RME: Distribution is changing quite fast in the Middle East region. How do you view the distribution sector and the role Emitac Distribution is expected to play?
PM: Well I think Emitac has had a long history of serving the channel and it all really started back in 1976 when the company kick started as a technology distributor. So, it has successfully evolved its business throughout the many transitions. Although I wasn’t around to manage that, it’s clear that it is in the DNA of the company to evolve ahead of market developments because that has been the driver of growth for the past 30 odd years.
The changes that are occurring in distribution today are in large directly proportional to the global challenges facing all businesses. The issues in the market are mainly around the exposure to credit risk, and managing of the business to avoid any systemic failure in the market.
Emitac has been very successful in controlling this part of its business for several years and we have had only two former customers that caused normal risk/ normal exposure to the business and those two situations were carefully managed in that they didn’t have any major impact on our results.
RME: So have you cut ties with those customers?
PM: Yes we did and we no longer do business with the two companies.
RME: You’re by far one of the big brands in IT distribution in the region. How has your partnership with the likes of HP benefited or impacted you as Emitac Distribution?
PM: It’s true, I think our association with HP in this market has been over a long period of time and we have grown our business partly as a result of their success in terms of product development, speed and time to market. We have been very lucky in our partnership with HP as there has been only positives coming out of our relationship in the recent past. There hasn’t been gaps in the product portfolio and HP has continued to show leadership in this regard. Ofcourse HP has also benefited from our skills, financial strength, consistency and focus on our business, our reach into the market and most importantly our strong channel relationships.
RME: One of the challenges of being a broad product line distributor is that because you represent a wide breadth of products at times even competing brands can lead to defocus. How do you manage that?
PM: We like to believe we treat our various vendor partnerships with focus and fairness. So our role is to fulfil demand in the market place as well as drive our vendors’ success in the market. We do this through cross partnerships with our vendors and bringing in specific marketing programmes and channel programmes that fits their overall business strategy. We have different internal teams that compete with each other and this competition results in enormous benefit to a vendor or even competing vendors because it leads to more aggressive product promotion in the market.
RME: How did you manage to weather the storm in 2009 despite all the challenges that businesses across various sectors faced in the Middle East?
PM: Last year was a difficult year as we all know and I think the biggest issue from the whole IT industry was the management of credit in the channel. So, we proactively recalibrated our credit exposure and agreed with our customers what was the appropriate level of risk to be taking and we didn’t lose any important customers in this process and we did, I think provide needy benchmark performance in terms of recoveries.
RME: Given the channel volatility around risk, has insurance premiums gone up in the region?
PM: Yes insurance has been an issue and the cost of cover has gone up and at the same time the level of the cover has come down and this is a challenge. Emitac is prepared and has had to take more risk on its own on several occasions for specific customers, who trust and look upon us for support on specific situations and for customers, who we believe in.This has been successfully managed.
We didn’t lose any business in the market in terms of this strategy but managed to minimise the risk to what we believe is a benchmark to the industry leading level. Our commitment to the channel is to take up the shortfall that was exposed by the insurance industries, the assessment of risk particularly in the UAE and because we are a very strong company financially, we were able to do this without much effort.
RME: Are you favouring a COD model now over your traditional terms business?
PM: No we still do business with our major customers on traditional terms and we haven’t moved to a cash business but with new business we prefer to doit on cash basis as a part of our credit policy until the customer shows his ability to perform, we are willing to agree appropriate terms.
RME: What positives came out of 2009 despite all the challenges that the year presented?
PM: I think the positives are that vendors and the channel have stronger appreciation of the value add of a distributor like Emitac. So now, we find that we are in a stronger position following the global crisis in terms of influence on the channel and our ability to deliver the business needs because there are fewer people prepared to take what we would call “too high” a risk. However, the other side of the coin is that because of the current situation, particularly in the UAE where business has come down, there has been more competition on price. We have concerns over the continued erosion of margins in business while the risk still remains in the business from a credit point of view and this is one of the challenges that we face.
RME: Is Emitac Distribution embracing a high value, high margin business strategy at the moment given the volatility of margins on volume distribution?
PM: We are focused on all segments of the market. We don’t have any strategy to leave the volume segment of the market in favour of the value segment. We believe fully in penetrating all the segments to the maximum possible extent. The value segment of the market is smaller in size, more difficult to reach and while it is important, it takes a longer time to penetrate. While it has a greater potential for percentage margin, it doesn’t necessarily open up the doors, so we believe that all segments of the market are a focus for us.
RME: You recently took over the role of regional GM at Emitac Distribution. What is your vision for the company for the next two to three years?
PM: I believe this company has the potential to be the largest IT distribution in the region and I don’t know whether we will achieve that in two or three years but the objective is to realise that vision. We will do this by growing our share in our current areas of operation. We will expand our areas of operation and hopefully we will succeed in introducing new lines of business.
RME: What are your immediate areas of expansion?
PM: We believe that we have a role to play in Africa, that’s both North Africa and the rest of Africa. We also believe that there are markets in the Middle East where we have potential to succeed for example Saudi Arabia.
RME: Is the retail market an important segment in terms of your vision and strategy as Emitac Distribution?
PM: The retail market is very important to our strategy however, around the region, there are only a few markets with a developed retail channel. So, we intend to support the development of the retail channel in those markets where it exists today but we also recognise that many of the markets do not have a developed retail channel so we will be serving such markets through traditional distribution until these markets mature.
RME: The emergence of power retailers has strengthened the IT retail sector and furthered the notion that this surge might see the demise of volume distributors. What is your view on this?
PM: I don’t see that happening. I have been in the IT distribution business in this region for about 11 years and have seen the promise of organised retail emerging across the region year after year. I don’t think 2010 or 2011 will be the year that it will happen given all the other dynamics in the market. You have investment risk, you have got cost, capital and all the other dynamics that are going on in terms of uncertainty about future growth etc this would not be the time that we will see the power retailers over shadow traditional distribution.
RME: What do you see as your immediate challenges to executing your vision and strategy?
PM: The biggest challenge I face today is to develop and get the right people and get the organisation going. We have the skills in-house to meet the current business requirements but we would need skills to drive the growth for the future.
RME: Can you clarify the rumour that has been going round that Emitac Distribution was affected by the fall out of the Dubai World debt crisis?
PM: Not directly. The pain that we are feeling in terms of the Dubai market in general is no different from the pain that everybody in business is feeling because of the slowdown in projects and the rate of growth.
RME: How has Emitac Distribution tiered it channel segment?
PM: We have two channels. We have the retail channel and the traditional distribution channel. Internally we have a structure from a sales perspective to address these channels separately with separate channel marketing programmes and specific market initiatives that are focused on the needs of both these channels. We are also aligned with vendors to maximise these channels.
RME: Where do you see growth coming from for Emitac Distribution this year?
PM: We see growth across the board. Our services support business is growing significantly every year and has continued to grow year-on-year. The distribution business has had a difficult 2009 but it’s set to grow again this year. Third party forecasts suggest IT growth will be more than 12% in 2010 across the Middle East region and we also expect to see that kind of growth. Our vendors are expanding the range of their products and solutions to be released into the market. This gives us a platform to grow in 2010. We are very happy with all our vendors who are leaders in their segments and will support them and look forward to promote newer products/ technology in the region.
RME: We have seen a lot of consolidation in the vendor space across various sectors. A lot of experts have been predicting consolidation will also sweep the distribution sector in the region. Is the Middle East over distributed?
PM: I think that some vendors have in the past pursued a strategy of appointing more distributors to achieve growth through the proliferation of multiple distribution partners. I think this trend has stopped.The phase of consolidation in future cannot be clearly predicted. However, It’s probably a good idea if it happens as far as distributors are concerned, because we have seen that some distributors in the past have not been focused on their business and mayhave caused unnecessary pain to the channel. This would be good to have a more robust model where the margins don’t necessarily have to be big but they can be assured that they enjoy good margins than they are today. They don’t have to be bigger but the volatility of margins is a threat to anybody in business.
RME: With you at the helm, what can your partners expect from the company going forward particularly the second half of 2010?
PM: They can expect a sharper focus on their business, clear accountability for performance, stepping up of partnerships to the next level and can expect our market share to grow this year.
With a new GM at the helm, Emitac Distribution is looking to grow its business in 2010 and beyond. Reseller Middle East?s Manda Banda chats to Patrick Mulligan, the man in the driving seat on the company?s vision, strategy and its quest to conquer the Middle East distribution sector.
