Holding out for the heroes

Local PC assemblers have so far struggled to expand outside their home markets in the Middle East. Forward-thinking assemblers have the opportunity to turn themselves into the ‘local heroes’ of regional PC assembly and start reaping the benefits of increased purchasing power and greater manufacturing efficiencies. These are the players that will give the A-brand vendors a run for their money as the market matures.

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By  Stuart Wilson Published  June 26, 2004

Local PC assemblers have so far struggled to pull off any meaningful expansion outside their traditional home markets in the Middle East. As the region moves from operating as a series of fragmented individual national markets to becoming a unified trading bloc, ambitious assemblers need to start putting together plans for meaningful cross-border sales and developing an international footprint.

Forward-thinking assemblers have the opportunity to turn themselves into the ‘local heroes’ of PC assembly and start reaping the benefits of increased purchasing power and greater manufacturing efficiencies. These are the players that will give the A-brand vendors a run for their money as the market matures.

Reaching ‘local hero’ status is no easy task — especially given the overall number of units sold each year in the Middle East PC market. Sources in the components channel estimate the total addressable market (TAM) for PCs is around five million units a year. Yet it is difficult to identify a local assembler in the region producing more than 50,000 units a year. The most common production volume is between 10,000 and 15,000 a year and many local players are finding it difficult to grow beyond this level. It is truly a fragmented landscape.

Getting local assemblers to talk about the volumes they produce each year can be a painful process. Often the assembly arm is mixed in as part of a hybrid business model spanning retail, dealer activities and a little bit of distribution thrown in for good measure. Breaking out precise figures is not something these companies are accustomed to doing. This hybrid mix is the business model of the past. If local assemblers have serious long-term aspirations to build a regional PC brand powerhouse, they need to focus, develop regional alliances and lay the foundations for growth.

None of this is an easy transition for a local assembler to attempt. Those that are brave enough to do so will give themselves a significant first mover advantage over the competition. Local assemblers should be out and about right now, meeting their peers and rivals and looking at ways to work together to build economies of scale in their business model.

Barriers do exist for local assemblers wishing to develop an international brand in the Middle East. Importing and exporting products can be complex, some public sector tenders are only open to PCs assembled locally and the costs incurred need to be weighed up against the potential benefits on offer.

If local assemblers fail to act now, they face the very real threat of being squeezed out of the market in the long-term. Assembly lines are springing up all over Jebel Ali with contract and white-box assemblers poised to step in and start supplying the local assemblers. This may not be a bad development for those local players that see the wisdom of utilising a white box assembler’s economies of scale and concentrating their own efforts on sales and marketing.

A-brand vendors are launching what they refer to as ‘local assembly facilities’ across the region to allow them to qualify for public sector contracts in specific countries. Often these are little more than final configuration centres designed to sidestep restrictions on who can bid for contracts, but they should also give the local brands an idea of what is possible.

The top local assemblers in each country should be looking to form international alliances, combine their purchasing power, build a unified brand name and explore the benefits of using contract assembly services. A centralised assembly line with a little bit of tweaking and final configuration taking place on the ground in each country would allow such a group to build a genuine pan-Middle East operation.

It can be done. A quick scan down a list of the top 20 assemblers in Europe reveals names such as Medion, Vobis and Maxdata from Germany, as well as CDC Point from Italy, Info-Quest from Greece and even Kvazar Micro from the Ukraine popping up. These six players combined posted annual sales in excess of US$4.6bn in 2003. Admittedly, they have larger domestic markets to address than local assemblers in the Middle East. Nevertheless, names such as Medion and Vobis have already built international brand equity and supply PCs across the continent.

Looking at the Middle East market, A-brand vendors will be acutely aware of how the competitive landscape has developed elsewhere in the world. They probably quite like looking at today’s fragmented local assembly market. What they fear is the establishment of true regional powerhouses combining a local brand name with the economies of scale to really challenge them in terms of both pricing and promotion.

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