By Gerhard Malan, financial director at Rectron.
South Africa is in for a tough few years, if economists are to be believed. Our economy, weak Rand and recent interest rate hike are affecting industries across the board – and ICT and ICT distribution are no exception. However, our economic situation also provides the opportunity for us to relook our business processes and find ways to better service our customers.
Weak Rand results in expensive technology
A snapshot of the ICT industry in South Africa currently shows that because the majority of products are imported, the weak Rand has made technology more expensive. Since the start of the accelerated depreciation of the Rand, resellers have reported that bigger capital outlays are being delayed for fear that the currency will further weaken. And while the demand for high end equipment is still there, it has decreased to give way to a larger demand for more affordable entry- to mid-level equipment.
This trend isn’t exclusive to South Africa. Although most developed countries have not had to deal with rising interest rates, they have been dealing with a relatively flat economy, making distribution more competitive across the board. Every business trading its home currency against the US Dollar has had to relook its approach to manage its foreign exchange risk.
That said, local vendors are doing what they can to keep their pricing as stable as possible, while foreign vendors are introducing some great initiatives to help protect us against our weakening currency.
An opportunity to rethink how we do business
Simultaneously, while everyone is experiencing the squeeze, it’s a great time for the ICT industry to correct our inefficiencies and cut unnecessary expenses. When the economy is strong, it’s easy to overlook these things, but now’s the time to place the emphasis on return on investment – every expense should be able to have a measureable return. It’s also an optimal time to outperform competitors who might be missing out on the change in how the market is spending.
Of course, beyond these benefits, there is a very real need for businesses within the ICT industry to maintain cash flow. Keeping tight control over budgeted expenses and working capital should put a stop to overspending and uneconomical activities. At the same time, proper risk management when it comes to security, debtors, inventory, cash and insurance is vital. Businesses that are prudent in spend and organised in chaos will come out much stronger and grow much faster when the market turns.
Finding solutions for the customer
From the customer’s perspective, there are also ways to help mitigate risk and reduce capital outlay when the economy is weak. Resellers need to be assisting their customers to continue operating in difficult conditions by offering better advice and products that reduce their expenses or even increase their income. A product such as Rectron Finance does this by freeing up cash so that there are funds available for crucial expenses like rent, salaries, marketing and other important overheads, while ensuring the customer’s business still has access to top end technology.
It’s clear that this is a model that’s working for many businesses, with the uptake of this service on the rise. Since the beginning of 2016 we have seen a trend towards deals being processed through rentals and asset finance rather than normal cash purchases. It’s an opportunity to opt for a manageable monthly expenditure over three to four years, as opposed to a significant once-off outflow of funds at the time of purchase.
What is important for resellers encouraging customers to adopt this model is to start the conversation early. This way, approval is sped up and the customer understands that a big capital outlay isn’t required. There’s also a need to educate on the difference between a rental and an asset finance deal, depending on the customer’s needs.
Beyond these options, several ICT product solutions are also aimed at helping resellers and their customers manage their businesses in the current economic climate. For example, Microsoft’s Office 365 offering gives customers the flexibility on yearly subscriptions, which reduces cash flow. The Samsung LFD range assisted by Intel’s technology also allows resellers to build up different income streams like content management and monthly subscription services, which increases their profitability. From Rectron’s perspective, our online ordering system and our AskRectron app assist customers to reduce their time spent on admin, freeing up time to focus on their business.
ICT plays an important role in national development
These solutions link to the idea that connectivity and the use of technology to access information has an important role to play. It is the key to drive down the country’s unemployment levels through job and entrepreneur creation, as well as by stimulating skills development. In addition, our industry is vital in assisting the government in fulfilling its National Development Plan.
With that in mind, ICT is no longer a luxury but a necessity. That means that despite the challenges facing the ICT industry in light of the state of the economy, it’s never been more important to find new ways to keep technology accessible. There’s little doubt that we are in for a rough ride, but by thinking carefully about how we do business, we are in prime position to weather the storm and make it to the other side.