In the issue dated December 1-15, 2004, DQ Channels highlighted the evolution of channels over a period of time giving the distribution business a new outlook. In this article, we take a look at how solution providers innovate to make that extra buck and grow within the community. Here is an enumeration of the trends that germinated in the recent past.

Necessity is the mother of invention" – These are the great words of an ancient Greek author and philosopher Plato way back in 400-300 BC. What he meant was that a need or problem encourages creative efforts to meet the need or solve the problem. The problems and challenges are the same for all businesses. The channel community is no different. However, over time, this breed of technically sound businessmen have given their own perspective to the age-old adage. For them, 'Innovation is the food for survival'. 

The ones who focused on innovation for its growth, survive in this competitive market. Innovations are not just enough; what also matters are the ways innovations are put to use. To make that extra buck, the channel fraternity explored hundreds of ideas in the past. There was only one goal - to grow profitably. Some worked - some failed!

SLOW DOWN STARTED IT
A few years ago, when the world was passing through a slow-down, IT was the most affected. It was at that time, when companies began to realize that all is not well. Even organizations with the best of processes and planning felt the need to think differently. However, this uncertainty taught many companies to become organized. Some started with the usual cost-cutting methods like layoffs and trimming overheads. So did the channel community.

Talks about the cost-cutting exercise adopted by many vendors rang the bell for many channel partners. Firms operating without any processes started getting a little organized. And in a couple of years, things were rosy again.

But, surviving in a rosy market is as difficult as surviving in bad times. A better market meant increased competition. When the going gets tough, the tough get going. This is exactly what happened in the last few years. The weak ones withered off. Some partners moved out of the IT business, some got acquired, some merged with the strong ones, some are on the verge of closing down and some continue their struggle to sustain.

THUMBS UP FOR 'VALUE-ADDITION'
Increased competition also saw unhealthy competition among partners. Each one tried to cross each other by undercutting prices. In the race to gather volumes, channel partners were forgetting the bottomline. Winning deals at any cost and then waiting for a turnover incentive at the end of the month or quarter from the principle became a trend.

Thinning margins put some of the big names in distribution business at stake. Distribution at tier-one was becoming unviable. Here came innovation. To increase profitability, one after another, everyone started concentrating on value business. Value-addition was the mantra. Tech-Pacific started it, followed by the rest.

Today, most of the top distributors have created some value division aimed at increasing margins. And the positive development of this strategy is that most of them generate about 15% to 30% of their revenue from the value-divisions. 

MERGERS AND ACQUISITIONS
As time passed by, industry analysts opined that consolidation is reshaping channels and will continue to do so in 2005, even if the market does well. Declining margins is something to be blamed. Those companies wanting to concentrate on high-margin divisions sell off their low margin business to financially stronger companies. Stronger companies absorb the losses and add to its strengths.

Declining margin is something, which channel partners face everyday, but when it happens to big companies, it becomes news. IBM sold its PC business because it was less profitable and they wanted to focus on its other profitable business. A similar situation triggered off some of the big mergers and acquisitions in the distribution business. The last few months saw some big mergers in the history of IT channels.

It all started with the merger of Tech Pacific with Ingram Micro, then Neoteric Informatique selling 50% stakes in its Singapore-based subsidiary-Neoteric Asia Pte Ltd (NAPL) to Prasad Mamidana who last year bid goodbye to Ingram Micro. This was followed by the Taiwanese major Synnex acquiring around 36% stakes in Redington India; Frontline's merger with Accel ICIM and most recently Rashi Peripherals taking over Zeta Technologies' agency operations. While there have been mergers and acquisitions happening at one end, few big names like Almasa, Innovative and Quantus entered the distribution scene.

THE RETAIL BUG BITES
IT retailing market in India witnessed a growth between 2002 and 2004. Channel players were investing big money in this segment. Even during the economic slow down, vendors were focused on getting their partners to go retail. Higher margins on retailed products emerged as an attractive option for the channel community. IT products started finding their way into white goods stores, stationery shops and even shopping malls.

CREATION OF NICHE
Another trend that emerged last year was the shift in the business of systems integrators. Just like the 'value-addition' part that happened in the distribution business, few good systems integrators scaled up to become end-to-end solutions provider. Eventually, every system integrator will have to follow the solution providing route.

The strong SIs with the right people and financial strength has metamorphosed into giant companies, with complete ICT expertise. The key to their success was its focus on the acquiring and building on a particular expertise.

Some solution providers focused on providing complete solutions, either solely or with the help of other industry partners. Instead of specializing in a particular area, they focused on the customer segment - industry verticals such as BFSI, government, education or BPO.

BROTHERS IN ARM
Large companies with branches spread all over the country prefer to work with a single solution provider than many. This makes it difficult for smaller solutions providers with their presence in fewer states to win deals. At the same time, not all have the complete expertise to provide an end-to-end solution. To overcome this inadequacy, solutions provider came up with a novel idea - mutual help.

The concept of leveraging on mutual business interests kicked off successfully with solution providers coming together to provide complete offerings to customers. Similarly, solutions providers with no presence in other states started offering solutions with the help of other industry colleagues present in those states. This also gave small systems integrators a chance to provide solutions to bigger companies through jobs assigned by their bigger counter parts.

GOING PLACES
Some channel partners including distributors and solutions providers have established direct presence in up to 40 cities across the country. Some have created indirect presence in over 150 cities. For them, this is one way to grow their business by exploring virgin or less explored cities. According to them, these are cities with high growth potential. However, they have not ignored metros, which is still the highest growth region for any channel partner or vendor.

In its quest to explore newer business opportunities, some have even gone global. The sign of this becoming a trend is not far off.

Places like US, UK, Middle-East, Africa, Singapore, Malaysia, and other South East Asian countries are some places where different SIs have set up their operations.

NELSON JOHNY

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