8 Issues Plaguing The Channel

Delayed Backend Incentives

The issue of delayed backend incentives is one that gets channel partners
really annoyed. It is persistent today with the same intensity as it was in
previous years. With the abundance and frequent occurrences of delays in backend
incentives for channels, money often gets stuck with distributors. The problem
is going from bad to worse and partners have nothing much to do except stopping
business deals with companies or else haggle with vendors and distributors to
get their money back.

Keshav Madhav, CEO, Vidur and Co is one of the many agitated channel partners
who have already stopped doing business with a company. He recounted an instance
when more than 40 percent of his money was stuck with a company for about six
months. Speaking on why this money blockage occurs, he said, “There are three
kinds of schemes in the market which are based on monthly, quarterly and
half-yearly basis. Money gets blocked for this period and sometimes even extends
to more than a year.” But he feels that for completing all the paper work and
formalities, the process should not take more than 35 to 40 days.

Agreeing with Madhav is PK Jain, CEO, SMC International who feels that
business runs on two things-money and goodwill. With backend incentives getting
delayed for months on end, partners often lose interest in business. Jain feels
that sometimes distributors intentionally hold back their money, may be due to
personal interest. This might also be one of the many reasons behind the delay.
He also feels that the time taken in realizing the programming process of
incentives is too long. He further suggested that the process should be more
automated and there should be less paper work involved in this.

Ashok Taneja, CEO, Sofitech Computers blamed vendors for the issue. According
to him, the incentive system is not as smooth as it seems and is far more
complicated. “At times, we have no clue how and when we will get our money.
Also, companies try to woo the channel with their incentive schemes. Sometimes
the schemes are too many to handle. This is what creates inconvenience and
confusion for us,” he complained. “I would suggest that companies introduce a
limited number of schemes rather than lots of them. The focus should be on
gaining the trust and credibility of channel partners they are already working
with, as channel is an important source of business for companies,” he conveyed.

“During quarter and year endings, companies start receiving hurricane-sped
claims from channel partners from all across the country. This processing and
verification takes time,” said Pankaj Bandlish, CEO, Compro Computers. He added
that the money thus is never cleared on time. Channel community consequently
loses faith in vendors and blames them for making false promises. “Companies
should settle payments directly with us, instead of going via distributors. If
incentives are honored by the manufacturers on time, we have no issues,” he
further said.

Sharing his experience, Bandlish said, “There have been times previously when
I never got my money back. The process of settling money stretched longer than
normal. In the mean time, the vendor went through some reshuffling and the
concerned person who was looking after my payments was changed. In the chaos I
lost my money and now have no hopes of getting it back,” he informed
disheartened.

DoA Cases

Among all the obstacles that channel partners come across in their daily
business activities, one that gives them a daunting experience is the dead on
arrival (DoA) cases. Partners expressed that all vendors have their pre-defined
policies related to DoA cases but there are various loopholes that act as
hindrances in getting them implemented in practical business. Due to the loosely
scripted DoA policies in Indian trading sphere, partners always face the problem
of vendors turning away from their own mentioned policies.

Companies have the policy of replacing defective products that reach
customers in a limited time period but practically they do not stick to their
conditions. Channels partners have always raised this issue that once a DoA is
identified, the specific vendor give various reasons for not taking any action
immediately.

A common problem that partners face is of manufacturers asking for the
complete packaging, including the manual and all the documents with the product.
“Once a package is opened, the customers throw the boxes. For products not turns
out to be defective vendor simply fefuse any service if the packaging boxes are
not there and that causes problems for us. We cannot turn our customers away and
have to take care of their problems at our cost,” said Satpal Singh, CEO of
Chandigarh-based DS Data Spec Pvt Ltd.

Partners openly stated that none of the brands give even average support to
DoA cases. While purchasing the product they show their policies

but practically speaking they never implement it. This causes a lot of pain to
partners because they have to be answerable to the customers in the absence of
which they might loose them in future.

“Vendors give such bad service on DoA incidents that it causes lot of problem
to us and this is true for all the products and brands. Their policies are only
on paper,” said Singh.

To eliminate such instances, partners have been raising this issue during
meets with the vendors, but no action has been taken yet. The companies put
forward their own points before the dealers and at the end they do not find any
feasible solution.

In order to support customers on DoA products, partners package the product
and then take it back product to the vendor. However, this also does not solve
their problem as vendors raise another issue that of mismatch of the serial
number on the product and that printed on the box.

When partners or sub-distributors do not get any support from the specific
company, they even go to the extent of not dealing with that particular company
because ultimately it is the confidence of customers that counts for them.

“Dealers have to be very specific about this and at times must discontinue
dealing with brands that are not concerned about their problems,” said Dinesh
Kumar, CEO of Chandigarh-based OST Electronics Ltd.

The only solution partners can find in such a condition is getting support
from their distributors who insist with the vendor to resolve the matter.
Therefore, the relationship between partners and distributors counts a lot in
business for getting things done with ease.

In any case, it is the partners who have to face the flack from both sides,
ie vendors and customers. They have to do business with the vendors only and
cannot afford to discontinue their dealings with all the brands. On the other
hand, it is the service and relationship with customers that makes or breaks
their business and hence they have to keep them content at any cost. Partners
expressed that ultimately the onus is on the vendors to come forward with
solutions and be more considerate towards their dealers.

Lack Of Technical Know-How

There's a clear demarcation between the business of trading and solution
providing. While the former requires selling skills, the latter requires a
certain set of technical know-how, in addition to commercial skills. While tech
integration and configuration problems are challenging enough for any
entrepreneur involved in the business of solution providing, solution providers
say that keeping abreast of technical knowledge is required, but expertise is
not necessary.

One must remember that the business of trading and solution providing is
totally different. In solution providing, one cannot offer every thing under the
roof since the area is vast and obtaining that kind of vast knowledge, expertise
and infrastructure at one go is not possible. Probably this is the root of the
problem of lack of technical know-how among solution providers.

It is seen in many cases that solution providers, who lack technical
know-how, try to run their business on the same model as that of the trading
business. They concentrate on many things at one time. In the process, they fail
to cope with the nuances which a solution providing business demands. “Instead
of gaining expertise in niche areas, most SPs try to meddle with everything and
in the process they lose their concentration. It's always better to focus on
fewer solutions and gain competency on the specific solution rather than try
their hands at different things,” suggest Prateek Garg of Delhi-based
Progressive Infotech.

Education and awareness of latest technical trends are always beneficial for
solution providers. But that is where the constraint lies as most solution
providers are not abreast with the technologes related to their business. There
are times when the solution provider does not have the complete knowledge about
their customer needs or the technical aspects of the solutions they are selling.
“Though this is a fact, it's not true in all cases, neither is it a big issue,”
said Satyen Vyas of Bangalore-based Vitage Systems. “Serious solution providers
do have basic knowledge about the needs of their customers and the latest trends
and technology. Therefore the situation varies from person to person and company
to company,” he added.

Harish Kumar Shetty of Bangalore-based Binary Systems had a different view.
“I somewhat agree with the fact that many solution providers lack even basic
technical know-how related to their business. I think first of all, channel
partners need to identify the business they want to focus on, solution business
or trading,” remarked Shetty.

Both Vyas and Shetty agreed that a partner into full time solution business
has to understand the finer points of his business and the factors required to
offer end-to-end solutions according to his clients' needs. At the same time, it
is important to develop the required skill sets within the organization to
provide the best possible solutions to customer.

Although most solution providers agreed that there is a dearth of technical
awareness among SPs, they did not think it was a hindrance in their business. “I
don't agree that the CEO of an organization has to be technically sound. One
must remember that the customers, especially the bigger ones don't measure an
individual capability. It's the competency or reliability of the organization
which matters most,” said Vyas.

Though Chayan of Kolkata-based CJ Infosystems agreed that it's quite
important for the CEO of a company to be technically sound, he pointed out that
it was not always viable for the CEO to have in-depth technical know-how since
he has many other important issues to look after. “Technical know-how always
helps during client interactions and when giving presentations, especially for
high-end solutions.”

According to Garg, although it's not important for the CEO of a company to
have technical expertise, he should have a dedicated person to do the job. This
person should have fundamental knowledge about the latest technologies and
available solutions and a clear understanding of his business and client needs.
“It's important to build the organizational competency more than individual
competency as that is what the clients want,” he said.

Supporting Garg's view, Chayan added, “It is important that the CEO has a
technical team in place and a senior person, with sound technical knowledge and
good understanding of client needs, to lead the team. Also it's always sensible
to groom a couple of people from the next level so that if the senior person
discontinues with his job, the business remains unaffected.”

Over Distribution

Almost all vendors widen their distribution network through their channel
partners. It is good, but increasing the number of national level distributors
of a particular brand is not the right approach. Longer credit periods and over
distribution are often seen as aggressive vendor practices, but this approach
disturbs the whole channel business ecosystem.

“In the quest of increasing the reach across the nation, vendors try all
sorts of things. But the biggest mistake is when they appoint more distributors
for their brand,” said Pankaj Bandlish, CEO, Compro Computers India. This makes
distributors announce attractive incentives to lure partners to buy only from
them. But at the end of the day, partners are left with non-moving inventory.

Partners dealing with media products are upset about the stringent policies
of HP. On condition of anonymity, a Delhi-based partner shared that HP has very
strict targets, which increase by 10 percent every month. As a result, most
partners do business in loss, in order to meet targets. Also, the probability of
a cheque bouncing increases.

A major chunk of channel partners feel that not only in media, but HP
practices similar strict policies for other product categories also. Brands like
IBM-Lenovo, HP, Intel, Samsung, Epson, Quantum and Canon are some of the names,
which have multiple distributors taking care of distribution across the country.
But, Bandlish feels that the over distribution problem is not associated with
particular brands but exists in all IT products of almost all brands. The only
difference is in the severity and the impact it has on the box pushers in
different situations.

Puneet Singhal, President, Computer Media Dealers Association, Delhi also
feels that the pressure is not from the distributors; the root cause is the
vendor, who creates a situation leading to unhealthy competition and
malpractices.

MP Gupta, Director, Seritec Electronics, who has been in the IT distribution
business since 1989, feels that over distribution is not that big an issue, and
today there are other issues like competition in the market. “There was a time
when Nehru Place was considered the only IT hub in Delhi, but today we have
areas like Laxmi Nagar, Patel Nagar and Wazirpur to have become IT hubs. The
market size has increased phenomenally also,” he said.

According to Gupta, if a vendor assigns just one or two distributors then
this might create a monopoly scenario, which is again not good. The fault is not
in appointing more distributors, but how the distributors and partners tackle
this situation. Partners should widen their horizons and should try to explore
the immense hidden market segments to be able to overcome the pressures. But at
the same time, Gupta agreed that over distribution was one of the major reasons
for the cutthroat competition amongst the channel community and thinning of the
margins. “Cheques bouncing and fraud cases are also a by-product of over
distribution,” Gupta quipped.

So what is the solution? What should vendors do in order to safeguard the
interest of the partners? How can the channel business be made healthy? One
solution is that vendors should spend more time and resources in brand building
rather than increasing the number of distributors. “Creating brand awareness
amongst consumers will help vendors create a demand for their products. And once
a customer knows what he or she wants, they will find their way to us,”
commented Bandlish.

Though partners want vendors to become more flexible in terms of target
pressures, past experience leaves partners in doubt about whether vendors like
HP are now ready to listen to the suggestions offered to them.

Post-Sales Service

Courtship is beautiful, but marriage is an eye opener. Partners echo the same
feelings for post-sales services. Service has always been a pain-in-the-neck for
partners. But in the same way that some issues needing continual redress
services, some partner feel that vendor service is better but needs improvement.

 Prashant K of Computronic Infotech, Goa said, “Service is not a pleasant
issue to talk about. A few days back we had certain issues regarding the
after-sales service of Samsung. Initially the vendor did not budge, but then
when partners unite and took the matter up Samsung resolved it immediately.”

South Gujarat IT association (SITA) also had certain issues with service.
Bharat Randheri, President, SITA said, “Copies worth crores of rupees were
installed at educational institutes, but no service was rendered to the
university. The professors have been constantly complaining that there is no
post sales-support.”

Well, apart from Microsoft, there are other vendors who have not been a
favorite with the reseller community. The reasons vary but the prime reason is
the way there complaints are tackled.

Recently, Computer and Media Dealers association (CMDA), Pune was on the
verge of boycotting Sony. One of the dealers had an issue with the post-sales
service. The Sony laptop that was sold to the end-user had become a frequent
visitor to the service center within a year of purchase.

Shital Nahar, General Secretary, CMDA explained, “When the matter came to us
we called for an arbitration with the dealer, distributor and principle company.
After hearing all the sides it was concluded that the laptop had to be
replaced.”

It was conveyed to Sony that if the laptop was not replaced with the new roll
over model, in a specified time, the vendor would be boycotted in the region.

“Finally the company agreed to replace the product immediately,” shared Nahar.
Commenting on the issue, R Sredhar of Bangalore-based Triangle Technologies
said, “By and large the post-sales service provided by vendors has improved. In
Bangalore the demand from the IT companies has compelled vendors to improve
their service centers.”

Sredhar recalled that the situation was quite different some time back. “This
was not the case two years ago. The call centers have played a key role in
bringing in discipline and keeping away the pressure, as they allot a fixed time
for servicing,” said Sridhar.

He added that the same was probably not true for the assembled market. “The
service for branded products has improved but the parallel imports scene may not
be positive,” he opined.

Saket Kapur of New Delhi-based Green Vision had a different perspective on
the issue. “We talk about increasing connectivity and PC penetration in the
interiors of the country. But unfortunately the same cannot be reiterated about
the service support. Principles need to give equal focus on service and
manufacturing of goods. It's high time that the number of service centers are
beefed up, or else the situation is bound to get worse,” said Kapur.Â
Speaking on the quality of service Kapur said, “The quality is becoming
consistent and stable. But the turn around time still remains a problem that
needs to be addressed on priority basis.”

Arun Kumar Jalan of Kolkata-based Jalan Infotech agreed that the post-sales
service had seen improvement in the last few years. “Among the bigger names like
HP, Lenovo and Sony, the services have definitely improved. It has been quite
satisfactory and is improving day-by-day.”

“Vendors are increasingly becoming aware that service is an issue that needs
to be addressed,” added Jalan while pointing out that though it had improved
considerably for the end-users, there are still a few glitches for the dealers.

Raids On Partners

Whether it is software major Microsoft, networking hardware focused D-Link or
IT major Hewlett Packard, IT companies have moved beyond just educating the
channel and have started to take punishable action against the channel community
engaged in counterfeiting of IT products and reselling of pirated softwares.
These are surely hard times for the channel community.

While most people from the software reselling community, including the IT
associations, condemn people who are involved in reselling of pirated software,
resellers are quite critical of the way IT companies are moving ahead with their
set of campaigns in order to tackle piracy of software or counterfeiting of IT
products.

“We do not support piracy at all. We are against it thoroughly, but I believe
that these companies are not targeting the real pirates operating in the market.
Instead they are going after certain big names just to create furor in the
regional markets,” explained a software reseller from Lucknow on condition of
anonymity.

Similarly, the channel community from Dehradun opined that there was very
little education being given by the vendor on the issue of piracy. “Most channel
partners, as well as their end customers, do not know the benefits of buying
genuine products from vendors like Microsoft, Autodesk or Adobe. We would
certainly like big software companies like Microsoft to come forward and provide
us service and support when it comes to tackling these issues,” explained a
software reseller from Dehradun on condition of anonymity.

While software majors like Microsoft claim that it is only targeting the
'genuine software pirates', the channel community on the other hand says that
the software company has applied its financial muscle to apply unnecessary
pressure on software resellers.

According to an official spokesperson from Microsoft, “We have a
comprehensive approach to tackling piracy which includes customer and channel
education on perils of piracy, engineering our products in a manner which makes
them difficult to pirate and enforcement actions against channel members
pirating blatantly. We believe that only all three measures, applied in tandem,
will reduce piracy and change mindsets. We have got excellent support and
feedback for our efforts from a large section of the channel community who want
us to help in ensuring a level playing field and an ethical business
environment,” the spokesperson added.

Commenting on the concerns of channel community, he further added, “There has
been a small section of the channel that believes that they have been singled
out for enforcement actions. We assure the channel community that our
relationship with each channel member is of utmost importance to us. Choice of
each enforcement action is done after observing a channel members action over a
period of time. The veracity of each action is checked and double checked by
multiple teams before we decide to enforce legally,” the official spokesperson
informed.

Keeping in mind the growing menace of counterfeit networking products in
India, D-Link has already engaged itself in a campaign to encourage the usage of
genuine products in the region.

“Popular brands often are the worst affected with not just the channel but
also the end customers who are affected by the quality of a counterfeit product.
For D-Link, product/channel awareness are the preferred means of addressing this
concern. However, raids are also an option used by companies in extreme cases,
which necessitate such an action. While accuracy of such raids is always a
subject of debate, there is a possibility of some genuine partners being caught
up in these raids. In almost all cases, the existence of a thriving counterfeit
market has merited in a raid and this is a concern both vendors and the channel
should collectively address,” informed Tushar Sighat, VP-Channel Business,
D-Link India.

Putting the viewpoint of channels on the forefront and talking about various
campaigns being undertaken by the IT vendor community, Saket Kapur, General
Secretary, Progressive Channels Association of IT said that the channel
community has to support ethical practices and protect intellectual property.
“We don't support piracy. However, vendors need to do more when it comes to
creating awareness about usage of genuine products among the channel community.
So far they have concentrated mostly on the metros. They should focus on
upcountry locations now,” he added.

Whether it is an anti-piracy campaign or a national campaign to target
counterfeiting of products, vendors should not act alone but try to involve the
overall channel community. And one possible way to achieve this is to associate
themselves with local associations or channel bodies in metros as well as small
upcountry markets.

Margins Under Threat
A healthy bottomline is every entrepreneur's dream, goal and challenge. In the IT industry, this is all the more so. With the technology adoption on the uprise and availability of a plethora of products and solutions, customers are demanding the best at the cheapest prices.
This is not something unique and is a fact of any business vertical the world over. But that does not make it any less challenging. In the 1990s, IT dealers could earn a decent 10 percent margin on most products. With more players and more products entering the market, this margin kept moving southwards. Currently, most dealers operate on a three to four percent margin and bank on volume business to make profits.
Seeing this trend, some dealers slowly moved towards providing solutions. They figured, and correctly so, that customers want a single point of connect for all their IT needs, and vendors too would like to work with one partner to address their target audience.
This was working very well, till other people caught on to the idea. Slowly, the competition in solution providing too increased and consequently margins started getting squeezed here as well. Where earlier they could lay claim to margins in the region of 40 percent, this has now come down by half.
While margins get squeezed it is necessary to find out where most of a solution provider's money is spent and see if this revenue leak can be plugged. And the biggest outflow of funds is human resources.

Since the forte of any solution provider is offering the best and most innovative technology to suit his client's needs, he has to make sure that he has people who are technically qualified enough to do this. This in turn means investing in training and certifying them.
Nitin Shah, Allied Digital Services, said “We plough back a good percentage of our revenue into training people. But it is difficult to retain them once they have been trained.”
This is a problem faced by most partners. They train their people, only to find that post-certification these people are snapped up either by their competitors or enterprise customers. “The worst is when we lose people while in the midst of a project. This is why I have started creating a backup of people now, though this is a huge strain on my fiscal resources,” mentioned Nityanand Shetty, EssenVision Software.
Most other overheads of a solution providing company are not very different from that of any business establishment. Additionally, vendors chip in to contribute to any marketing efforts that a partner might consider. This lightens the load on margins a little.
There are no surefire ways to safeguard margins or expect them to continue to remain robust. What can be done is try to reinvent the company to create a differentiation from their peers. This will ensure that they will be ahead of the technology sales curve and therefore can command a premium for their services.
Another reason, a partner claimed, for doing this is because vendors too would like to align themselves with such partners as it gives them easy access to customers who are serious about technology adoption. And this partner should know as he works with several vendors though he has not officially signed up partnership deals with them. He said that since he has invested in technology ahead of his peers, vendors are highly comfortable dealing with him and giving him the perks they allow for their regular channel.
Another partner advised against falling into the trap of offering high salaries to employees so that they do not join other companies. This can affect margins highly and is not a good practice in the long run as it raises expectations. “Remunerations should be commensurate with output and not merely to hold people back,” he noted.
It is easy to comment on ways to keep margins healthy. But, as mentioned before, there are no surefire ways to ensure that. This is a conscious decision that only an entrepreneur can take, based on his business and growth plans.
Unclear Communication
The biggest miscommunication is to assume communication has taken place-this statement perhaps sums up the problem that most channel partners face when it comes to clear communications between them and the distributors and vendors. And the problem with the troika keeps rearing its ugly head on the incentive schemes that are announced by the vendor companies.
While the vendor announces the scheme, the implementation of the same is left with the distributor and that is where the problem starts. Alok Gupta of Delhi-based Softmart Solutions while putting the whole thing in perspective said, “While announcing the scheme the vendor or the principal will showcase only the positive things that the scheme will do for you. The reading and interpreting of the fine print is left to the distributor, and that is where the problems crop up. While the principal offers something, in the end what the actual scheme is completely different. The schemes are akin to a situation wherein all the cards are not being shown when the cards are being dealt. This lack of transparency in the process is where the problem lies.”

According to Gupta, the problem lies squarely at the end of the distributor. Since they are the ones who are deciding the terms and conditions, which directly affect the channel partner. Since these terms are just fine print for the vendor.
Chetan Shah, Director, Mumbai-based Xpress Computers has a slightly different take on the situation. Instead of blaming only the distributor, he feels that the vendors are also to equally blame. “When the schemes are announced by the vendors, whether it is online or on paper, they seem to be pretty comprehensive with all the options listed out.”
Another factor that causes problems for the channel partners is the pressure that they face from the vendor. “As the scheme deadline approaches the vendor or the distributor coaxes partners into buying stuff telling them of the benefits that will come there way. But then at the last moment either the dates are changed or the scheme is extended. So the partner is left with stock, which he does not know what to do with,” Shah elaborated.
While everyone agrees that it is during the schemes and the resultant incentives that most problems between partners and vendors or distributors arise, what is the solution at the end of the day?
According to Shah, the vendors and the distributors need to realize the problems that are cropping up and that they need to become much more proactive. “When a scheme is announced it is imperative that the dates are neither changed nor the scheme extended. Also the payments need to be clearly defined by the vendor so that chances of miscommunication are reduced to the minimum.”
Gupta on the other hand feels that this verbal communication between people is where the miscommunication usually happens. Explaining, he said, “Usually when a channel partner is conducting business with a distributor, most deals are verbal. That is where the problem starts. Since the terms are not clearly defined, problems are bound to arise at a later date. Also with constant churning of manpower at the distributors end means, that it is very likely that when the scheme started you had an interaction and understanding with one person, who is now no longer in the organization when the scheme is ending and the incentive and payments have to be decided. So confusion will happen and the channel partner will be left in the lurch.”
Gupta's solution for the channel partners is thus very simple. According to him partners need to make all dealings with distributors or principals as a commercial deal. To have more transparency and lesser confusion ideally get everything in writing. “Partners should always insist on written communication.”
While there are many solutions, the problem will only get resolved when all the three main players in this drama on miscommunication decide to-well-communicate.
(Inputs from: Amrita Tejasvi, Piyali Guha, Shivangi Yadav, Snigdha Karjatkar, Syeda Beenish khalid, Vinita Bhatia, Zia Askari)