Why Did Zenith Return To Distribution?

Some partners surmised this was because Zenith's PC and laptop business
was not doing well. Others felt that it was procuring components for its PC
business and was therefore looking at selling off this surplus in the channel
community. Zenith refuted these rumors and outlined its game plan for the
distribution business

Not many may recall, but Zenith Technologies, when it had started business
around 25 years ago, began by distributing products. It was over time that the
company realized that growth would come from selling computers, which led to the
creation of Zenith Computers. Soon, this entity entirely overshadowed the
initial company and the Raj Saraf led company came to be known for its PCs and
laptops, while distribution was put on the back burner.

Now, the distribution arm has been revived and Zenith Technologies will exist
as an entity distinct from Zenith Computers. When this news spread in the market
place, partners started wondering why Zenith got into distribution. Some
surmised that their PC and laptop business was not doing well. Others felt that
Zenith probably was procuring components for its PC business and was looking at
selling off this surplus in the channel community.

For three months since the news about the revival of Zenith Technologies,
several more rumors did the rounds. Now, the company has decided to break its
self-imposed silence about this strategy and talk about why it has gone back to
its roots.

Sandeep Shah has been appointed as the COO of Zenith Technologies and will be
spearheading the company, under guidance from Raj Saraf who continues to be the
CMD. And the first message that Shah wants to pass on to the channel is that
Zenith Technologies has not been created to sell any surplus components used in
the manufacture of Zenith Computers.

“For weeks now, we have been inundated with queries from the channel about
whether we are looking at dumping any leftover components from our PC business.
This is not true and I want to put an end to this speculation once and for all,”
he said.

To back this claim, he stated that currently, Zenith Technologies has tied up
with Elitegroup Computer Systems (ECS) for motherboards, Adata for memory and
Liteon for optical disk drives. None of these brands are used in Zenith PC or
laptops. Similarly, though MSI and Foxconn motherboards are used in the
machines, Zenith Technologies will not distribute the same brands, yet.

“We want to send out a clear signal to our partners that we have no intention
of mixing our PC and the distribution business. The two will operate
distinctly,” Shah reiterated.

Why distribution

According to an MAIT-IMRB survey, PC sales are expected to touch 7.5 million
units in 2007-08 and the assembled PCs or the lesser known regional brands and
unbranded PCs accounted for 40 percent of PC sales in Q1 of 2007-08. It is this
market that Zenith Technologies is trying to tap. It wants to have at least 80
percent of the component brands, which go into an assembled PC and work with the
assemblers and the dealers who sell to the systems integrators (SI).

It does not hurt that Zenith has got a good brand recall and also has an
existing channel base, which constitutes of 450 retail partners and 1,500
dealers. It can tap the latter set of partners to push its components to the SI
customers. Besides the three brands it has in its kitty, the company is talking
to a hard disk drive vendor and processor company to complement its suite of
offerings. “We are offering Vu monitors as well,” Shah informed.

Currently, Zenith Computers is present in 30 cities in the country and each
of these double as service centers, with another 97 cities being catered
directly to by services engineers. But the distribution arm will have a
different set of people working for it and while it will leverage on its
presence in these 30 cities, it will have to create a warehousing network so
cater to partners effectively. This is the top activity in its itinerary.

Challenges ahead

Getting back into distribution is not going to be easy for Zenith
Technologies, especially with the presence of big names like Ingram Micro,
Redington, eSys Technologies, Cyberstar Infocom, etc. Even the homegrown
national distributors like Rashi Peripherals and Neoteric Infomatique, are well
entrenched in the market.

But Zenith is not worried. It has set targets for itself, but is trying not
to spread itself thin to achieve it. “We are hungry for growth, but not
desperate yet,” said Shah. Despite this, there is no denying that the
distribution business is a tough one where toplines can be high, but bottomlines
are always under threat. To add to this, logistics, warehousing and manpower can
be huge resource drainers.

This is why Zenith is ensuring that even if its topline growth is slow, its
bottomline is healthy. It is also working on ensuring it has a good inventory
forecasting policy in place as well as credit policies. “Credit and logistics
have always been Zenith's strengths and we are trying to replicate the same in
our distribution business,” Shah commented.

With the revival of the distribution arm, Zenith Technologies will exist as an entity distinct from Zenith Computers

It already has 20 sales people dedicated to distribution and hopes to add
another 25 to this number within the first year of operations. Most of these
people have been recruited from distribution companies themselves and have
therefore given Zenith access to 3,000-odd partners. Of these 400 partners are
actively doing business with the company currently.

This aside, the company is also trying to get its services and support
infrastructure in place. It will offer first level support and issues can be
escalated to the vendors directly for further resolution.

Some distributors have suffered in the past because of an incorrect brand
selection or because they could not decide whether they should focus on value
business or on volume sales. And since Zenith is working with lesser-known
brands will it not fall into this trap as well? Shah does not think so.

“The brands we are working with are not known in India, but are globally
strong. If we can make them successful in India, then it will reflect positively
on us,” he stated. At the same time, he is clear that he would not like to work
with those brands, which are already over-distributed in the country.

This is not surprising because it will mean taking on the bigger distributors
head on, which Zenith can avoid at this nascent stage of its distribution
operations. Zenith is also trying to appoint exclusive regional dealers who will
further push its products to smaller partners in that geography.

But the company has stated that it will not resort to dumping its component
products on Zenith Computers' existing channel partners. “If we insist that a
partner buy certain quantities of components simply because he is buying our PCs
and laptops, it will be self defeating, because that partner will reduce
business with us over time,” Shah clarified.

From the looks of it, Zenith has got its act together to make a success of
its distribution venture. What it now needs is a few heavyweight brands,
well-placed channel partners and nimbleness to move with the market demands and
counter competition from other distributors.

Vinita Bhatia

vinitavs@cybermedia.co.in