Channel fears rand volatility persistence

The local channel fears the rand volatility that affected the industry last year will spill over into 2014.

Several industry players indicate they expect the volatility of the exchange rate to continue presenting challenges this year.

Last year, the local channel was saddled with challenging market conditions, changing vendor models, a need to drive economies of scale, as well as a lack of growth opportunities.

Simon Campbell-Young, CEO of Phoenix Distribution, notes his main concern for 2014 is how much of the exchange rate price increases will the consumer, small business and enterprise customers be able to bear.

Uwe Brandkamp, regional sales director at Westcon-Comztek, says last year the exchange rate's volatility curbed a lot of spending, or at least caused a lot of indecision in the channel. He adds that government spending was nowhere near expected and consumer spending around the festive season ended up being a trickle. In addition, credit always remains an issue, and so does margin erosion, he notes.

Tiens Lange, communication solutions director at Westcon-Comztek, also believes the volatility of the exchange rate for numerous countries in Africa, not only SA, will present problems for timelines of project roll-outs.

To Craig Brunsden, software executive at AxizWorkgroup, the sharp decline in the traditional PC/notebook market unit shipments, and the impact on the ecosystem around this, was the main predicament for the channel last year.

"A lot of the channel is built on the PC industry and it suffered its biggest decline in shipments on record. The rand weakened by 25% and the level of volatility experienced always poses challenges within the channel," Brunsden explains.

Brandkamp is of the view that in 2014, the channel needs to take full advantage of vendor channel programmes and support niche vendors that present opportunities for driving higher margins.

"This is specifically relevant in the areas of wireless technology, the cloud and data centre, as well as the services related to these," he says. "Lots of niche technologies that present new opportunities (often in existing fields, such as wireless, data centre, cloud adoption and a lot of new technologies in the consumer space) will ultimately have a knock-on effect in the business arena, such as wearable technology, 3D printing, as well as rapid advances in the tablet and phone space and consolidation of technologies in the entertainment environment.

"I think it is more a market issue than purely a channel issue, but that said, by focusing on high margin business and looking after vendor certifications, cash-flow and covering risks such as exchange rates will be prudent for the channel itself," he adds.

He is also of the view that the channel can expect a lot of consolidation in the market.

Meanwhile, Servaas Venter, country manager at EMC Southern Africa, says 2014 promises to be another year of upheaval for the enterprise technology channel.

"In this environment, success will still come down to getting the basics right. To do this, channel businesses must ensure that their vendor relationships are based on the core pillars of simplicity, predictability and profitability."

As in 2013, says Venter, resellers will look to vendors that have a stable business model, are easy to work with and can provide them with blockbuster products, solutions and services.

With cloud computing and new market entrants completely changing the market, he adds, resellers will need to acquire companies that have the skill sets they are lacking.

"Resellers that are looking to extend beyond the infrastructure model will, for example, look to buy cloud service provision companies. Conversely, a service provider might see the need to acquire some reseller capabilities. This is not simple consolidation, but strategic acquisitions made with the aim of transforming the reseller's business model. When it comes to the distributor segment, size will still be what matters most and this will fuel consolidation.

"This is especially true during the period of sustained economic uncertainty we are experiencing as businesses chase growth," Venter notes.

On the other hand, Lange points out that mobility and WiFi are still the biggest movers for the channel, along with the offsite management of networking and IP telephony solutions for larger organisations.

He concurs that a need for smaller niche brands might open the door for those channel partners that have stayed loyal, for example, to the number three and four brands in technology segments.

"We believe that Microsoft Lync solutions, and the partners who will be able to supply expertise to roll it out and implement and support it, will present a massive opportunity," he explains.

Campbell-Young believes mobile and portable devices are becoming more mainstream in the channel.

"Cloud or remote computing is becoming more and more prevalent; while online and electronic software distribution are continuing to carve out increased market share."

Meanwhile, Brunsden believes there are some really exciting product developments in the market, which should get more traction in 2014. He notes that cloud products from major channel vendors like Microsoft will become more mature, and there is some exciting technology in the security and networking area.

"Tablets, smartphones and data through channel represent a massive opportunity. Now mostly the domain of consumer channels, there should be opportunity for the channel to share in this market trend, as corporates see these devices more and more as business tools, particularly in the SME space. Services around cloud migration, Microsoft XP end-of-life, big data management and security all represent good opportunities."