According to GfK’s reports, the market demand for IT products is holding up remarkably well despite the current financial situation.
But although there is relatively good user demand, the channel is currently having supply difficulties, which have been caused primarily by its reliance upon credit. In years past businesses would grow organically and would finance both their own purchases and their own expansion. This is certainly not the case now.
It has become increasingly difficult for distributors to substantiate credit lines and also obtain credit insurance on some resellers. One can debate the chicken and egg situation on credit as long as you want, but the bottom line is that the credit insurers don’t like the risk – real or perceived – that our marketplace represents.
As an aside, the situation is probably worse in some of the markets that have been the most buoyant over recent years; I understand that it is becoming increasingly difficult to get shipping insurance on goods being sent to certain eastern European countries.
Resellers and retailers own the relationship with their customers, but by and large their skills lie in integrating and delivering solutions, and maintaining them. They generally make very little margin on the products they sell. Some distributors are also feeling the pinch as their credit lines with vendors are creating difficulties and they have to keep careful control of their account to maintain the flow of products. The bottom line is that when it comes to large amounts, the reseller is not always able to fund their own purchases of hardware for re-sale, and this is where help is needed.
It seem to me that there is now an urgent need for a re-think of current business practices within the channel, in order to find ways to allow products to flow freely from vendors, through distribution and on to the end user, whilst ensuring that resellers are able to make sufficient margin to enable them to profit from managing the end-user relationship.
Perhaps we should be encouraging a model where the reseller gains a commission as an introducer, and lets the main financial transaction take place between the customer (we’re really talking corporates, here) and either the distributor or perhaps the vendor. Such a system would allow the reseller to concentrate on what they are good at, namely integrating and installing an effective solution, and maintaining it.
Of course if that were the case, then we’d need to have some clear rules in the marketplace that would carry safeguards for the reseller. And of course that’s where an organisation like the PCA can help.
Perhaps we’ll see an interest in some form of Credit Union – a group of small businesses working to the benefit of its members and helping to financially underpin their business development.
Of course, solutions to the current problems may already exist and merely need some exposure and promotion in order to be effectively applied.
The PCA in partnership with the EMEA Credit Forum will be inviting leading players in the marketplace to attend a Channel Finance Summit, an event that is aiming to explore new ways and methods for financing channel business during 2009 and beyond; an updated financial model for a new and rather scary financial world.
Taking place this month, the Channel Financial Summit will be a one day event in central London. The invited attendees will be directors and senior managers from leading vendors and distributors, plus representatives from the reseller community, who will be addressed by a number of key advisors from the financial services sector.