Ethics in Channel Business

By VARINDIA - 2010-02-18

Ethics in Channel Business

Time has proved beyond doubt that any business model built on a strong foundation of ethics, good business sense and profitability goes on for a very long time. A business that is transparent, truthful and honest consistently harvests more than adequate profits and garners a considerable amount of goodwill from society as well.

Well, ethics in any business are non-negotiable, more so in the IT products channel business. To understand the criticality of ethics in the IT channel business, we need to first understand its nature.

Ethics and the IT channel partner business
Though a channel partner in the IT channel business is typically associated with many IT product companies competing with each other, he is more concerned about his own organization. His main focus is on his commissions, incentives, bottom line, and everything else that will benefit his company. This train of thought may be natural, but it is important to note that the channel partner’s relation with each affiliated IT product company is that of a “partner”. That is the uniqueness of the channel partner business – on the one hand, he is concerned about his own business; on the other hand, he has to “partner” with several competitors, so he must stay truthful, equal and loyal to each of them, and this is why the criticality of ethics in the IT channel partner business assumes special importance!

To understand the fragile surface on which ethics stand in the IT channel trade, consider this example: X is a channel partner dealing in products of two competitor companies (say, A and B). Both offer him the same rate of commission, and suddenly, one fine day, A jacks up the commission percentage by a few notches provided X meets a specific target. Now, what should X do? Should he hard sell A’s products, or should he maintain a neutral stance letting the customer decide for himself?

These and many other niggling questions pop up regularly in the IT channel partner business, which is why every IT product company expects its channel partners to follow a code of ethics. More so because large ethical IT product companies invest a considerable amount of resources into setting up a well-organized channel partner ecosystem. The IT companies then naturally expect their channel partners to be open, transparent and ethical in their business approach while selling the company’s products.

Are IT channel partners ethical?
Well, there is both good news and bad news on the ethics front. According to a US-based National Ethics Business Survey 2007 Report, conducted by the Ethics Resource Centre, the number of businesses who comply with a set of laid down ethics is on the rise. The quality of ethics programmes is getting stronger too – Reporting has increased and unethical business practices are gradually slowing down. Although this is a US-based survey, the industry is witnessing similar trends in other markets, including India. The trust factor that is so relevant in the IT channel business is also quite strong.

There is a bad news too: According to the same report, more than 50% of employees in businesses have witnessed unethical business practices, but have chosen not to report about them. The gist of the report is simple – though ethical business practices are on the rise, most channel partners stray off the ethical path, and after an unethical business episode here and there, they get back to business as usual as if nothing went amiss.

How do IT channel partners flout ethics?
IT product companies have noticed that some channel partners, in their eagerness to make a quick buck, resort to unethical practices such as lifting a bulk consignment earmarked for a large client at a special discounted price and then sell this consignment not to the customer for whom it was intended but to others, and at a higher rate, so that they can get a higher margin.

There are various instances where channel partners have falsely manipulated their post-sale claim reports. Then, there are cases of manipulating targets; sometimes, channel partners give that extra push to one company’s product over the other, depending upon the commission structure, and so on.

IT product companies do check their channel partners’ business practices by directly checking with randomly chosen end-users. Anomalies do creep up and unethical practices get exposed, which go on to create a delicate situation that could have been best avoided. It is desirable that every channel partner strictly follows a strong code of ethics – if he wants to survive for a long time, make steady profits and carve a niche for himself.

Footprints of a code of ethics for channel partners
Here are some footprints of codes of ethics for channel partners:
1. A channel partner must not deliberately disconnect customers from a product or discourage competition in any way. For example, a channel partner may aggressively try to push product A because its manufacturer has promised him a higher commission on achieving a target, and the channel partner is closing in fast on to the target. Such business practices will disconnect end-users from another product that may, in fact, be better in quality or price than product A. Also, such business practices hurt the normal growth of other IT products companies and cause bad blood in the long run.
2. A channel business must not deal in products that are no longer supported by the IT products company. If the end-user faces a problem with the product and there is no after-sales support available, the IT products company will experience some amount of goodwill depreciation.
3. Figures must never be fudged to meet targets or gain extra commissions or incentives. Many channel partners resort to such practices and many times they are exposed because the IT products companies are staffed with strong audit departments.
4. Channel partners must not lift a bulk consignment intended for a unique client at a special discounted price and then market it to different users at a higher price.
5. All State and Central laws must be strictly adhered to, and all taxes must be paid. There must be no compromise.
6. Every channel partner is expected NOT to deal in or encourage grey market products. It is also expected that if a channel partner comes across a grey market transaction, he must report it to the local authorities and to the IT products company.
7. Channel partners must not deal in non-genuine or counterfeit products.
8. They must stick to their territories and must not poach upon another channel partners’ business located outside their earmarked jurisdiction.
9. They must sell the products to end-users, or to other parties that the IT products company has agreed to. They must not market the products to other resellers or sister concerns, thereby achieving targets and inflating sales without actually serving the end-user.
10. They must not use the commission percentage as a bargaining point. It has been observed in many cases that channel partners keep asking companies to jack up commissions and incentives because their competitor is offering more. This is an unethical practice.
11. All partners are expected to be honest and loyal to the IT products company. Business integrity must be preserved at all costs.
12. Channel partners must not pay bribes or kickbacks to anyone in a bid to improve their sales.
13. They must not attack the reputation of any company just because it is paying them a lower rate of commission, or for whatever reason.
14. Truth and transparency are integral to any business. No channel partner should mislead customers by making exaggerated claims about any product.
15. IT companies require a specific set of accounts to be submitted by their channel partners from time to time. Channel partners must ensure they do not violate such this code.
16. Every channel partner must discharge his contractual obligations truthfully, honestly and diligently.
Conclusion
The IT product business environment is rapidly expanding by the day with India’s growing economic prosperity and the steady rise in the usage of IT products. Time has proven that IT product companies have benefited tremendously from their association with channel partners and many channel partners too have hit the big time because of their association with these companies. IT products companies have created a world-class, enriched ecosystem that enables their channel partners to thrive and grow bigger, provided they do their business the right way. The responsibility, therefore, squarely falls on the shoulders of channel partners to conduct business ethically, reap the rewards, sustain long-term relationships and grow steadily from strength to strength.


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