Channel partners cash in as SMEs go tech-savvy

The economic boom, coupled with high IT awareness among small and medium enterprises (SMEs), is boosting the fortunes of resellers or channel partners in India, with more than 90 per cent of them reporting a rise in their annual revenues over the last 12 months, according to the latest report by New York-based Access Markets International (AMI) Partners.

The average revenue of channel partners focusing on IT needs of SMEs in India was $324,000 in the 2005-06 financial year. It has risen to $399,400 in the last 12 months.

According to Partha Sarathi Sengupta, senior analyst at AMI-Partners, "This is due to a significant increase of IT services as a contributor to revenue growth of channel partners. Moreover, hardware reselling has become a commodity business with heavy discounting and is curbing reseller margins. To stay profitable, channel partners have ventured into services and solutions as a business model."

Channel partners in India have aligned their business models to suit the current requirement of SMEs.

Currently, channel partners focussing on SME needs are still product-oriented and their revenue mix is dominated by computing and networking hardware (about 52 per cent).

According to AMI-Partners, getting entry into an account is becoming difficult for channels due to multiple brands, endless offers and fierce competition.

So the channels are heavily banking upon services now.

There has been a significant increase of IT services""from 12 per cent to 17 per cent""as a contributor to revenue growth of channel partners.

However, resellers complain that IT vendors are making an aggressive entry into services just to keep profit margins up and are eating into resellers' shares.

According to the study, many channel partners are now also showing a keenness to venture into the international market, mainly due to increased competition in the Indian market. As it is, most IT vendors are looking to expand their addressable market and target SMEs. However, SMEs are widely spread in terms of geographical coverage.

The report pointed out that that SME channels have moved up the value chain as most distributors are now looking to increase their high-margin, low-volume business vis-à-vis low-margin high-volume business. Accounting, educational institutions, retail stores, manufacturing, and professional business services are some of the industries where channel partners are targeting sales growth.