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Downturn in local channel to continue in 2008

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Rising interest rates, unfavourable macroeconomic conditions and decreased customer confidence have resulted in a downturn in the local channel, writes Ian Duvenage, Comztek Cape Town regional manager. Unfortunately, this slowdown in information technology spend is likely to continue in 2008, with little reprieve until the middle of the year.

The stagnation is particularly evident in the corporate sector and has affected the coastal regions first. However, the slackening in product purchases will permeate into the other provinces as end users continue to delay spend and take longer than usual to evaluate technologies and complete product comparisons.
Areas in the channel that have been affected include networking hardware, where, with the exclusion of government transactions, sales are flat. Networking products are becoming more commoditised and easier to utilise, enabling end users to buy a complete unit and install it themselves. The result is that there is very little leeway for a distributor or reseller to add value to the transaction. Success in sales therefore comes down to the product price and a targeted approach.
In the area of consumer electronics, due to the variety of retail products, the market is very competitive and favours the buyer. The security market is also flooded with competition, offering minimal revenue from smaller upgrades.
Most affected by the slowdown are the small and medium businesses. Many distributors and vendors are fairly flexible during restricted market conditions, offering the smaller players extended credit terms. However, with little or no money coming in, a number of these businesses may close or merge.
Nevertheless, the situation should normalise towards the middle of the year and the market will most likely experience a pent up demand, with sales improving drastically towards the end of 2008. Data storage, VoIP and virtualisation will contribute towards this increase in product purchases. Also, convergence, full mobility and seamless integration of systems and products will remain essential considerations and provide growth points in the near future.
Until then, my advice is to start differentiating your company from the competition. Focus on niche marketing campaigns, certification and training, and above all customer service. Go the extra mile and include cross selling and up selling in your market strategies. The current consolidation of the market will imply that only real value added and proactive resellers, distributors and vendors will benefit from the expected upturn.