Saudi assemblers facing new competition

Hewlett-Packard announced last week that it intends to launch a major new facility in Saudi Arabia that poses a serious threat to local assemblers in the Kingdom.

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By  Mark Sutton Published  December 14, 2002

Hewlett-Packard announced last week that it intends to launch a major new facility in Saudi Arabia that poses a serious threat to local assemblers in the Kingdom.

Although HP will not directly own the assembly plant, as it will be financed by a Saudi consortium, the message is clear enough-HP wants to take business from local assemblers.

The company intends to open an assembly plant that will produce up to 60,000 units a year, with the express intention of going after the SME market.

Although specific details of the scheme have not yet been made available, Antoine Maury, general manager of HP EMEA's personal systems group, has said that the company will gain tax benefits if Saudi Arabia is the 'country of origin'-presumably because it can avoid the 5% customs duty. Whether or not it will have to pay customs duty on any part-assembled systems that it may be importing is unclear.

Certainly the high level of import duty, and the fact that many smaller companies in the Kingdom have illegally avoided paying duty has made it difficult for ethical multinational companies, either selling components or assembled PCs, to compete on price in the past.

A go-to-market strategy has also yet to be revealed, although HP is aiming for the SME market, by 'being closer' to the customer. Whether this means a build-to-order (BTO) model, or simply a greater degree of customisation for the local market, again, Channel ME doesn't know (yet), but if HP is really going to back this project, then local assemblers are going to have to be ready for some serious competition.

Short of a full blown BTO scheme, it will still not be possible for HP to match local assemblers in terms of customisation, but on pricing, it could be a grave threat. Declining price points on global brand PCs has already created pressure on local assemblers in the region, and if HP somehow is able to avoid the customs duty (which local assemblers still have to pay) then it is hard to see how quality assemblers will be able to match the PC leader on price.While investment in local technology businesses from multinationals like HP is a good thing in terms of knowledge transfer, this proposal threatens local assemblers in the Kingdom.

The details of how HP will actually gain a tax benefit have not been revealed yet, but the Saudi authorities should ensure that there is a level playing field for all companies, local or multinational, otherwise they risk putting a lot of home-grown local assemblers out of business.

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