Channel partners in China mainly focus on the huge and fragmented public sector IT market, reveals a study by Springboard Research. The company’s report, “China IT Channel Landscape 2010” highlights the fact that 63% of channel partners in the country focus on the public sector, far exceeding the 24% concentrating on manufacturing, and the 8% targeting the banking, finance, security and insurance (BFSI) industry.
In terms of channel revenue, the public sector leads with a share of 26%, followed by 21% for manufacturing, and 20% for communications.
The report also notes that channel partners from the Great North China region take a lion’s share of the channels market, as measured by number of channels and total revenue. The country’s less developed four sub-regions (South Western, North Eastern, Central and North Western) together account for 24% of total channels and only 10% of the total revenue.
Chinese Channels are Over-Reliant on the Low-Margin Hardware Business
Hardware seems to rule as 93% of China’s channels count hardware as their largest revenue source, in contrast to 6% for software and 1% for services. Moreover, the hardware business accounts for 72% of total channel revenue as compared with 15% and 13% for software and services respectively.
Despite this domination however, Springboard’s researches advice China’s channel to focus on other spaces saying: “The profit margins for hardware are rapidly shrinking and thus channel partners should steer away from the fierce competition in this space, and focus more on software development and service delivery capabilities.”
SIs, Distributors and ISVs Drive Channel Sales
According to Springboard estimations, System Integrators (SIs) account for 33% of channel sales, followed by 28% contributed by distributors and 26% by Independent Software Vendors (ISVs), consequently marginalizing the role of resellers at only 10% revenue share.
The report finds that the vendors in China are working to reduce channel layers with an aim to expand coverage and improve margins. “As PCs and low-end servers and storage become increasingly commoditized, the market has become highly price-sensitive and therefore, vendors often choose to scrape the national distributor layer and work directly with client-facing regional distributors and resellers”, explains Bryan Wang, Associate VP, Greater China at Springboard Research. “With a flat and simplified channel structure, the vendors can also reduce the distribution costs and be agile and flexible in response to market dynamics.