Associations, Tamil Nadu (Confed-ITA) said, “As it is we work on wafer-thin
margins. If vendors and distributors go to customers directly, we stand to lose
both the customer as well as margins. This puts us in a very difficult
situation. Going direct to customer is not the right practice given that regular
channel exists. We believe that the vendor should practice one of the two
things-either go direct or through channel. There is no point in indulging in
both.”

B Kuberan, President, Association of Computer Traders, Trichy (ACCT) said,
“As partners in business, it is vital that principals and distributors safeguard
the interests of dealers so that we are motivated to take up challenges of the
growing market. Against growing competition, vendors should put in place some
sort of discipline so that we can work in unison along with the distributors and
grow together with them.”

Agreeing with him was M Mahesh, President, ITTA, Pondicherry who said,
“Delayed credit periods are another cause of concern for us. Most distributors
get a credit period of 15 days. But customers in the government and corporate
take credit time of a couple of months. Such delayed payments have caused major
problems to the people in the business.”

The way out

While battling the above said issues of concern, partners either submit a
memorandum or protest against the erring party. There have also been instances
where talks have happened between the parties involved and the situation has
been rectified to some extent.

This means that while solutions to all conflicts are available, it would be
better if skirmishes can be minimized if not completely avoided. In summary
therefore, V-D-Cs can actually compliment each other in terms of improving
services and boost each other's businesses. After all, they work for a common
industry and for a common cause of making profits.

Work in peace

It is rather unfortunate that distributors are sometimes seen as competitors
by the channel, instead of facilitators between vendors and partners. When one
takes a closer look, there is no denying the fact that when it comes to services
and warranty replacements, the ultimate res­pon­sibility rests with the vendor.
Similarly, the role of the distri­butors cannot be understated.

It is also important to remember that the role of the channel is very
crucial. Many customers go back to the dealer where they made their purchase for
any problem. Since the first point of contact is the partner, vendors and
distributors must ensure that the channel is properly groomed and trained on
handling service issues.

Therefore, it is crucial for V-D-Cs to communicate with each other properly
and establish a healthy bonding, so that business is not hampered, because
neither can do without each other.

SUBBALAKSHMI BM


subbalakshmibm@cybermedia.co.in