As the global economy – and particularly South Africa’s – slumps dramatically, business conditions have never been so tough. And it’s predicted that they are going to get a lot worse before there is any significant improvement.
So what are the key issues resellers must tackle head-on, what are the strategies they should be adopting, in order to survive in the constantly evolving, ever-competitive IT channel?
For many in the channel, the Covid-19 pandemic proved to have a silver lining as the work from home phenomenon kicked in and saw a massive surge in sales of IT equipment, particularly commodity products.
But as the world – and South Africa – moves into a post-pandemic era, these sales have started to tail off. This, coupled with various other issues such as the Ukraine/Russia war, disrupted supply chains, rising interest rates, increased inflation, and rocketing fuel and energy prices to name but a few, means that trading conditions in the channel are starting to get tougher.
So what are resellers to do over the coming months in order to survive in an ever-evolving IT industry?
“Remaining relevant and keeping the lights on is vital in this strained economy,” says Hein Engelbrecht, Group CEO of Mustek. “Resellers need to focus on their unique service offerings as a differentiator more than ever.
“Today, SMB`s need managed services too. Create your own unique offering, price it right so that a mutually beneficial relationship grows, and grow your business based on this.”
Today’s buzzword, Engelbrecht adds, is cybersecurity – and resellers need to understand that it is not as daunting as it may seem to operate in that world. “The fundamentals of security are basic: patch, update and backup are something that the channel knows and has experience in,” he says. “Resellers need to make sure that basic IT security hygiene is done at their SMB`s.”
On the scourge of rising prices that South Africans have experienced over the past few months, Engelbrecht says resellers should face this problem head-on.
“If you look at the price of fuel alone as an example, the pressure to resellers’ bottom line is substantial,” he explains. “Resellers need to be looking at tools and services that they can offer that don’t require ‘man in van’.
“By this I mean how many services can you offer remotely – not needing to be at customer premises and bill for this. Resellers need to ensure that they remain to be seen as the IT department for SMB`s who would be without one if it was not for the channel.
“Staying with this theme, it is vital that costs are controlled proactively,” he adds. “Inflation, interest rates, volatile exchange rates are a factor and on an upwards spiral, so it is vital that businesses stay cash positive. Credit insurers will tighten up and cause a lot more pain to the channel, so spend needs to be managed wisely.”
In terms of market opportunities, Engelbrecht firmly believes that there are still many out there.
“Infrastructure in South Africa is a challenge, power and water supply are an opportunity for the channel,” he says. “Spending time to find your niche in these categories is key. And it is vital that upskilling and learning does not stop. The in-demand skills of today are obvious in South Africa: renewable energy; compliance, especially around POPIA, and cybersecurity.
“Those business`s that best adapt to survive this downturn will earn the right to call themselves stayers and will become more relevant to the market,” Engelbrecht says.
Craig Nowitz, CEO of Syntech and Ryan Martin, co-founder of Syntech, say that over the last two years, consumer goods and home solution products performed very well for the company. However, they add, data from leading analysts suggest that the global economy has begun a downturn, making business conditions incredibly more challenging. As this happens, South Africa is likely to face its share of economic challenges too. In this scenario, consumers will have less disposable income because of increasing living costs, fuel prices, etc.
“Market data is already showing that there has been a steep decline in sales for luxury consumer goods like TVs,” says Martyn. “For businesses that are already under pressure to rebuild after two years of lockdown, they’ll likely also face increased costs of operation. We expect retailers to scramble to maintain their volumes and market share, as margins are under increased pressure and every sale is yielding less profit. Fighting on price is a race to the bottom and often results in competitors selling at, or below, cost to turn stock into cash.”
No business can survive with a strategy of selling below cost, he adds. So, how do resellers tackle the coming challenges? It would make a lot of sense for resellers to shift their focus from selling commoditised items, which can easily be compared, to solutions that make businesses more effective or save costs.
“If you’re able to find areas where IT can solve business problems, you’re more likely to convert your effort into revenue,” says Nowitz. “For example, loadshedding presents plenty of opportunities for resellers to help businesses keep the lights on.
“The question resellers need to ask themselves, though, is: what can only you do to help businesses streamline processes by introducing computers and systems? This empowers staff members to work on strategy and treat exceptions instead of wasting resources on mundane day-to-day admin or tasks.”
“Additionally, it’s also important for resellers to leverage their distributors’ strengths like stockholding and logistics support,” says Martyn. “Syntech has an automated XML feed that resellers can easily integrate into their website, with stock and pricing updated every five minutes. This means that our customers can utilise our stockholding with confidence when marketing products on their own platforms. Because of the rich content that is on these listings, it’s also quite easy to populate products of interest on your website.”
“Another immense challenge facing resellers is exchange rate price fluctuations,” continues Nowitz. “To combat this, resellers can look to products with shorter sale cycles to mitigate exchange rate volatility or issue quotes with clauses to protect against fluctuations in the exchange rate.
“Being open and honest with your customers can often help alleviate problems down the line as many businesses have to deal with this volatility on a daily basis,” says Nowitz. “Alternatively, resellers can work on deals alongside their distributors to lock in exchange rates.”
While many are already bracing themselves for an economic slump – even recession – Tim Humphreys-Davies, CEO of Pinnacle, remains cautiously optimistic.
“Firstly, I am not sure we have even slumped yet,” he says. “We are still seeing fairly robust demand from resellers, although this demand has pretty much normalised to pre-Covid levels. Supply on end user computing is almost back to normal with pockets of short supply still apparent but, in general, it has improved since last year Q4.
“Supply constraints still abound in the networking sector and this is affecting the ability of many resellers to complete their solutions,” Humphreys-Davies continues. “Having a flexible approach to brand selection and being able to provide hybrid product offerings is crucial for resellers to get the job done and get paid.
“End users seem to be driven by availability of product and resellers need to cater for that need.”
Resellers need to be aware of the almost constant change that is occurring around them – and not only when it comes to technology.
“Workplace trends are moving fast, and resellers need to keep pace with this,” Humphreys-Davies explains. “For example, the recent relaxation of the Covid restrictions may result in a return to pre-Covid workplace habits such as face-to-face meetings and office meetings, and this could lead to a sudden demand in desktops or infrastructure such as cabling etc. I would also think that skilling up in the software protection space (anti-virus, malware) is crucial to resellers’ ability to offer what their customers require.”
Digitalisation remains the “flavour of the month” in the IT sector at present, but Humphreys-Davies believes a cautious approach to this is the best policy.
“I would suggest to any company that they shouldn’t rush their digital transformation journey as it’s a major learning curve figuring out what works for your business and what doesn’t,” he advises. “But it is something that South African companies need to be focusing on in order to survive.
“In distribution, having an e-commerce/marketplace offering is critical, and I think all stock-based distribution businesses have embraced this,” he continues. “We have selected the Magneto platform to run our marketplace on and X3 as an ERP platform and, so far, it is working for us. Process flow is also something we have embraced.
“The approach each company takes is so dependent on their needs and what can work for them.
“There are industry sector trends we see and I think resellers can spot these too and can address these with some standard offerings. Understanding each business process can help – and then applying your mind to that process to see if it can be more efficient if automation/digitalisation is applied. Take deliveries, for example. We all know we want an electronic POD; the question is which device you want to use or the extent of the tech you want to deploy to best maximise the efficiency of getting that POD to who and when .”
Michael Hann, MD of Corex, says that business conditions in all sectors of the market are currently challenging and that many in the channel are starting to feel the pinch.
“Resellers have to deal with a number of issues,” Hann says. “The list is long and daunting, but the main challenge for most resellers is actually remaining relevant and in business.
“They are facing supply constraints, longer lead-times, increased competition, decreasing margins, and economic challenges beyond their control,” he adds. “The balance between shortage and oversupply can shift very quickly too. Consumer and business spending is diminishing – exacerbated by inflation and across the board price increases.”
Hann says the key issue for resellers remains diversification. “Keep in touch with where the market is going and follow the trends,” he advises. “Resellers are being forced to change and they should get ahead of the curve before it catches up to them – transform their business to remain relevant.
“There are plenty of new opportunities coming to the fore: digitalisation, digital services, cybersecurity, new energy, services, hybrid working, and value-add. And that’s just naming a few.
“Resellers need to pivot and balance their business to manage supply constraints – offering what is available instead of waiting to offer what isn’t,” Hann adds. “They need to appeal to ‘more’ of the spend that consumers and businesses have.
“On digitalisation, using digital technologies to change the way a business analyses and operates is growing rapidly and businesses are even changing business models around this,” he says. “Resellers need to understand what it is and how it works before just offering it to customers, so in-house is always the best way to learn.
“Every business will have a different use case and present a unique challenge. Digital transformation is a key revenue generator for the future,” Hann says.
Craig Brunsden, CEO of Axiz, says that in the current unpredictable economic and market conditions – Stage 6 load shedding can now also be thrown into the mix – some perspective is warranted, rather than advice.
“Whether reseller or distributor (or vendor or customer), challenges are abundant for all and are particularly dark if we just focus on them as obstacles and not opportunities,” Brunsden says. “I strongly believe – and advocate internally – that we have faced bigger, more uncertain, and more severe challenges in the past 27 months than we do right now.
“It’s not as bad as it seems,” he says. “We all know how to cope with rising prices, short- or over-supply, ROE volatility, and unpredictable demand. This is fundamentally why the IT channel exists. If it were not for this chaos, it would be simpler for customers to procure from vendors at their own pace.”
Brunsden says the best advice he could give to the channel is two-fold.
“Firstly, focus on the portion of your business that you are best at and that has produced results over time,” he says. “This should ideally match some challenge in the market like supply, or a key skill-set that has limited competition. Even investing in a dying sector can still make sense (and rands).
“Secondly, place a bet on the future,” Brunsden continues. “This is different for each reseller and distributor, but the old laws apply as they always have. We have to remain efficient, fast and agile enough to respond to a rapidly changing IT landscape. Cloud and e-commerce, in particular, are disrupting our markets more than we might want to believe or accept.
“If we cannot compete for these markets, we could be irrelevant in time.
“Even if we stay with an old model, we’ll still be expected to be more efficient,” Brunsden says. “We see internal digital transformation as key to both strategies. The IT channel is littered with the wrecks of partners and distributors over time that did not cope or keep up. These times are no different to the problems of the past. They have different names, but I believe the fundamentals are the same. We need to keep up or we will be forced out.”
Gary Pickford, chief commercial officer at Tarsus, says that, in South Africa, the reseller who can partner with their end customers to drive the customer experience is going to be the reseller who will successfully navigate a tough economy impacted by runaway global inflation, a volatile currency, and a disrupted supply chain.
“At the end of the day, these economic factors are out of a reseller’s control,” Pickford says. “But partnering with end customers as they journey on their digitalisation journey, IS something within a reseller’s control.
“But resellers shouldn’t view the digitalisation process purely as a productivity or efficiency play, they should see digital tools and platforms as a way to enable superior customer experiences,” he adds. “Progressive resellers are thinking about how they can help their end customer blend human empathy, creativity and critical thinking with the efficiencies that technology can bring. Combining that human touch with the technology is going to drive customer experience (CX) and this is where resellers will win.
“Resellers need to engage with their customers and ask them where their pain points are,” Pickford says. “Where are the opportunities to differentiate and delight their customers? And how can technology, combined with creativity, make the difference?”
Spencer Chen, MD of Rectron, says that as we reach the half-way point of 2022, the IT channel has been faced with numerous challenges.
“We are experiencing post-pandemic recovery, economic restraints, shortages across tech hardware, and a volatile market impacted by world events, such as the Ukraine-Russia conflict,” Chen explains. “In these tough trading conditions, IT channel players need to look at diversifying, implementing new revenue streams, and vertical markets to create value. It’s a key strategy for businesses which want to ensure growth and survival – moving away from dependence on traditional markets and their cycles, and grabbing a bigger portion of market share.
Adding new products and services that go beyond the traditional tech offering of PCs and components is one way to do this, Chen says.
“Our DJI enterprise drone solutions, for example, steer away from casual drone users to industries such as agriculture, mining and construction, so that they can leverage drone technology to achieve efficiency and an improved bottom line,” he says. “Not only are we distributors, but we also handle all repairs and RMA-related incidents in-house, with DJI-certified and trained technicians across multiple branches throughout South Africa.
“We have also expanded our point of sales products to cater to businesses in all sectors of the South African market and its industries such as logistics, retail and healthcare, the backbone of the economy. Through our partnerships, we now offer (wireless) handheld scanners, stationary scanners, mobile computers, tablets, micro kiosks, and OEM scan engines, which are invaluable tools to improve the speed, accuracy and safety of operations. We also go beyond just product delivery to provide pre-sales support and first-line technical support.”
Chen says that technology is evolving at a rapid rate, so IT distributors need to stay abreast of trends while also having a good understanding of current, local needs. “For instance, as South Africa continues to experience power outages, as well as price increases for electricity, alternative sources of energy are starting to look more attractive to consumers,” he says.
“With the increase in digitalisation, and the shift to hybrid working, for South African companies of all sizes, the ability for IT channels to provide turnkey cloud solutions is becoming increasingly important. In line with this, we have grown our quality cloud offerings to ensure our resellers are able to provide clients with compelling value propositions. We also offer advice and can help implement cloud and data solutions for our partners, ensuring the end user also gets the best, safest and most cost-effective option with all the security and compliance built in.”
Like his executive counterparts, Chen also sees opportunities in the face of adversity.
“Although we are facing challenges within our sector, these present opportunities to diversify products and services and increase revenue streams, train staff with relevant skills and expertise to provide excellent support to clients, and explore new partnerships that offer business differentiators,” Chen says. “This can put IT channel players in a good position to weather any market condition.”