The Current State of the Channel in EMEA
by Hobart Swan
John Walker has lived in cities across Europe and the UK for the past 30 years. With more than 15 years’ experience in channel program development and support, John has led the CCI international research team and supported our multi-channel and sales strategies for the past four years. He has also provided detailed implementation tactics for and is regularly engaged by some of our highest-profile clients. In his role as CCI General Manager for EMEA and APAC, he has met with senior channel executives from more than 90 countries. Recently, we took the opportunity to talk with John about the state of the channel in EMEA, with a particular emphasis on incentives.
CCI: First, John, can you give us a general overview of what is going on with the top 500 companies in EMEA?
John: The big companies over here are currently being driven, in part, by the growing expectations of their stakeholders for higher earnings amid a period of intense competition. To meet expectations, these companies are focusing on faster time-to-market and a more efficient, transparent supply chain. Many of them are also looking at acquisition as a way to reduce time to market, either by purchasing smaller companies or by merging with companies in their size range. And, of course, they are all developing new product lines.
CCI: What about growth companies? Generally speaking, what are they up to?
John: One thing they’re up to is scaring the heck out of those top 500 companies by being able to provide the same products and services at a fraction of the cost. I know of one new EU company that’s getting a lot of notice. They’re about to release a new enterprise database product that goes head-to-head with one of the largest technology companies in the world—and does it for 80 percent less.
The driving force behind many emerging companies seems to be, once again, the IPO. They want to acquire new clients, grow their partner base and then get acquired, probably by one of the same top companies they’re competing with.
So there is a lot of interesting competition going on in the market. The good news is that growing demand for IT technology across EMEA means that there should be opportunities for all.
CCI: You talk about the top 500s focusing on efficiency. Does that extend to the channel? For example, are these companies moving toward standardizing their incentive programs? Or are they trying to create more regional incentive programs?
John: I haven’t talked to a single company that is looking to regionalize incentives. As you said, most companies are looking to streamline their processes—in this case by running all of their incentive programs through a single source. In fact, the last 10 companies I spoke to said while they’re currently moving to standardize their incentive programs, their ultimate goal is to globalize them—and to move toward cash, pre-paid debit cards and vouchers. For these companies, it’s all about simplicity. And the fact of the matter is that merchandise-based incentives have just become too complicated.
CCI: How so?
John: There are all sorts of problems fulfilling in merchandize. It’s often very hard to award the same type of products across many countries either because the products simply aren’t available or because there is a difference in the dominant language. Merchandise can, and does, get lost in shipping. Furthermore, the cost of merchandise can vary significantly from one region to another. With the shifting value of the pound or euro, an iPad that $400 in the U.S. can be as much at $550 in Europe or the Middle East. And it can be very difficult to implement incentive programs with salaries varying so much across countries. If someone is making $20,000 in Africa while his or her counterpart in Germany is making $60,000, how can you reward them at the same level?
CCI: I should say here that CCI recognizes that some companies do want to base their incentive programs in merchandise, so we work with companies that specialize in these programs.
John: Yes, of course. And on a broader note, CCI offers services that many of these companies might want to consider taking advantage of—not the least is helping companies understand the different tax implications of incentive programs across EMEA. It is not always a level playing field. Every country has its own rules and regulations regarding sales incentives—and they are often very different from what we’ve come to expect within the U.S. Unless you spend your days keeping track of these rules like we do, it can all seem very complicated.
I should also add that running incentive programs effectively outside the U.S. can be hard for companies with channel marketers who may not have a lot of international experience. There’s a lot to know when setting to set up a high-ROI incentive program in EMEA or APAC. You need to understand everything from the country’s tax laws, liabilities and compliance to its unique culture and cultural barriers. CCI has experience with the tax laws in more than 60 countries, so we help our clients navigate those issues.
CCI: I want to ask you about MDF and Co-op programs. But before we get to that, you said when we talked earlier that some companies are confused about the difference between the two.
John: That’s right. In fact, depending on the context or even the country, some companies use MDF and Co-op interchangeably. We have one company that specializes in unified communications. They were in the process of implementing a global program that they called an MDF. But when we actually did some research on the program with regional stakeholders, we found that it was a Co-op program. This gets back to the point I made about needing to understand the financial implications of your incentive programs. Companies may take on an incentive program as an expense, not realizing the impact it has on the top-line revenue and not understanding what is marketing expense and what is contra revenue.
Along with the financial implications, companies are also struggling to understand the ROI from these programs. We’ve started offering consulting services to help companies build their terms and conditions and program guidelines. We work with these companies to help them both build and implement incentive programs with clear ROI.
CCI: Are most of these companies running both MDF and Co-op programs?
John: I would say that the majority of companies we’re speaking with are running more and more MDF programs, and moving away from Co-ops. The problem they’re having with Co-ops is that vendors don’t really have any real oversight on who their partners are working with. If a partner has hired a telemarketing or direct mail provider, it can hard to establish ROI value if the provider won’t share their data. With MDFs, on the other hand, vendors have more control over what marketing campaigns they allow their partners to implement.
But sometimes we see an even more basic issue: Not all companies understand why they are running MDF programs. I think some of them do it just because there is a budget for it, so they take the money but don’t really know how to use it. We try to emphasize to our clients is that MDF is all about helping them build relationships with their customers and shifting marketing from the vendor to the individual partner—in the process generating leads for both the partner and the vendor. And to my earlier point about improving supply chains, MDF is all about vendors integrating the channel into their supply chains.
CCI: OK, switching gears here, we’ve talked in the past about the idea of using incentives to change partner behavior. What are you seeing in that area?
John: It is actually working here. It’s working because companies today aren’t operating on just traditional paid-for-performance-type programs. Vendors have gotten very sophisticated. They see the importance of their partners becoming subject matter experts on the vendor’s products and services. So they’re looking for other avenues to increase revenue—like certification and accreditation. They’re rewarding resellers who can serve as trusted advisors to customers, and who share information with the vendors from tools like deal registration programs and customer satisfaction surveys, who share deals and maybe even work with direct sales to close deals.
In January of this year our partner company, Channel Surveyor, updated a best-in-class channel research study from 2013. In the update, they checked in again with Cisco, Oracle, IBM, Symantec and Microsoft. They talked specifically with corporate management, product management and strategic operations about what kinds of programs are working to change partner behavior. Pretty uniformly, these vendors shared some common insights. First, they thought that most success comes when they worked with resellers who are entrenched with their customers—who have a unique knowledge of those customers’ needs. Second, when you want to both reduce sales expense and increase penetration, you’ve got to look to your partners, your resellers and your distributors.
This takes us back full circle to the current state of the industry in EMEA. The top 500 companies need to meet increased stakeholder expectations and the growth companies need to grow fast. In the updated study we highlight about 20 different types of programs (from certification to sales tool deployment, joint business planning, order tracking and end-user training) many of these companies are using to improve the pre- and post-sale capabilities of their resellers and distributors. By using these types of incentives, vendors are setting up their channel for success and, in the process, setting it up for themselves, too.