Decreasing profitability is a big concern for distributors who feel the growing adoption of cloud and mobility – and the proliferation of smart devices – will continue to increase pressure on them a report from Forrester Research says.

Decreasing profitability and lower market demand were expected to present barriers to growth for Asia Pacific distributors, according to the Asian Tech Distributors Are Optimistic About Business Growth in 2013 report, drawn from Forrester's Q4 2012 Asia Pacific Tech Distributor Business Confidence Index Tracker Survey.

Market demand lead the charge for distributors questioned over what would represent barriers to business growth in H1 2012, with 79% expecting it to have 'high' impact. Only 2% expected 'no' impact.

Decreasing profitability was also at the forefront of distributor's concerns, with 74% citing it as likely to have high impact.

Government spending (65% high impact), monetary exchange rate (49%), and pressure for increased wages and the cost of finance/banking credit/capital contraints (both at 47%) rounded out the top six areas of concern. Legislative/regulatory pressures, taxation policies, interest rates and inflation rounded out the top 10.

Clouds and mobile

The report highlights a correlation, in part, between concerns over deteriorating profitability and the increasing interest for mobile devices and cloud.

While cloud and mobile devices still represent a small portion of respondents' business – just 3% and 6% of distributor revenues respectively in H2 2012 – the impact was expected to increase in H1 2013.

“Distributors that reported lower than expected operating margin in the past six months [to the end of 2012] feel that the impact of smart devices and cloud computing on their business will be even higher in the coming months,” Forrester adds.

The report says 58% of the 43 senior executives of 'top' distributors across Asia Pacific, including New Zealand, expected 'high' impact from the increasing use of smartphones and tablets. Low impact was expected by 26%, with 16% expecting no impact.

On the cloud front, the increased use of SaaS, IaaS and BPaaS offerings was expected to have high impact by 47%, with 49% saying low and just 5% saying no impact.

The trend of business executives taking more active roles in technology purchase decision making was also expected to have an impact, with 42% putting that impact at high, 53% at low and 5% at no.

In contrast, the launch of Windows 8 was expected to have high impact by just 19%, with 37% expecting no impact from the launch of Microsoft's new operating system.

Big data also got a look in, with 40% of respondents expecting high impact. Fifty-one percent thought it would have low impact and 9% thought no impact – a figure lower than that seen for smartphones and tablets.

Forrester says it expects the move towards cloud and mobile devices will put increasing pressure on distributors' profitability.

“With lower profitability affecting workign capital, distributors are likely to get trapped in a vicious cycle as their efforts to further invest in new skills development and value-added services are hampered,” Forrester adds. “This will affect their growth and profitability.”

The research company says vendors play a key role and will need to look at flexible or annuity-based pricing models that can help distributors and resellers adapt as consumers shift from capex to opex models.

“Tech vendors will need to work closely with their distributors to help them transition away from traditional product-centric models to more sustainable business models that should include services-based revenue.”

To read Part 1 of the report click here, and for Part 2 click here