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DCG members urged to migrate to SME solution selling

March 19, 2014

 

The dominant message at Dubai Computer Group’s first general body meeting of 2013 was clear. UAE based IT wholesalers, resellers and retailers are not out of the woods as yet. Oversupply of vendor goods, reducing demand from African resellers and selling below cost will continue to be challenges across 2013, unless resellers make an effort to change. Over the last twelve months, the Middle East re-export market has almost vanished altogether for UAE resellers, with mainstream vendors setting up in-country distributors across GCC and rest of Middle East. It is only a matter of time before the African market follows the same pattern. This message was reinforced in addresses by Hesham Tantawi, DCG Board Member and Vice President, Asbis Middle East; Khalaf Al Otaiba, DCG Board member and CEO, Al Otaiba Communication; and Vasant Menghani, CEO, Quality Gulf.

 

 

UAE based resellers need to develop local SME markets to sell solutions and services. “UAE is saturated on the large and medium business but not small businesses, which needs small solutions,” said Tantawi. IT markets outside UAE, traditionally represented in the form of walk in importers from Africa, will no longer continue to be mainstream across 2013 and UAE based resellers must plan for this. “Please depend on developing this part of the market. This is a clear message to all of us, to develop the market where we are, develop it with services and by opening new segments and markets,” said Tantawi in his address to DCG members. With regard to price cutting and selling below cost by UAE based resellers, Tantawi indicated the reason for this is lack of code of ethics amongst themselves, whether formal or informal.

 

As an example, on the super retail side in UAE, a practice of declaring the Recommended Retail Price or RRP is now in place. However this is not being followed by UAE resellers, who objected to this practice a few years back. “We are wholesalers and not retailers and we do not follow RRP.” This was the representation made by DCG on behalf of its members who were penalised, according to Shailendra Rughwani, DCG President, Managing Director, Expert Computers.

 

The same theme of business diversification was continued by Al Otaiba. “Why do we need to search for customers outside,” he said. The UAE IT markets also need development and require added value. “Resellers should look at making a market here, not just exports for $0.66 margin.” The UAE resellers should look at themselves as a community and work towards contributing and protecting the group. They should look at themselves as business partners making money, adding value and improving the industry and not as competitors dropping the price and selling below cost. Al Otaiba pointed out those who dropped the price last year to wage a war amongst them are not here anymore. “Where are they now - they are not here - they are not with us. We need to think DCG is there after five years.” The immediate need of DCG is also to grow its community of members and committing to them. “If everybody starts to think - why should I be there - what am I getting from this group, we are not growing and we will not get value.”

 

Another dominant practice amongst UAE resellers is lack of balance between turnover and profits, with the belief turnover can substitute for profits. “If we had people running away it is because most of them think of turnover and not profits,” said Menghani in his address to members of Dubai Computer Group. “Computer trade is suffering because of lack of balance.” Menghani also felt vendors have a role to play by being active in setting a maximum retail price. This would fix the margins that a reseller can play with. More importantly it would deter customer facing sales executives from selling below cost just to close a deal. Another important initiative for vendors is not to declare volume rebates till they have materialised. “Give a surprise cheque with the owner’s name,” was his recommendation. Currently resellers also play with the rebate margin during final negotiation. By undercutting each other, UAE resellers are throwing away their advantage to the African continent.

 

If we had people running away it is because most of them think of turnover and not profits 

He also drew attention to the negative image that Dubai’s runaway resellers have created. “Dubai is the best place to run away from with a lot of money.”

 

Menghani also gave tips to members on how to detect warning signs of a possible exit by a reseller. If a payment cheque has bounced from any reseller the DCG must be informed immediately. If there is a pattern of continuing volume purchases, longer extended credit and less of declared sales that may be an indication the reseller is planning to exit. Consistently selling below cost price is another indicator. “No African customer will ever be able to get the same price even if they import directly.” He also mentioned home grown brand Touchmate is viable today because of profit margins.

 

Another important matter that was discussed at length at the general body meeting was succession planning of the board and growth of the general body membership. With regard to succession and rotation of the board, Rakesh Bora, DCG Incharge PR and Managing Director, Trinity Infotech, mentioned that the current board has been in position for the last five years. “We want to hand it over to the next generation, so that they can understand what this group is doing. To avoid inefficiency, it is important for every board to exit and the next board should come in place,” he said. Various members proposed their names to be part of the next board including Ashu Udani of Achiever Computers; Farooq Khawaja of Avnet Technology Solutions; Ashok Kumar of New Trend Computer Networks; and Idrish Chhatariya of Compuage Computers.

 

With regard to growth of the general body membership, Bora mentioned that members were hesitant to pay the annual membership fees of $372, even though the office bearers of DCG had actively campaigned on their behalf to bring down the countervailing IT duty from 5% to 1%. For a reseller with an annual turnover of $1 million the saving amounted to $40,000 and yet they were hesitant to pay $372 for the DCG annual membership. “We all need to pay back to society from whom we get the benefits. We are treating this group as somebody else’s property, but it is our property and it is our business. If we do not get members how will the group run,” he said. While DCG was set up in 2005, it was only in 2007 that it was accepted as a recognised group by the Government and since then has been actively campaigning on behalf of its members. As a solution to the sluggish growth of DCG members, Al Otaiba proposed every DCG member should bring in at least one additional member. Currently DCG has just over 100 members and all members present at the meeting were asked to help increase the membership over the next one year.

 

Bora also proposed that vendor and distributors should be encouraged to join DCG so that the problem of over stocking in the channel can be addressed. “This is one of the reasons why profitability of everyone is going down,” he remarked. Now that the issue of IT customs duty has been resolved, Bora indicated over stocking in the channel should be the next active agenda. Tantawi commented he would invite Asbis’ vendor partners to come on board including Intel and AMD.

 

We want to hand it over to the next generation, so that they can understand what this group is doing. To avoid inefficiency, it is important for every board to exit and the next board should come in place 

Other highlights of the meeting included the address by Shailendra Rughwani, DCG President and Managing Director of Expert Computers. He welcomed officials from the Dubai Customs and Dubai Government; Jawad Al Redha, Chairman of Business Software Alliance, Gulf region; members of the DCG board and other DCG members. Rughwani thanked Dubai Customs for reduction in IT customs duty from 5% to 1% and the help of sponsors Asbis and AOC in supporting the activities of DCG. He also advised all members to be vigilant and cautious in 2013 and follow the right business practices.

 

The next address was by Al Redha who stated he is the founder member of Emirates Intellectual Property Association set up two years ago. The objective of EIPA is to create awareness and education amongst resellers, end users and consumers on how to implement and respect intellectual property rights, since IPR is the main pillar of the information technology industry. In this regard the second regional IPR conference is scheduled to be held in Dubai in March this year. He also pointed out that UAE is the only Arab country ranked amongst the top 30 global nations for its protection of intellectual property rights and has held this position for the last 13 consecutive years. “We have one of the best IPR laws in the region and enforcement,” he remarked.

 

Attending DCG members drew his attention to the long drawn out procedure for registering trademarks in the country – usually two years and the ongoing piracy of operating systems in mobile phones being sold in the country. Redha replied that software piracy complaints can be filed with relevant authorities and that Business Software Alliance is also working with EIPA in monitoring such piracy. He also appealed and invited DCG members to become EIPA members.

 

The next address was by Vasant Menghani. 25 years ago he set up business in this country and today manages the Quality Group of companies with the home grown consumer IT Touchmate brand. He reflected his group started the wholesale and export concept in the country and with Dubai’s Department of Economic Development the idea of Dubai Shopping Festival. “In parallel with the vision of the leaders of Dubai to have a few world class brands, we have been working day and night on the Touchmate brand,” he said. While the group has the capability to break the $27 price point barrier with its Touchmate tablets, it is holding back at the $109 price point to allow the rest of the industry to sustain itself. He also remarked profits are essential for the sustenance of DCG members – who also resell Touchmate tablets. Menghani thanked Kasim Pillai of Dubai Customs for his role in helping bring down the IT customs duty.

 

Bora clarified that new countervailing IT duty is in reality 1% service tax to cover processing and paperwork at Dubai customs and capped at $5,442 per shipment. During representations by DCG to Dubai Customs with the balance sheets of members, they had shown that net margins were below 3%, making it difficult to pay the 5% countervailing duty. “We could prove our point to them,” remarked Bora. The year ahead, promises to be a busy one both for DCG members and the board.

 

We all need to pay back to society from whom we get the benefits. We are treating this group as somebody else’s property, but it is our property and it is our business. If we do not get members how will the group run

 

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