With speculation rife about what the rand/dollar exchange rate will hold for the coming year, analysts seem convinced that the rand will hold its strength and end the year in the region of R5.50 to the U.S. dollar.

Pierre Spies, chief operating officer of Tarsus Technologies (Pty) Ltd. is a little more conservative in his view, and believes a good average value for the Rand will be R6, meaning that the dollar will rebound albeit slowly, ending the year in the region of R6.25.

"While it is not in Tarsus"s nature to speculate about such things, the rand/dollar exchange rate will be one of the biggest factors, if not the biggest factor, in the health of the channel over the coming year," Spies says. With the strength of the rand over the past few months, there has been pressure on both the distributors and resellers, sending margins plummeting and volumes skyrocketing.

"Essentially, this means the resellers and distributors are shipping in excess of 50 percent more product volume than in 2003, and still achieving the same profit levels. Another way to look at this is that they are doing 50 percent more work for the same money, making growth difficult," Spies opines. "Add to this the problem of exchange rates changing in between the reseller quoting a price to his customer and the physical order coming through, and resellers can see their profitability being damaged even further."

For this reason, Tarsus" policy is to buy "forward cover" on all orders it places with vendors, ensuring that it protects itself and its resellers from exchange rate fluctuations. Forward cover is an industry term for what is essentially insurance against exchange rate changes. "Essentially, this task is handled by our banking institution and costs us a small premium on each order. While a potentially costly experience, it does allow us to better control our prices and ensure that our resellers have a more accurate representation of what to base their quotes on," Spies explains.

While many distributors have gained substantially by not using this service and speculating, others have seen profits disappear with the fluctuating rand. "Tarsus is not in the business of speculating, and, through practices like forward cover, we have been able to provide more consistent services to our customers," Spies says.

In the same way Tarsus as a distributor ensures it is protected against exchange rate fluctuations, Spies says, resellers should stipulate that quotes to customers are based on a specific and current exchange rate. "The rate we calculate our prices at is stipulated on all of our price lists and by simply adding this stipulated rate to customer quotes, resellers can avoid having to renegotiate prices with their customers."

Spies says that the above assumes that the rand remains relatively constant in value. "Should the rand strengthen substantially further however, say to the region of R5 to R5.20, we may well see a mindset change in the market, where margins are no longer a calculated percentage, but rather a set service fee or fixed, nonpercentage based mark-up on all products sold. This will however take some time to come into effect, if it happens at all," Spies continues.