The Channel Run

HP laptop

sale increases by 140%...

In 18

months Canon manages 12%



market share in MFDs starting from


virtually nothing...

Samsung

takes 40% market share in monitors and reaches no. 2 in laser printers...

...headlines that scream

out from pages of IT trade publications or press handouts released by vendors or

their PR firms. Or, often, these are statistics gleaned out by research agencies

or analysts after conducting meticulous market surveys. And more often than not

these headlines or statistics do influence the purchasing decisions of users;

therefore, for IT vendors the importance of these numbers could never be

underestimated.

But what such headlines or statistics often tend to

ignore is the role of the IT channel community, people who actually help vendors

achieve these numbers.

The stellar contribution of distributors, resellers, sub-distis

and VARs amongst others receives little or no mention in analyst reports or

jazzy press releases as they are not considered fashionable enough. However,

that in no way reduces their importance to the vendors-while they may not

gloat over their resellers/distributors in their marketing communications,

almost all vendors are striving hard to beef up their distribution networks to

increase their market shares. Another factor that makes the channel absolutely

essential for vendors is that they help them maintain lean direct sales teams,

leaving the selling aspect in the hands of resellers.

Vivek Malhotra, director, Sales & Channels, South Asia, Lenovo "We have strengthened IBM's VFB program and added a set of resources from Lenovo. Today we cover quite a few cities directly. My team members who are there in those cities, access and work along with the VFB team"

Dataquest spoke to a host of vendors strongly ensconced in

the Indian market to get an idea about their channel structure and the

strategies they have adopted to strengthen their distribution networks. What we

found out was that in line with the changing market dynamics, most vendors are

going about launching a host of new channel initiatives in 2006 aimed at either

retaining or increasing their market shares. Other trends witnessed included a

strong retail focus either directly by the vendor or through channels, a heated

debate on the adoption of a national distribution model as against a regional

one, the growing clout of the SIs, solution providers and the VARs amongst the

vendors, the different strategies in pushing volume products as against value

ones, more and more incentive programs devised by vendors for partners besides

the increased focus to penetrate B&C class or even smaller cities and towns.

Lenovo's Express Arrival



Lenovo has been in existence in India only an year, but this new avatar of

IBM's personal computing division has already created a niche for itself as

one of the principal channel makers. Evidence: the IDC-DQC Channel

Satisfaction Survey this year found Lenovo to be the no 2 behind only HP in the

Channel Champion category. Not surprising, considering the success of the

company in motivating the channel to sell Lenovo-branded products in such short

time. Another inherent Chinese strength it brought was augmentation and fine

tuning of the supply chain to help in cost optimization.

Rajeev Singh, head, Volume Business, Samsung India "We are trying to ensure right pricing for our products in order to ensure that we minimize price protection scenario and also maximize business potential. We will also give more innovative programs that offer better margin opportunities"

Vivek Malhotra, director, Sales and Channels, South Asia,

Lenovo informs that there have been two key focus areas for the company. One is

to ensure the profitability of the channel partners and the second to help these

partners by bringing the relationship that Lenovo shares with its customers to

them. To expand its market share, Lenovo also made a conscious effort to

replicate its Chinese focus on retail to the Indian market. “Out over here, as

part of IBM, we were strongly focused on large enterprises that contributed to a

major chunk of our business. We have started consciously focusing on the

government, and small office-where we were not very strongly present earlier.

We also started looking at the consumer space.” ThinkWorlds and ThinkZones

were two key initiatives to gain retail fotthold.

Transparency, the Keyword for Samsung



Though Samsung could boast of one of the strongest distribution networks in

the country, the Korean giant had to navigate really rough weather last year

following the exodus of a few senior people from the company after allegations

of misappropriation. The distribution network was probably the worst hit, and,

therefore, it comes as no surprise when Rajeev Singh, head, Volume Business,

Samsung India, talked about the transparent policies that have been put in place

for channel management by the company, following the imbroglio.

Policies were built around having a more structured program

based incentives model. The company also now advises dealers lower inventory

levels as it would not offer them price protection; in fact, no partner should

keep stocks beyond 10 days. At the same time Samsung would also restrain from

taking random pricing calls, which at times hurt channel sentiments.

Distributor pricing would, however, be standard and no

variance will be entertained for support from Samsung. And, most importantly,

large deal pricing support would be provided only against end-user confirmation

by the Samsung sales team and receipt of order details.

Rajeev Mittal, group director, Small and Medium Solutions and Partners, Microsoft India "We are looking at developing a partner ecosystem that supports our plans of geographic expansion to B&C class cities (coverage); partners with requisite skill-sets capable to deliver solutions (capability); geared up with adequate resources that would help them service the market (capacity); and, last, but not the least, those who could provide relevant customer references (customer centricity)"

This year, Samsung will focus investments in developing

Note PC, TFT & MFP market size. These three combined will form the growth

engine for the company in 2006. Retail would be another major focus area where

Samsung would drive business through its Brand stores, 15 of which are likely to

come up this year. Though transparency is of paramount importance in partner

relationship, incentives for partners would also continue to remain a major

draw.

The Intel Challenge



Intel probably has the oldest distribution network in the country, a

structure of Intel Traders (ITRs), Genuine Intel Dealers (GIDs) and Intel

Premium Partners (IPPs) that has evolved over the last ten years. Rajesh Gupta,

director, Channel Sales, Intel India, informs that this structure is headed for

a revamp in 2006, though he adds that the changes would hinge more on

nomenclatures, keeping the underlying philosophy same. The new strategy is

congruent to Intel's brand transition from 'Intel Inside' to 'Leap

Forward' and is aimed toward scaling up the channel partners and increasing

their volumes and profitability.

As part of its strategy, Intel is changing its way of

training the partners, which will be more solutions for user model where the

partner will work with the customer and drive solutions accordingly rather than

sell what he has. While the IPP layer that has emerged in the last five years

conforms more to this solutions approach, it is the GID program created by Gupta

in 1995 which is likely to get a facelift.

While no one can or should doubt Intel's pioneering role

in defining the channel network in India through this GID network, there have

been speculations about decline in its value proposition to the channel in

recent days. That probably explains why Intel was nowhere there in the IDC-DQC

Channel Satisfaction Survey this year. Reasons might be varied: the program,

after running for ten years, might have become jaded, or management

restructuring might have impacted channel relationship. Whatever may be the

cause, the channel restructuring planned this year should take care that this

decline does not become terminal.

Rajesh Gupta, director, Channel Sales Intel India "We intend to get more customer and solutions focused to drive our platform and technology and want to enable the partners to take a solutions offering approach rather than just driving products"

While realignment of the channel structure from a product

focus to customer solution focus would be the underlying theme, Intel does have

specific targets for specific platforms for its distribution network. By end

2006, Intel plans 85% of the products based on the dual core platform and,

hence, its drive to increase channel contribution also comes in the form of

vendors driving PCs based on the dual core technology, priced at around Rs

20,000.

With the mobility market attributing just 2% to the channel

contribution, which is a concern area for Intel, Gupta has a program wherein

Intel will work with ODMs (Original Design Manufacturers) from Taiwan to create

and supply backbone products at a reasonable price to the channel, and also in

enabling mobility on desktops to increase channel penetration in the market.

With the digital-home-customers concept on the rise, mobile technology for

desktops will also grow.

Microsoft's 4Cs Solution Orientation



Amongst pure software vendors, Microsoft perhaps boasts of the most robust

distribution network, one based on the principle of 4Cs-coverage, capability,

customer centricity and capacity.

The focus for Microsoft has been to shift its two-tiered

partner ecosystem towards assuming a more solution-based orientation. This has

definitely helped the company rope in more SIs into its fold, a community who

were traditionally not too keen on selling software. With the company now

creating a go-to-market network constituting of both SIs and ISVs, it is not

only broadening its channel spectrum but also increasing customer focus through

customized solutions. With this focus on its application platform products and

infrastructural solutions like security, storage, data management, Microsoft

today finds the partner route to be an effective mode of driving these across

the customer segments including SMB, industry verticals and enterprises.

Ashok Pamidi, head, Commercial Accounts & Base Business, TSG, HP India "Breaking the trend where vendors impart product training to partners and let them drive their solutions and address customer queries on their own, the pre-sales division of TSG intends to create a pre-sales community from their channel partner groups"

Therefore, Microsoft, for the first time under its MSPP

(Microsoft Partners Program) has rolled out a specific initiative for its gold

partners. The company has evolved a Microsoft Server Specialist Club (MSSC) for

its resellers and would rope in 25 of its gold resellers as part of this, who

can avail greater benefits and associate with the company in driving these

solutions. The program also aims to enhance partner revenues by way of

specializing them in certain areas.

HP's Extended Arm



This year's IDC-DQC Channel Satisfaction Survey ranks HP as the Channel

Champion: not a surprise since HP has been numero uno since 2001, except 2003

when it missed out to Samsung and came no 2. Widely regarded as the King of

Channels, changes in HP's channel strategy is eponymous with the restructuring

of its business units. And this restructuring has now become a periodic business

with the vendor. This year, HP India has evolved a new channel strategy and

approach to tap the market in conjunction with the three newly created business

groups- PSG (personal systems group), IPG (imaging and printing group) and TSG

(Technology Solutions Group).

According to Ashok Pamidi, head, Commercial Accounts &

Base Business, TSG, HP India, the new business strategy, which is followed

worldwide, is structured to be more responsive to business needs of the customer

and also to explore newer business opportunities. With HP India recording a 40%

growth over all, this change in the business structure is expected to boost the

business significantly. The major drivers of growth have been its pre-sales

initiatives for channel partners and also intensive training of its partners.

BFSI and government have been key drivers of growth.

Breaking the trend where vendors impart product training to

partners and let them drive their solutions and address customer queries on

their own, Pamidi informs the pre-sales division of TSG has taken a different

approach and intends to create a pre-sales community from their channel partner

groups. HP has put its best foot forward in bringing out certain innovations as

regards pre-sales and aligns it with channel growth in moving them up the value

chain.

Canon's Value Proposition



Canon is advocating its partners to have a value shift. Instead of pushing

boxes, the partners should try to add more value to products. Accordingly, Canon

is trying to educate its partners about its strength through the Canon Achiever

Program conducted by its National Training Cell.

At Canon, the IT division consists of all that which is

connected to a PC. All printers, digital cameras, etc are considered as IT

products. According to IDC, the Bubble Jet (BJ) market in 2006 is around six

lakh and twenty thousand; laser printer is around three lakh plus; and the

all-in-ones are around three lakh and twenty thousand. In the inkjet printer

category, Canon has 18% market share. In laser where Canon has just started, it

covers 5 to 8% market share. As per IDC, Canon holds number three position in

laser business, after HP and Samsung. In 2006, Canon is expecting sales to grow

by 28 to 30%. Though retail is going to be a crucial catalyst for this,

Bharadwaj knows that these ambitions cannot be fulfilled without his channel

partners.

Earlier, there were four layers in Canon's distribution

chain for IT —Canon, regional distributor, premium partners, and resellers. As

part of the strategy shift, Canon has removed one layer, that of distributor, in

the metros, and would sell directly to its premium partners and they would, in

turn, sell to resellers. eSys would now cater to the premium partners in the

non-metros, while in the metros the company would start direct billing. 

Alok Bharadwaj, vice president, Canon India "We want to convey a message to the channel partners that they should continue with Canon and it would be Canon's responsibility to ensure that their prosperity is enhanced"

Intelligent Channel Mapping by Cisco



Business intelligence (BI) is no more just an enterprise application,

networking king Cisco is now using it to revamp its channel strategy too.

Cisco's channel business intelligence network plan is aimed to tap the right

market at the right place with proper product and partner. The company had

hitherto concentrated on internal alignments to address its verticals base

including government, ITeS, manufacturing, education, healthcare, security and

finance. But it would now also “re-align” at the channel level to get a

focus on these verticals and evolve select strategies. These include jointly

working with the partners, evolving select and exclusive programs to suit their

growth plans, increasing support structure and also increasing finance options

to the channel which was previously the main constraint.

A few tasks that Cisco consciously undertook recently were

to rope in the second tier partners to plan on the targeted market for each of

the product line, and associate with industry verticals. Along with the partners

it got involved in identifying the big users of technology. Partner mapping was

one of the crucial aspects Cisco took up to select the partners and trained them

to become specialists of each verticals by imparting intensive training and

having a support structure to increase the partners' bandwidth. About three to

four partners who provided end-to-end Cisco solutions, addressed each industry

vertical.

Cisco is beefing up its investment through joint marketing

fund (JMF) and co-op funds, which are part of its market development fund, in

the tune of $100 mn, a major amount going for channel development programs. It

has tripled its workforce and has a 20-member marketing team to build tools and

marketing collaterals. Cisco financing and Cisco leasing modules, which are part

of its capital initiatives, and has been confined to the enterprise segment

covering about 30 companies till now, was extended, in its second phase, to the

commercial or SMB segment.

Acer on Restructuring Path



With restructuring becoming the buzzword in the IT industry, Acer India has

firmed up on its restructuring chart as part of its phase III expansion plan,

making it more product and channel focused. According to S Rajendran, GM, Sales

& Marketing, Mobility & Display Products Group, Acer India, in the phase

III plan, the company has re-aligned its business units into two new units-

the Mobile Display Product Group (MDPG) and the Networking and PC Client Group (NPCG).

As part of the new strategy, about 400 of its accounts will now be addressed by

the channels, while about 50 accounts, which are critical, like e-Governance

projects, NIC, Reliance and Tata will be retained by Acer to be addressed

directly.

To recall, Acer's first phase after the demerger of Wipro-Acer

tie-up was to strengthen its presence in the enterprise and the vertical

segments of the industry and by choice Acer did not enter the consumer segment.Â

After having consolidated its position in the vertical segments like oil

and gas, government, EOU, education, BFSI etc, Acer in its second phase forayed

into tapping consumer segment by aligning its businesses into two groups-EPG

(Enterprise Product Group) and CPG (Consumer Product Group) to cater to the

verticals segment customers and also to the SME, SOHO and home segments, besides

forming an exclusive retail strategy. The formation of the CPG and EPG was

indeed fruitful as Acer in the last fiscal grew at nearly 35%.

In the current re-alignment of Acer's business units,

according to Rajendran, the CPG and EPG ceases to exist and the new MDPG and

NPCP will drive the sales of products. The objective behind creating the new

units is guided by the global policy of Acer of becoming a complete indirect

model. The MDPG will comprise products including notebooks, projectors, TFTs,

Optical drives and so on, while the NPCG will have home PCs, commercial PCs,

servers and storage. 

Retailing, the Way Forward



Retail seems to be the key focus area for almost all vendors in 2006. And

they are looking at reaping dual benefits out of this strategy. For one, retail

gives a different color to their brand philosophy, enabling them at the same

time to derive better margins. Vendors like Samsung, LG, Canon, Acer or HP who

have built a strong retail focus are positioning their products as belonging to

the digital lifestyle category to make them fall in tune with this new strategy.

With most lifestyle products falling into the touch-and-feel category, retail is

likely to receive a big push this year.

The retail wave is already visible: Canon currently has 105

retail centres known as Canon IT Image Zone, where customers walk in and get a

live demonstration of all Canon IT products. It is now planning to launch around

13 retail chains this year, that would translate into around 100 stores. These

would include Hypercity stores in Shoppers Stop, E-Mart in a JV with Videocon

besides other arrangements with Metro, Woolworth, Reliance and Pantaloon. While

Samsung already boasts of 80 Samsung Digital Home Plazas that work in a

franchisee model, it now plans to have 15 IT Brand Stores in place this year.

Acer has even greater dependence on retail-25% of the

company's turnover in 2005-06 came via its two retail formats, viz, the 200

Acer Points and Acer Malls across the country. The Acer Points that stock

multiple brands contributed two-third of the revenues, with the rest coming from

the exclusive Acer Malls. S Rajendran, GM, Sales & Marketing, informs of

plans to double these retail points this year and generate 35% of the revenues

from them.

All HP's reseller retail stores carry the entire

portfolio of HP's imaging and printing products. These stores offer a one-stop

shopping experience for both SOHO and other consumers. HP aims to have such

reseller retail stores in almost every major shopping centre in the country

soon. Currently, the company has around 700 retail outlets spread across 226

cities. It has also introduced the Concept Store, which provides consumers

consultative and hands-on experience to make an informed purchase decision.

When one observes the moves made by top-rung vendors and

the trends that took place last year, it is clear that companies are likely to

compete with each other not only in terms of technical features associated with

their products but also on their overall look and feel.

But can such retail strategy cannibalize a section of the

channel, particularly the wholesalers and sub-distis. Bharadwaj does not rule

out the possibility. Rather, he believes that is probably the way ahead when

retail chains would wipe out the ground level wholesalers. Rajendran and Singh,

however, feel that it would not be a complete cannibalization, but retail focus

is only a sign of market maturity. That anyway is evident from the IDC Report on

Retail that states the total value of hardware shipments through the retail

channel stood at Rs 212.1 crore last year. Despite the promising number, the IT

retail experience in India still seems to be grappling with its problems. (See

Box: 'Retailer Yesterday, Consultant Today')

National or Regional, that's the Question



A host of vendors, including Canon, LG, APC, D-Link, Maxtor, Seagate and

Emerson Network Power have shifted from a national distribution model (NDM) to a

regional distribution model (RDM). The role of a regional distributor is to

generate incremental business for the company from niches that large, national

distributors cannot address. “Which distribution model a company adopts

depends on the kind of product the vendor deals in. Products like printers,

monitors and scanners can be sold best through the RDM. For a product like

high-end digital cameras, the NDM seems to be the best option since such

products require specialized service centers and cater to a niche audience,”

says an IT consultant.

Basically, an RDM has multiple distributors; each

distributor has a chain of resellers operating in a particular region under him.

Or it may comprise a network of distributors working in small towns who add to

the vendor's overall channel reach. This is significantly different from the

NDM, which is a three-to-four layered model, wherein a vendor has signed a

memorandum of understanding (MoU) with a national partner who distributes a

product through his network of sub-distributors and resellers.

The shift to the RDM model has helped vendors gain better

penetration into B- and C-class cities and cut down the number of tiers to reach

the end-user. In the period following the slowdown a few years back, vendors

were grappling with the problem of reduced margins. At that time some felt that

if they concentrated on individual regions, they would be able to gain better

penetration into the market with a consequent improvement in margins. While the

RDM strategy seems to have worked well with most vendors, it has also given them

the opportunity to closely observe the retail scenario. In the two years between

2002 and 2004, most channels consolidated their RDM model; with this foundation

in place, these vendors are now looking at banking heavily on retail.

However, since the benefits of the NDM or RDM model would

ultimately depend on the products sold, the jury is still out on which model is

the best. While Mittal, Gupta and Bhardwaj are keen on the NDM, Mani or

Rajendran or Porwal feel it is best to have a balance of both. By sheer dint of

their sizes, Ingram Micro, Redington and eSys seem to be the preferred National

Distributors for most vendors.

Value Model, the Way to Go



Indian vendors and channel partners are constantly redefining their markets

and business models-one such major shift occurred when the market moved from a

volume to a value model a few years ago. Channel partners were keen to move up

from the box pushing role and vendors began investing a fair amount in training

initiatives. While attempting to reinvent the role of the channel partner,

however, the benchmark of success still seemed to be the number of unit sales

notched up per quarter. Most vendors still felt the end objective of training a

channel partner is to finally increase the bottom line.

However, today, most vendors have understood that what they

have often tended to lose sight of in a bid to realize near term gains, is the

more strategic objective of developing a value model in the first place. The

value model is a natural progression of a maturing market. In an era of

diminishing margins, it appears to be the next driver of growth-the model that

allows channel partners to move up the value chain. However, since it has been

more of an evolutionary approach till now, most channel partners of vendors have

not got the overhaul they actually required. The most effective channel

organizations are those who have longer gestation periods for success. Vendors

should be prepared to make decisions and investments today that will pay off two

to three years down the line.

The essence of a value model and its core difference from

that of a volume model is the fact that the customer drives the former and the

business drives the latter. And while most vendors would readily agree to a

value model in theory, most find it difficult to translate it into practice. One

perceives customer centricity as an ideal-a state of Utopia that is always far

from reach, or is it?  Most may find

this hard to believe, but some premium partners of the best run channel

organizations in the world do not even sell any products. These partners simply

consult with customers and help in the planning of the network. Their

partnership is critical to the vendor's business but is nowhere measured by

the number of units sold.

Rajneesh De



With inputs from Goutam Das



rajneeshd@cybermedia.co.in