Is this the way to bolster the IT services market amid the pandemic?
- 23 March, 2020 16:03
The IT services market is shaping up to be the hardest hit segment in the broader technology, media and telecommunications industry by COVID-19, but there may be some ways to soften the blow.
The ongoing march of coronavirus (COVID-19) around the globe is expected to have a palpable impact on the technology industry this year, according to data and analytics firm GlobalData, with IT services providers set to be particularly vulnerable to disruption to the market due to the virus.
“The IT Services industry will be worst hit,” GlobalData thematic research chief analyst Stuart Ravens said. “The short-term pain it will experience trying to deliver existing projects while its clients are locked down for three months will be replaced by the long-term pain of a massive slowdown in IT projects as companies scale back spending to project 2020 profits.”
Such disruption is COVID-19 expected to cause the tech industry as a whole that GlobalData has fully revised its Tech, Media & Telecom Trends 2020 report to reflect the expected short- and long-term impact of the current crisis.
The new, revised report suggests that all sectors will be negatively impacted, with IT services recording the bleakest long-term outlook.
However, there may be a way for tech companies in the channel to avoid the worst of the impact -- but only if vendors get on board and work together with partners to help make the most of a less-than-ideal situation.
Nextgen Distribution CEO John Walters has suggested in an open letter to the industry that if vendors make a concerted effort to include partners in otherwise direct deals with customers for at least the next few months, it could make a world of difference to IT providers as disruption caused by COVID-19 begins to bite.
“This is an ‘open letter’ with a plea to our vendors to take a leadership approach to help keep our Australian and New Zealand IT industry economically healthy from the COVID-19 pandemic by using the full value of our channel,” Walters said. “The vendors lead our industry.
“They develop the technologies and determine the strategies and channels to get their solutions and products to market. Rightly so, they are the top of our industry pyramid.
“My plea is very simple…for the next few months, I ask all vendors to think strategically and holistically about our industry and immediately shift as much of their ‘direct business’ as possible via their channel partners,” he said.
According to Walters, such a move would give the channel much-needed revenues and cash flows that could offer several benefits including, most importantly, the ability for channel partners to keep operating through the worst of the disruption and keep people in jobs as a result.
While the benefits for partners are clear and immediate, Walters added that vendors could also benefit from the suggested move. Among these, according to Walters, is the ability for vendors to draw upon channel partners’ talent as their own ranks are squeezed due to the crisis.
“Multinational vendors have stringent cost control measures that, with the downturn, will inevitably force them to reduce their workforces here. That means a strong channel will be needed to fill the gap,” Walters said.
“The redirection of business to the channel will obviously require a relatively small reduction in margin to the vendor. However, I firmly believe that this decisive action will be a small price to pay and will result in massive short and long-term benefits.
“The cost to support this initiative now will be minimal compared to the cost to re-establish a successful channel in the future,” he added.
In his letter, Walters stressed that he was not asking or expecting the vendors to take all of the burden amid the ongoing coronavirus crisis, suggesting that all organisations in the industry need to bear some of the responsibility, but that, as a first step, including partners in direct deals could begin making a difference to the long-term health of the channel almost immediately.
“The most expedient way to increase revenues and cashflows for the channel is to redirect the current pipeline of business that is/was going direct. I believe that local vendor managing directors and vice presidents have the autonomy to do this immediately,” Walters said.
Global Data’s dim outlook for IT services providers and Walters rally cry to the vendor community come as industry analyst firm Canalys claims that there are select markets in the Asia Pacific (APAC) region that are either managing the crisis well or have passed the worst of the coronavirus disruption, while other markets still need to brace themselves.
Canalys’ research echoed Walters’ sentiment somewhat, suggesting that the channel will indeed survive through the uncertainty caused by COVID-19, but that partners will need support from vendors to do so, although the kind of support outlined by Canalys differed from that outlined by Walters.
The Canalys research suggested that vendor support for partners can come in three ways: flexible and extended credit terms to alleviate financial pressures; being transparent regarding the supply chain; and delivery time frames, stock levels and sales target flexibility, in particular for the first half of the year.