National Distributors: End of the Road?

The strategic decisions
by
some of the major IT vendor companies to directly deal with the
regional distributors (RDs) or in some cases tier-2 or -3 partners,
thussidelining the national distributors (NDs), has created some kind
of furore in the Indian IT market.

It all began last year,
when HP decided to reduce its billing with NDs-Ingram Micro and
Redington-and opted for regional and tier-2 partners. Instead of
having multiple distributors fighting in each location, the rationale
was tohave one distributor focusing on a specific zone. Furthermore,
HP intended to set up direct interaction methods even with its small
tier-2 and -3 partners.

All these developments
definitely had the effect on biggies like Ingram Micro and Redington.
For Ingram, HP's decision to revamp its channel model (HP is Ingram's
largest principal) and Microsoft's decision to sideline the NDs hit
its margins. Even its counterpart, Redington had to face the blow due
to the decisions taken by HP and Microsoft.

IS IT THE END FOR NDs?

These developments have,
somehow, led to a debate that this model being adoptedby some of the
major vendors will gradually lead to the end for NDs in the country.
Butthe answer seems to be 'no.' The scale, stability andfinancial
strength that Nds bring to table are unmatched. It's a time tested
and provenmodel. RDs could be successful in their tactics to address
a particular market situation.

Redington India, one of
the country's leading NDs, does not see any major issue with this
model. “NDs would remain the most important vehicle for most
vendors while addressing the Indian market. What might happen is that
for some vendors, NDs may work in regional territories. It should
also be noted that several brands, having tried the regional
distribution strategy, have found it necessary and advantageous to
partner with major NDs to significantly increase their coverage,
reach and marketshare,” opines PS Neogi, president, Redington
India.

The ND claims to have not
suffered any loss of overall revenue or profitability whatsoever.
Its breadth of product portfolio has ensured a healthy growth despite
any reorganization inthe eco-system. “We see absolutely no reason why
any channel re-organization by a vendorshould cause a break in
our growth momentum. As we are providing tailored and specific values
to each vendor in its GTM strategies, we are extremely well
structured to take every advantage of the continued growth in the
demand of IT products,” added Neogi.

Even in the opinion of
Rajesh Goenka, VP-sales and marketing, Rashi Peripherals, there is
no furore in the IT market due to thesechanges. It is very natural
that vendors who have achieved milestones with national distribution
model may try other methods of growing business and vice-a-versa.
This is a part and parcel of business and it is not a cause of worry
but a win-win situation for all. While it is being alleged that
vendors are moving from NDs to RDs model, there are many vendors who
are moving the reverse way, thereby, balancing the business.

Moreover, it is not easy
to completely ignore NDs. From the IT vendors' perspective, the
regional distribution system ormultiple small VARs, has been a long
time practice, especially in the Itcomponents sector. The enterprises
have slowly and gradually started following suite. However, it is
extremely difficult to keep pace with the NDs in terms of the
logistics, financialsupport system and wider reach to a huge customer
base.

According to Paras Shah,
CEO of Neoteric Infomatique,the RDs concept has been brought in by
vendors who want to capitalize on their strengths of being more
focused as they are largelyowner driven, have better reach and
penetration within the region. “However, they have their sets of
limitation as well in terms of financial scalability, business
hygiene, etc. These same vendors after making inroads into themarket
for scaling up their business would have to fall back on the ND's
with a larger base,” he points out.

“Though there have been
some developments of ND model changing to RD model or parallel
running of both models, every model has its own merits and demerits
and no single model is successful for all products. I do not see any
issues as far as future of NDs is concerned. For every
business/product, the model has to be different withgrowing market
demands. Currently, we do not see any threat to ND model in India as
there are lots of value addition being done by NDs for the brands
that cannot be just discounted,” adds VK Bhandari, CMD, Supertron
Electronics.

Adding further, Sunil
Pillai, COO, iValue InfoSolutions says, “Though this
developmentlooks and seems to be causing a temporary fear amongst
NDs-but they cannot be eliminated as they play a very key and
pivotal role in generating brand/product awareness amongst the
eco-systems of channel partners that NDs have nourished over 2
decades. Besides this, NDs have a fair understanding of each market
and geography, and with their strong backend systems on logistic
operations and credit management, they will firm up their positions
much more in an economy where the cost of capital is high.”

VIABILITY OF THIS MODEL
IN INDIA

This model, however, does
not seem to be working in the Indian marketplace. Thereis a need for
quality distributor partner who can act as a vendor in the local
markets and drive their business end-to-end in the country. NDs with
their strongbusiness fundamentals, a strong value system, large
partner base, scalable financial capabilities, management bandwidth
and structured systems and process, would be the right choice for
such vendors.

Adding to it, Vinod
Sawhny, executive director and CEO, Beetel Teletech says, “While
deciding to directly deal with RDs,the major IT vendors are trying to
increase reach and influence in the respective regions. In such a
scenario, logistics and inventory management can become a big issue
for the IT vendors. A ND has a team that manages SKUs, monitors
category movements and manages in-house transfers. All receivables
are managed centrally and any cases of default are dealt with
swiftly. In the case when the RDs are directly dealt with, these
issues become the direct responsibility of the principal company. And
these issues can quickly spiral out of control, if not monitored
closely.”

Nonetheless, vendors
usually work on multiple products simultaneously. The reach to
customers required by product portfolios is not the same. Products
like printers are best sold through the regional distribution
channel. For high end products, national distribution is still the
best option, since such products require specialized service centers
and cater to a niche audience.

On the contrary, S
Sudhir,
MD, Inspan Infotech recognizes such a trend and is prepared for it.
He says that it is quite possible for a vendor to think in this
direction, given the current growth of tier-2 and -3 cities. Also,
state governments in India are encouraging these geographies to start
newer enterprises. For over a year now, they have consciously made
significant inroads tothose upcountry markets where hitherto was no
distribution channel has reached. Continuing the focus, they are
expanding and taking the brands to the partners doorstep.

Seconding his thoughts on
the same, Saket Kapur, director, Green Vision says that the adoption
of RDs is apropos the market need. A regional or local distributor
for tier-2 and -3 towns has an edge over a national level distributor
interms of credit and payment recovery. With market
widening into hinterland, this is what will work. ND model was good
when market was confined to metros and state capitals. An effective
supply chain is inspired by the one adopted by other business
vertical like telecom and FMCG, where regional andlocal distribution
is all pervasive. However, one cannot generalize any particular model
for a market place like India.

Meanwhile, large IT
vendors, have traditionally followed a national distribution route,
but with the advent of converged channels, IT retail outlets, and
LFRs, it is believed that there is merit in pursuing the national
distribution route in the near to midterm, while exploring the best
mix for channel fulfillment. Eventually, as long as the NDs are able
to show a distinct value proposition, coexistence of both is
definitely a style="background: transparent none repeat scroll 0% 0%; -moz-background-clip: border; -moz-background-origin: padding; -moz-background-inline-policy: continuous;">
viable option.

VENDORS' PERSPECTIVE

Dell, as one of the
leading vendors in the country in certain segments, feels that
itwould be too early to even see the possibility of the demise of NDs
as of now. They have their own advantages just like RDs have, which
cannot be ignored.

Sanjay Yadav, country
head-retail and distribution, Dell India says, “When Dell entered
the smartphones and tablets business in India, we wanted to leverage
an already established network to reach more customers and reach them
fast. Same was the case when we chose Supertron as our national
distributor for our printer line. In terms of an industr style="background: transparent none repeat scroll 0% 0%; -moz-background-clip: border; -moz-background-origin: padding; -moz-background-inline-policy: continuous;">y

trend, we're yet to believe that any sort of trend has been
established.” The networking major, D-Link strongly believes NDs
and RDs both have an equally
important role to play under distribution and logistics value chain.
There is absolutely no conflict in their role. There is no denying
that both NDs and RDs have an equally independent and critical role
to play in the distribution value chain.

"While NDs and RDs
continue to play their individual roles, it is alsointeresting to see
them work together in complete harmony. As at times there are
partners in bigger cities looking for multi-location billing
support,exposure to large scale projects and there are customers in
upcountry markets looking for local connect point. And this is where
NDs play a crucial role especially when the systems and procedures of
large SI are more aligned with ND systems and processes,” adds
Rajesh Sahore, sales head-India and SAARC, D-Link India.

According to Anand
Natarajan, national channel manager, Quest Software India/SA, one
cannot generalize any particular model for a market place as such. A
lot of factors in terms of the cost,customers, nature of the products
and availability have to be taken into consideration before deploying
or switching over to a new business model. This model is definitely
viable, but in his perspective it means more to a vendor who has the
product portfolio, which requires the kind of reach that this model
can generate.

“While a market like
India is witnessing a surge in large public and enterprise projects
in tier-1 level cities, there has been a rise in the number and
frequency of SMB projects in tier- 2 and -3 level regions. There is
ample opportunity across geographies and, therefore, reduced
instances of conflict of interest,” says Gaurav Ahluwalia, MD, R&M
India. Subhasish Gupta, country manager-India and SAARC, Allied
Telesis, is of the view that in order to penetrate deeper as well as
to have a more focused approach, the regional distribution model
definitely makes sense. Having the right RD also ensures much better
reach in the market, smoother execution of transactions, as well as
visibility of brand in smaller but important markets. However, this
model will not sideline the NDs, as long as they realize how they
bring in value to the vendors viz-a-viz the RDs.

“NDs definitely bring a
lot of value to the table. However at times their policies become
very rigid making it unfeasible for smaller partners to develop their
business in a tier-3 or -4 city. Nds today, due to their volume
thrust, have become stiff and hence less agile. This does not help in
addressing requirements of the growth happening in tier-2 and -3
cities. I feel a sustainable model is having NDs along with
sub-distributors to tackle unique market and geographic
opportunities,” asserts Shibu Paul, country national sales manager,
Array Networks. MA Mannan, country manager, Corsair Memory
India,points out, “I don't feel there would be end of NDs. As
nowadays all NDs have branches across India which is equivalent to
any RD. It depends on the product which you are promoting. Some
products require RDs type of setup whereas some work good with NDs.
Though a vendor decides which setup works for the success of his
brand, in my view NDs win the race.”