In search of identity. Conversations with distributors about distribution

12 february 2021

The author talked with the general director of MERLION, Dmitry Vinogradov, about the physics of the process, the influence of communication methods on distribution and digitalization.

IT News
В поисках идентичности. Разговоры с дистрибьюторами о дистрибуции

Marina Nikitina, coordinator of APKIT Distribution and Import Council:

The information technology market is highly dynamic, and when there are new changes in technology or business models, a discussion immediately arises about how these changes will affect IT distribution. The emergence of PCs, the mass distribution of the Internet, Internet commerce, cloud technologies - all these phenomena, according to some experts, should have destroyed distribution as a business more than once. But it is still there, and, contrary to the skeptics' predictions, it feels quite well even in our difficult pandemic times. Simultaneously, in the context of constantly changing technologies and business conditions, distribution has retained its place in the global IT market for more than 90 years, remaining a bridge between vendors and a distribution channel needed by both parties.

The topic of the next discussion about distribution was, you won't believe it... distribution. In general, the topic of the search for identity, whatever this identity may concern - politics, nationality, or gender, can be safely attributed to the mainstream. So we got to distribution. Recently, the opinion of the largest international IT distributors and their partners (both vendors and solution providers) that the very name "distribution" no longer corresponds to reality has been increasingly voiced. In particular, participants discussed this topic repeatedly at the recent GTDC (Global IT Distribution Council) virtual summit held at the end of 2020. It has been argued that it is time for the IT industry to stop using the term "distribution" since the notion of distribution value, which many see only in this business's logistics component, is outdated.

Yes, basic distribution functions are still important, and partners need them, but today these are only a small part of the services provided by distributors. And for this reason, the industry should change the name for this business. And Tech Data already believes that they have become an aggregator of solutions, and this is not a warehouse with bank services that was considered to be a distributor for many years. It is possible that soon enough, we will see how a variety of terms will replace the concept of "distribution."

It is evident that the global players set the trends in the development of the segment - they are also looked at in Russia, their strategy and tactics are analyzed, and the best practices are adopted. Therefore, it is all the more interesting what is happening to distribution in our country.

Russian IT distribution is almost 30 years old. Business volumes have grown many times over this period. In the mid-90s (when almost all of our current distributors were already working on the market), the company's turnover of $1 billion seemed unattainable by ANYONE. Today, several companies have already crossed this bar, and several more are approaching it. How have the companies themselves changed, and has the essence of the business itself changed? What are the drivers of the distribution business now? Can we talk about evolution, that is, a fundamental qualitative change in the essence of distribution and its new values? And is distribution already a fundamentally new business that needs a different name, or is it still the same - warehouse + bank? How does digitalization affect the distribution business? Why haven't international distributors come to Russia?

In search of answers to these questions, I turned to the largest Russian IT distribution players who shared their vision of the situation. My interlocutor was Maxim Sorokin, who founded a distribution company in the 90s that became one of the market leaders and younger (both in age and in managerial experience) directors of distribution companies Dmitry Vinogradov, Yuri Rodny, and Grigory Sverdlikov. It is a real pity that, for obvious reasons, it was not possible to gather everyone at one table - there was not enough heated debate. But you can communicate at a distance thanks to all means of remote work familiar to everyone now. These conversations were of different duration (some have more time to communicate, some have less), but I did not bring them to a common denominator since I am sure that everything said will be interesting.

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Second conversation. On the physics of the process, the impact of communication methods on distribution and digitalization

Dmitry Vinogradov, the general director of MERLION
Dmitry Vinogradov, the general director of MERLION

About identity

In my opinion, nothing has changed in distribution. But there is such a thing as marketing which obliges you to invent something all the time. At the same time, it is wrong to say that nothing changes at all, especially in current realities. First of all, we see how communication between people is changing. New ways of it appear - all this, of course, impacts sales opportunities and creates a certain variability. For the most part, this concerns the so-called last mile - how the consumer gains knowledge about the product and how he gets the product itself. As for the distribution supply chain itself, I do not see any dramatic changes here - this is evidenced by the figures provided by the largest companies: the number of partners, market shares, volumes.

Of course, there are always separate stories of the heyday and sunset of companies. There is the physics of the process - a product is produced in one place but consumed in another, and it should get from one point to another at a certain speed in combination with a certain rational value. This is precisely what distributors do. The demand for this service is constant and unlikely to change. The distributor will continue to fulfill its role at least until some incredible diversification happens and there is a change in production and consumption locations.

Of course, a distributor should consider new trends in communications, the emergence of new sales channels in the field of e-commerce, different marketplaces, and cloud services. All distributors try to track trends and find new market opportunities, and those who do not take these trends into account are forced to leave the market. For example, the clouds are, in fact, the same traditional distribution: you buy from a manufacturer and distribute it between partners or consumers, providing them with the necessary service related either to the price or to the terms of purchase.

If we talk about vendors, you can still observe two opposite tendencies: someone tends to increase direct sales and begins to delve into the creation of their own Internet resources or brand shops, and someone, on the contrary, is engaged in the consolidation of the channel, reducing the number of their own direct contacts with consumers. This is an ongoing process with the introduction of a significant number of innovations, which are more related to communications and methods of interaction between the distributor and the supplier of goods, the distributor and the consumer, but there is no threat of disappearance of the very concept of distribution. In the near future, I see no reason to change the essence of distribution.

About new service drivers

What is the reason for the appearance of new services created by the distributor? Both partners and vendors can act as customers here. All this is due to the opportunities that arise thanks to new means and forms of communication between people and new technologies. This also applies to the depth of information, ways of bringing this information to the end consumer, and new technologies in advertising and promotion. Some active partners constantly require innovations, for example, marketplaces that are not interested in buying a product but want to be given it for storage. There are vendors interested in the service, for example, in creating online or offline brand shops. They need a distributor as a solution provider for a network of authorized branded stores that are not the vendor's property but act as regional partners.

About digital company

Our company is actively moving in this direction. In fact, digitalization is simply a change in the way of communication within the company to increase the efficiency of its work. There are companies where the internal exchange of information takes place using some physical media - paper or reports in Excel. But you can do all the same using modern applications, electronic document management systems. Or some internal processes - correspondence and exchange of information between colleagues - can be turned into more efficient ones, implemented in digital form.

An example is working with internal reporting. Excel is a thing of the past. New tools are emerging, including predictive analytics for those who work with large amounts of data. This is something that people did not even think about before due to the lack of optimal systems in terms of speed.

In our opinion, a digital company does not interact with the outside world through digital only, but one that implements digital communications within its structure. This increases the efficiency of the company itself and, most importantly, the speed of all processes and services it offers to partners.

If we talk about the entire channel's readiness for digital interaction with a distributor, then, in my opinion, there is still a lot of work to be done. For example, we have not yet implemented electronic document flow with some large vendors because they have not yet made a corresponding internal decision (in large companies, decisions are made for a long time). The same happens to large partners who make all decisions on the transition to EDI with a long delay. At the same time, mid-level companies turned out to be more interested in this issue - perhaps it's all about serious competition, which forces them to be proactive in using new technologies.

It turns out that not all changes are supported and stimulated by the largest vendors or partners. Unfortunately, digitalization does not cut costs at all, but today it cannot be done without it. If you do not follow this trend, one day, you can be left far behind. Everybody goes digital now, and the business is experiencing a significant shortage of specialists in digital technologies. Peers in the market know that such specialists cost huge money - this is one of the most tangible cost items in any company that deals with digital today. But this is the inevitability of our time. I hope it gets easier.

About the business model

MERLION is not just a distributor for a long time. We have many business areas: distribution, our own retail, and even more than one - manufacturing some products that we ourselves distribute and, as a manufacturer, supply to retail, OEM production for our partners. And all this is a long-accepted strategy of the company to diversify into different areas, not a response to any trends. We believe that our chosen business lines complement each other well, and our results speak for themselves. We treat each project as a separate business unit; all projects exist and develop on a competitive but fair basis. We do not provide preferences for individual projects to the detriment of others.

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