VAD's rush to avoid becoming the 4th Revolution Blockbuster

By Francisco Camargo *

 
More than just a fashion term, the digital transformation calls into question many precepts and consolidated players in the market. As nobody intends to be the Blockbuster of the time, the way is to pursue innovation and diversified ways to survive in a world in revolution and full of fiscal, tax and economic uncertainties. One of the sectors most affected and that will have to completely reinvent itself is that of IT distribution. Especially VAD's (from English Value Added Distributors), Value Added Distributors.
 
With the evolution of SaaS “Software-as-a-Service” becoming XaaS (X-all-as-a-service), commercialization is completely different, tending to eliminate third parties from practically all negotiations.
 
In this model and, considering the cascade of Brazilian taxes, selling directly to channels or even to final customers becomes very tempting for manufacturers. Add to that the growing automation process in the service of distributors, which continues to spread and can mean loss of quality. These factors imply much more value added to projects surgically addressed to the specifics of each client / project.
 
Otherwise, for what intermediaries?
 
In the United States, this scenario is better defined. Mono-vendor distributors, without adding any value, sell US $ 300 million per year, with only 20 employees and productivity of US $ 15 million per employee.
 
However, it is necessary to understand the American context, where there is legal and tax security, much simpler and lower taxes, when compared to those in Brazil. Not to mention low interest rates, which reduce inventory maintenance costs; super simplified imports; low margins; service automation and the channels must have adequate and well-trained technical teams.
 
There, the distributors practically do not add value to the channels, from the point of view of pre-sales, limiting themselves to having “mileage programs” with progressive discounts due to the sales of the channels and marketing funds linked to this program.
 
In Brazil, we are moving towards this scenario, which on the other hand opens up niches for value-added distributors who are able to serve the Brazilian channels by supporting them in marketing, commercialization, pre and post-sales. Unfortunately, on average, Brazilian channels have few technical and financial resources and need the support of the distributor.
 
In Brazil, VAD's, value-added distributors, as the name says, add value in imports, in the analysis of the most appropriate taxation, in foreign exchange hedges and still add technical quality to projects, which is not trivial. On the contrary, it requires maintaining a high-quality procurement, import, logistics, tax structure, as well as a highly specialized pre- and post-sales structure because sales, whose cycles are long, are consultative and complex.
 
This entails costs of continuous training, even outside Brazil, so that employees are more than able to serve resellers and their customers with what is conventionally called tailoring solutions, always with specific needs for each project.
 
In addition, three other factors explain the challenging scenario of IT distribution in Brazil: taxes, interest rates and volatility of the real in relation to the dollar.
The hyper specialization necessary for value-added distributors needs to find new ways to be remunerated, since they are the ones who assume all the risks: credit of the channels and their customers; payment delays; exchange variation, as it buys in dollars and sells in reais; and tax risks, given the complexity of the Brazilian tax system, ICMS, Tax Substitution, Difal, PIS, COFINS, ISS, CPOM's etc.
 
VAD's still need increasing amounts of working capital to finance their channels, to the exorbitant Brazilian interest rates and in light of the fluctuation of the dollar, whose important price variations lead buying companies to enter into a waiting period. And all of this with the smallest margin in the value chain.
 
The importance of 'mixing' solutions and services with high value proves to be a viable way to increase profitability, both for distributors and resellers. Given this, there is no escape from strong investments in training; partnerships with recognized integrators and knowing how to articulate the offer of solutions that complement each other in order to deliver the project ready. In this sense, the search to show high levels of delivery, makes us more and more known for carrying out consultative distribution, providing intelligence to resellers and support so that they earn money, which strengthens commercial ties and expands sales. .
 
Specialized services also gain strength in the battle for the survival of distributors and channels. In this sense, it is always necessary to maintain a high-level professional relationship with customers, never abandoning them after selling the solution. Be aware of technological developments to guarantee exceptional offers and, obviously, have the courage to abandon old technology, traditional suppliers for a technologically innovative, new supplier.
 
* Francisco Camargo is CEO of CLM, a value-added distributor specializing in information security and IT infrastructure.
 
About CLM
 
CLM Software is a distributor of value-added technology with a focus on Information Security, Infrastructure and Cloud. CLM distributes solutions from leading manufacturers such as A10 Networks, Allot, Arista, Barracuda Networks, Bitglass, KEMP Technologies, Micro Focus, Mobotix, Nutanix, Hillstone Networks, Picus Security and Proofpoint. Headquartered in São Paulo, the company has subsidiaries in the USA, Colombia, Peru and Ecuador. With an extensive network of VARs in Latin American countries and enormous experience in the market. CLM is constantly looking for innovative and disruptive solutions to provide more and more value to its channels and end users.