On April 1, 2001, Anil Kesavan and his partners at Vertex, then a Rs 22 crore Bangalore-based sub-distributor dealing with printers and peripherals from HP, Samsung and Epson decided to quit sub distribution. A decision which was quite bold considering that Vertex was virtually the 'Printer King' of Bangalore, and was in the same business for over six years with more than 50 loyal and credit-worthy resellers. The company became a corporate reseller overnight, selling PCs, laptops and servers to the corporate market in Bangalore.

In the very next year (2001-02), Vertex saw its revenues dip to a measly Rs 7 crore from the Rs 22 crore it had notched up the previous year. "It was a tough call, but we needed to take it and the timing had to be right. Buying from distributors and then selling to other resellers wasn't making sense any more with margins hovering at around 4-5 percent," says Kesavan, Director, Vertex. "What was the value addition we were providing? We were moving stock from one warehouse to another though we kept very limited stock." However Kesavan is quick to point out that they did more business selling directly to end-users despite a low top-line compared to their heydays in sub-distribution. From Rs 7 crore in 2001 to Rs 60 crore in the last fiscal year, Vertex has grown on an average of 50 percent year-on-year. Today, the company boasts of offices not just in Bangalore but also in Chennai, Kochi, Coimbatore and Pune, and has staff strength of 75. Earlier, last year, Vertex entered the retail space with India's first AMD exclusive showroom. 

Kesavan admits that it was not easy to get out of sub-distribution. "For a player who is used to the comforts of sub-distribution where he is pampered by the vendors and distributors, and has customers who walk-in and buy or call him over the phone and strike a deal, moving to a direct sales model where he needs to call on customers is difficult. We were lucky because we never compromised on our basic principles on inventory and credit policy. Today, with the market growing in size and the competition intensifying, most sub-distributors have extended credit to most of their partners, thus increasing their risks." He insists that he has never allowed anyone to pile up their inventories on his company, and has never succumbed to pressure from distributors or vendors on stocking. "Unfortunately, all around me, I see many sub-distributors who are forced to dance to the tunes of the vendor as well as the distributor," he says. "This is not healthy since they operate on such thin margins, and with a few hundred resellers, the risks are huge.
" According to Kesavan, fundamentally there were few choices for a sub-distributor as was his case back in 2001. "You have to scale up, which means become a large national distributor or at least a regional one. A scale-down on the other hand limits your exposure, which means lesser profits. The last option is to get out of sub-distribution to pursue a better business model. We chose the last and entered a market which was completely new territory." 

Says Kesavan: "There is very little that changes in the game. The rules remain the same, but the presentation and approach are different." He feels that one of the bigger challenges for a sub-distributor to grow or alter its business model is the cultural change, the adapting to and understanding how the new business works. "If you need to grow your business, you must trust people and gain your team's confidence. Only then can you grow your business," he says.One of the reasons for Vertex's success story is that it stayed away from end-users who were likely to delay payments (such as the government, defense and public sector) and focused only on corporate entities. 

Kesavan believes that in a market like India where business works more on relationships than on any tangible process or principle, sub-distribution and sub-distributors will survive. 

"At the end of the day, both vendors and distributors (who do not have a direct relationship with an end-user) have targets to meet. Especially toward quarter- and month-ends, they will face pressure to deplete stocks from their warehouses. That is where sub-distributors will still be handy," he says. "However, whether it makes sense for a person to be in sub-distribution or not is a question which the person needs to figure out. He needs to analyze his cost of inventory, financing costs, ageing inventory, potential bad debts and other things. Awareness about these figures is what matters."