Will HP's Saudi plant dominate the mid-market?

HP announced the partners and its strategy for its Saudi Arabian assembly plant last week, with a very definite message—HP wants a bigger slice of the SMB market.

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By  Mark Sutton Published  June 28, 2003

HP announced the partners and its strategy for its Saudi Arabian assembly plant last week, with a very definite message—HP wants a bigger slice of the SMB market.

This marks a change from what the company said when Saudi assembly was first announced, when the plan was to focus exclusively on tender business—but should local white box builders be concerned?

The plans for the assembly plant are quite straightforward. HP with its partners will turn out some 80,000 mid-range PCs per year, which will go to fulfil government tenders, and to tier two resellers across the Middle East through Aptec, and Nahil Distribution within Saudi.

As far as the tender business goes, there should be little change. HP, along with Dell and IBM already takes the majority of government tender business in Saudi, and while the plant may give HP an edge in terms of local fulfilment and time to market (as well as winning favour for creating jobs in the Kingdom) it won’t upset the current balance.

The SMB market may be a different story. The Saudi SMB sector is very much still developing, but as it grows and takes on IT, it is obviously going to be a very large market indeed. The plant will be built with the capacity to produce 250,000 PCs per year if required, but the question would be where will these PCs go?

I don’t think white box assemblers in Saudi have anything to fear from HP, at least no more than they should be worried about any other brand name PC. The local assemblers are under the same pressures that their counterparts in the rest of the region, and indeed the world are—tumbling prices on branded desktops are bringing the big names into competition with them.

As the SMB market matures so brands will take a larger share of the white box business, but there will always be ways that a local assembler can beat brands on price. Some assemblers will feel the squeeze more than others, but unless HP decides to be ultra-aggressive on pricing, then the two will be operating at different ends of the market.

Pricing is an interesting question. In other regions where HP has implemented similar projects the PCs have been firmly aimed at the lower end of the branded market, yet here HP will be producing a mid-market model. Considering that the company and its partners have to pay to set up the plant—they are starting from scratch—and will not have the same skilled, cheap workforce that they would get in the Far East, it is hard to see how they can shave much off price, certainly not enough to go up against local assemblers.

Where pricing could make a difference is for the more mature markets outside of Saudi. As a ‘product of the GCC’, the HP PC will be customs duty exempt, giving it a 5% advantage over competitors. If HP chooses to stick to producing PCs primarily for Saudi Arabia, then I can’t see a massive change occurring. If however it decides to ramp up production to ship significant numbers of PCs into the rest of the GCC, it will be a different story.

In markets such as Dubai, where local assemblers have gone some way to establishing their own brands, and tier two PC companies are actively chasing SMB customers, a competitively-priced HP desktop, being pushed aggressively through a regional distributor could make a real dent in market share for the existing SMB PC suppliers.

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