Think Globally, Act Locally

In our cover story, "Anatomy of a Shortage," Chad Berndtson reports on how shortages of Cisco product have affected VARs during the last nine to 12 months. According to Cisco and industry watchers, when factories in southeast China slowed down their production, due to the steep and sharp global recession, factory workers were sent back to their remote villages in western China. But when demand picked up, it proved difficult to entice these same workers back. Greater job opportunities in the West and a Chinese government stimulus program in western China, which resulted in a boom in construction projects, led to hiring many of the unemployed factory workers.

These small villages had a direct impact on a Houston-based VAR, INX. The publicly traded company detailed in its 10-Q that its product revenue was down 21 percent "due to unanticipated product availability issues from Cisco." This is just one example of numerous VARs affected by the product shortfall.

CRN has seen and reported on product shortfalls and gluts throughout the past few decades. And Cisco wasn't alone in regards to component shortages. HP, Dell, Alcatel-Lucent, Apple and others all had availability issues due to the problem. But according to VARs and distributors, the delays were much longer for the Cisco product and the demand for Cisco product rose more sharply than its competitors, so the problem was only exacerbated.

Certainly no one is going to blame Cisco for rebounding and being one of the first to recover from the downturn. This is all good news for the channel. The criticisms from VARs and distributors lie in the fact that Cisco did not communicate the scope of the problem to the channel while it was happening. Cisco couldn't get specifics to its very own extended salesforce as VARs on the street were trying to placate their customers and sell and cobble deals together in a difficult economy.

Open communication would have gone a long way. The business industry is littered with companies that failed to communicate their shortcomings and lost market share as a result. An acknowledgement from the top executives would have helped to clear up confusion and been a good first step. A public mea culpa six to nine months after the problem started at the Cisco Partner Summit in April was too late.

Where could this hurt Cisco now and in the future? -- in the small and midsize space. While it is a household name in the enterprise, small and midsize businesses rely on the VARs to make product decisions. If VARs can't get Cisco networking gear, or information about when they will be able to get it, they are going to go elsewhere. And as Chad reports, Juniper, HP and SonicWall made inroads with Cisco VARs. Furthermore, the gray market, which Cisco tries to keep tight control on, flourished during the crisis. This is all in a market of which Cisco wants a bigger piece.

How did the shortage affect you? Check out our CRN Community coverage where we'll have videos from the reporters covering the story, perspectives from channel experts, and blogs and comments from VARs in the field.

BACKTALK: Kelley Damore is VP, Editorial Director for Everything Channel. You can reach her via e-mail at [email protected].