As rapid technological changes introduce significant business challenges, businesses are seeing the tech channel as a reliable source to vet and scale new technologies and to obtain key market insights.
However, IT channels often operate on thin margins, with fierce competition driving prices down and squeezing profitability.
This makes it essential for businesses to carefully select channel partners that can be with them for the long term. Understanding how they manage their finances, optimize cost structures, and explore innovative financing solutions to sustain growth and profitability is important.
Whether it’s investing in advanced IT infrastructure, acquiring cutting-edge software solutions, or embarking on digital transformation initiatives, accessing the necessary capital remains a significant hurdle for many channel partners.
Tech Data recently announced the launch of Tech Data Capital in Singapore, and two other key markets in Asia Pacific & Japan (APJ), marking a significant step forward in transforming the IT channel ecosystem in the region.
In an interaction with DigiconAsia, Matt Shifrin, Senior Vice President and Chief Financial Officer, Tech Data, Asia Pacific and Japan, speaks more on the struggles and challenges in the IT channel fraternity.
Many IT channel partners struggle with accessing sufficient capital to invest in inventory, infrastructure, and expansion. Traditional lending institutions may be hesitant to extend credit to smaller partners or those without a long financial track record. What is Tech Data doing about this?
Matt Shifrin: As rapid technological changes create significant business challenges, vendors, distributors and partners are looking to the channel to validate and scale new technologies and to gain key business insights. This is pushing partners to go beyond traditional lending solutions and explore alternative sources for financing or to adopt enhanced payment solutions that can fund business growth, help them invest in new technologies, and meet customer demand. Partners are also on the lookout to solve financial scalability issues which has emerged as a challenge for 59% of partners per our Direction of Technology 2023 report.
Powered by selected financial institutions, Tech Data Capital will help meet these gaps by offering flexible financing not usually offered by traditional lenders. This includes allowing a payment solution to be integrated into a product sale and for it to be funded for the full term upfront. This flexibility will empower smaller IT channel partners to extend their overall purchasing power and increase their profitability, thereby enabling them to invest in inventory, infrastructure, and expansion efforts without being limited by traditional credit constraints.
Fluctuating demand, lengthy sales cycles, and delayed payments from customers can lead to cashflow challenges for IT channel partners. Balancing expenses with revenue streams becomes critical for maintaining operations and growth. In such a scenario, how should customers approach these challenges?
Shifrin: We are leveraging our deep understanding of the channel ecosystem to solve financing problems that cookie-cutter solutions fail to. Through solutions like Tech Data Capital, we use dedicated financial teams, expertise, comprehensive training, and integrated selling, to ensure that partners have the necessary tools and support to address customer problems without cutting back on their own growth ambitions.
For instance, thanks to operational challenges coupled with unpredictable market shifts, end customers are asking for payment solutions that mirror how they utilize products. This is why we are integrating in-demand features such as annual payments for software licenses and monthly payments for product bundles that include hardware, software, and services.
We are also accounting for high demand in consumption-type models that have some form of a variable pricing component based on usage.
Extending credit to customers introduces the risk of non-payment or bad debt. Assessing the creditworthiness of customers, especially in diverse markets across the APAC region, can be challenging, leading to potential losses for channel partners. Is there any way that Tech Data Capital is addressing this?
Shifrin: Through Tech Data Capital, we partner with select financial institutions to simplify the financing process. This involves integrating payment solutions into product sales which enables transactions to be funded upfront for the full term. This approach eliminates credit risk for partners and provides increased value for customers.
Furthermore, all transactions are non-recourse to our partners, which ensures that partners can reduce their credit risk. Unlike traditional financing institutions, the financial institutions that power Tech Data Capital are well-versed with the IT ecosystem and have an industry-specific methodology that enables them to better qualify and assess the creditworthiness of partners and their end-customers.
Operating in multiple countries within the APAC region exposes channel partners to currency fluctuations. Exchange rate movements can impact the cost of goods, pricing strategies, and profitability, requiring effective hedging strategies to mitigate risks. How can channel partners secure themselves in such a scenario?
Shifrin: When facing uncertainty in currency fluctuations, flexible financing plays a crucial role in risk mitigation. Through Tech Data Capital, channel partners will be able to maintain quicker cash conversion cycles than the channel average and minimize risk. Because the partners will be funded upfront for the full term – which locks in the exchange rate – the partner’s exposure to currency fluctuations is significantly reduced.
Unfavorable financing terms, such as high interest rates or stringent repayment schedules, can strain the financial health of channel partners and limit their ability to invest in growth initiatives. What are Tech Data’s suggestions for channel partners in maintaining payment cycles?
Shifrin: I would recommend working with a distributor that has a clear understanding of the channel and one that has flexible and scalable payment solutions that will enable partners to provide multiple payment solutions to their end-customers. This enables both partners and customers to fast- track growth for their business while conserving capital and strengthening the balance sheet.
Additionally, having a distributor that could customize the solution to the partner’s products and selling motion can be a value-add in helping partners to provide alternatives that support the growth of the end customer’s business and strength in the market.
Smaller channel partners are often in need of financial support. How does Tech Data ensure that it reaches out to even the smallest channel partners?
Shifrin: Smaller companies sometimes not only lack financial support but also lack the expertise and resources for execution. As mentioned earlier, finding a partner who possesses a comprehensive understanding of the channel and has the capability to personalize solutions according to your products and sales approach is critical.
With Tech Data Capital, we aim to empower channel partners by extending their purchasing power to enhance profits and expedite growth within the IT ecosystem.
Essentially, Tech Data Capital is positioned within the partner ecosystem to be the one-stop shop where partners with acceptable credit standing, big or small, can access products and an entire portfolio of payment solutions to maximize value for their customers.
In many cases, payment is a big issue for partners dealing with governments and small businesses. How does Tech Data support them in tough times?
Shifrin: We understand that every deal is different and work with our partners to support necessary budget requirements. This becomes critical when our channel partners are working with SMBs and government entities as they typically have longer payment cycles. To help remedy this, Tech Data Capital will empower partners with access to various forms of capital to fund transactions.
We will also offer multiple tiered payment options that help eliminate collection risks along with specialized support to partners working in the government and commercial sectors. Given an acceptable credit standing, such flexibility in financing will free up working capital that can help partners not just offset business risk but also combat economic uncertainty and unlock business innovation.
