The real challenge of being able to predict the future with any degree of accuracy when it comes to the IT industry and the channel in particular (this month’s cover story), is really only a question of timing.
This is because the IT supply chain has become a rather predictable industry that moves in cycles – from peaks of plenty to troughs of depression.
The “boom or bust” cycles that have become a hallmark of the IT channel over more than three decades are guaranteed to continue. What is not that certain is the timing – the cut-off between when periods of almost obscene riches start the downward spiral into periods of almost abject misery. And when the “lows” will start the climb back to recovery.
It must also be conceded that the extremes between “boom or bust” in the cycles have become less dramatic. At the turn of the millennium the Y2k phenomena sparked one of the most obscene booms in IT history. In its aftermath, the industry suffered one of its most dramatic meltdowns.
The recovery since then has been more predictable and apparently far more sustainable. The continued “commoditis-ation” and affordability of technology as well as other trends such as “convergence” and the dramatic expansion of the consumer economy has provided the channel with a much broader base from which to combat the negative effects that influence downward cycles. Even periods of plenty have been tempered by these same trends.
In the past and to an overwhelming degree, the fortunes of the IT channel in South Africa have been directly linked to the exchange rate – a weak rand against a rampant dollar, regardless of the economic reasons, translates into technology becoming less affordable.
Under these circumstances the channel, and IT distributors in particular, are faced with the challenge of how to manage the basics in the face of falling demand – stock, debtors and creditors. For those who lose control of these fundamental issues, any hiccup or downturn is potentially disastrous.
However, thanks largely to “Trevor” and “Tito” our twin wizards of finance, normalisation of the economy after the miracle of democracy in 1994 has matured to a point where these cycles are less dramatic.
And so to the future.
The South African economy in recent years has boomed like never before. Despite the many negatives such as the high crime rate, creeping interest rates and warnings of overheated consumerism, confidence remains high.
Prospects for continued growth based on the Soccer World Cup and continued prudent fiscal management will probably sustain confidence and prolong the so-called boom to 2010 and even beyond.
Despite all indications that the local economy is going to be able to at least hold its own and not suffer too many dramatic setbacks for at least the next three to four years, it’s more than likely that the IT industry is going to experience a number of adjustments in the same period.
Over the past three years or so the “good times” have fostered a proliferation of players in the local channel, including vendors, distributors and resellers. Based largely on strong demand throughout the market rather than any unique product or distinctive service offering, most players – new entrants as well as well-established organisations – have succeeded admirably. Volume generated out of a buoyant economy has helped sustain one of the most prolonged positive cycles in many years.
But even under these circumstances, there comes a time when the market needs or is forced to correct itself – when volume alone is not enough to offset margin pressures or otherwise mask the many other factors that come into play to force rationalisation or consolidation in an overheated or over-traded industry sector.
There is little doubt that the year ahead will mark the first signs of these adjustments taking place in the IT channel in South Africa. In isolated instances some will be more dramatic than others.
In many cases the first casualties will be those companies, particularly in the distribution channel, that can’t keep pace with the capital intensive demands of funding stock and debtors at ever-decreasing profit margins in a cut-throat volume market.
In other instances, some casualties will come from local organisations that become victims of rationalisation or industry consolidation underway among several international vendors; or that fall prey to acquisition-hungry mega players looking to boost volumes and turnover.
Whatever the scenario, there seems little doubt that while the year ahead will provide much of the same, change has to come into any prediction for the year. The timing that marks that change is the real question.