By K R Nambiar
 Several resellers, with support from their channel associations, have reacted sharply to the practice of some vendors selling to non-authorized partners in certain cities of South India. CONFED-ITA, the confederation of channel associations in South India, has strongly advised vendors and distributors to maintain channel ethics, stick to a limited number of authorized partners, and ensure price parity.
There has been mixed reactions to the steps taken by some of the channel associations. While some of the partners feel that there needs to be stronger reactions to the policies of some vendors who indulge in over-distribution and create price disparities, others feel that the dynamics of the market must define the rules of the game.
Left fuming
Take this case, which happened in a district headquarters in the south. A vendor sold around 200 monitors between two authorized partners during the month of May in a market that typically consumes around 125-140 monitors of the brand in a month. But this May was a washout, and the partners were sitting on most of the stock. Then, because of sales pressure at the end of the quarter, the distributor was forced to sell around 100 monitors to a local sub-distributor who did not enjoy any relationship with the vendor. But what was really shocking to both the authorized partners was that the products were sold at a price which was much less than the official transfer price of the authorized partners for that month. The issue was later resolved to a large extent with some involvement of the local association.
“A major concern for partners in our association is the habit of some vendors and their distributors to sell to partners who are not authorized to do business with the vendors. Consider Pondicherry, which is a small market with less than 1,000 PC unit sales a month. A small disturbance in the channels can cause a lot of confusion, and this automatically brings down the market-operating price of products. But vendors, in cohort with distributors, often dump products at a lower price. This kills the business of partners who are investing money, infrastructure and manpower to promote a brand in the region,” explains Rajesh Jain, President of the Information Technology Traders Association of Pondicherry. “We are now working among association members to ensure that no product is over-represented, and that everyone can make decent profits,” he adds.
Pawan Jajodia, President of COMPASS agrees, “While we have not yet officially acted against such ulterior moves on the part of vendors, it is extremely unfair for a vendor to sell to other partners when an existing partner has invested in stocks on behalf of the vendor. Such moves can be hazardous for the health of the channel business.”
P N Prasad, the Vice President of CONFED-ITA, is one of the most of vociferous supporters of strong measures against such vendor practices. “One of our members, who has an Acer Mall, was surprised to hear from a customer that a certain product was available to the customer from a reseller—who is not even an authorized partner of Acer—at a much lower price. I am not singling out any company, but almost all vendors indulge in these practices,” he complains. “When someone invests in an air-conditioned showroom, the least he expects is pricing parity on the products he sells.”
The other view
Not all channel association heads are inclined to think similarly. “The IT industry and IT channels are not for the faint-hearted. Capitalist MNC vendors control this business, and you need to play according to their rules. Old Indian companies such as Bajaj or Tata had fixed channel policies with transparent business rules. But in a capitalist business model, vendors have empowered their distributors to sell on the basis of both depth and breadth,” explains Saket Kapur, President of PCAIT. “As a channel association, we have not yet broached this topic. However, I personally feel that there is little we can do, and we need to do business according to the dynamics of the market.”
P K Harikrishnan, President of the Kerala-based ACKMADA, is largely in agreement. “In the technology business, the only constant is change. And every day there are opportunities. It is these opportunities that bring in potential profit. You need to remember that when a reseller cuts a risky deal, he sees only his interest, and as an association we need to respect risk-taking abilities. Hence, I personally do not prefer to have the association involved in such matters. Nevertheless, in special cases, if a partner is likely to incur losses due to a policy decision of vendors, or if it is in the larger interests of the channel community, we will step in to resolve the issue.”
While most partners and industry representatives feel that vendors are responsible for much of this situation, some blame distributors too. There is also some amount of favoritism shown by distributors, who, in their larger interests, do some amount of cross-bundling. However, the distributors say that in most cases there is little they can do (with regards to pricing or offering discounts to partners outside authorized channels) without taking the vendor into confidence. “Normally, vendors provide direct incentives to authorized partners, therefore it is not viable to sell products to other partners and ensure that these partners also make profits. However, at times, there are deviations depending on business needs. It is always based on the vendors’ business objectives. They guide us to conduct business appropriately,” explains Rajesh Goenka, Vice President of Rashi Peripherals.
Culture clash
There is also the opinion that such complaints from partners arise because Indian business culture is quite different from that of MNC vendors. “In India we believe in loyalty more than opportunity. However, MNC vendors are trained to look at all opportunities to grow the business,” explains Kapur of PCAIT. “In the western world, if your wife is dating someone else, it is not taken all that seriously. In India, you cannot even think about it.”
Not surprisingly, the criticism is sharper in smaller towns. Jajodia explains why. “In larger cities, market volumes are good enough for resellers to ignore such aberrances and focus on opportunities.”
Meanwhile, Prasad warns that with the imminent slowdown, things will worsen if vendors continue with such policies. “The major argument from vendors is that they have huge targets to meet, and that is the reason they cannot ignore opportunities to sell to other partners. Already there are reports that some of the PC vendors have increased the targets set for their partners by over 200 percent in some towns of Tamil Nadu; if the partners fail to meet these targets, [the vendors say] they will need to sell to more partners. This is an extremely unhealthy practice, and we would like to ensure that the interests of partners are taken care of.”
He cites the example of the much-debated Elcot deal. “Two of the large PC vendors committed to us, in the larger interests of the channels, that they would not participate in the tender, but we came to know that they also bid.”
Still, Prasad says that the policies of some vendors have changed, and that this has helped them grow. “Consider Samsung’s laser printer business. Some years back they used to sell to around 230 partners in Tamil Nadu, and they had instructed the distributors to bill just any reseller. Now the new local sales team has reduced that number to just 14 partners across the state—but their business has doubled. Obviously, it pays to create a loyal channel base and support them.”
While most vendors refused to comment on this contentious topic, some counter-argue that even partners are not loyal. “We have cases where we worked very closely with partners, handholding them to do business with some corporate customers, but for something like Rs 100 per PC extra margin, they actually maneuvered the account to the competition,” alleges the Regional Sales Head of an MNC PC vendor.
Goenka of Rashi points out another aspect. “While everyone tries to make the vendors sell to limited distributors, and the distributors sell to limited partners, resellers are always free to sell to anyone and everyone.” |