Dubai's re-export role

Dubai continues to dominate the re-export market. Traders and dealers from across the region can be found pounding the Street looking for the best bargains to ship back to their home country. Channel Middle East walked the walk and met with resellers to get the lowdown on what is happening in the re-export market

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By  Alex Malouf Published  September 24, 2004

Trading hub|~|TarunNandi-side.gif|~|Tarun Nandi, general manager at Bluebell Computers|~|Vendors and distributors harp on about moving in-country and establishing direct channels across the Middle East and North Africa. But Dubai continues to dominate the re-export market. Traders and dealers from across the region can be found pounding the Street looking for the best bargains to ship back to their home country. Channel Middle East walked the walk and met with Satyen Agrawal, MD at CommIT; Tarun Nandi, general manager at Bluebell Computers; Mohammed Jaber, deputy general manager at Winning Deal Computers; Rakesh Bohra, CEO at Trinity Infotech; and Mohammad Yaghi, general manager at HMP, to get the lowdown on what is happening in the re-export market, their relationship with vendors and distributors, and what they expect from Gitex.

CME: Why is Dubai known as a re-export hub? Why is there a need for re-exporting IT product across the region and further afield?

SATYEN AGRAWAL: Dubai is ideally located for re-export — slap bang in the centre of three continents. Due to that blessing and with the kind of business policies that the government has introduced here, including no taxation, a lot of IT companies are already present. Yet when you look at the local market, the consumption is not great. With all these factors Dubai has to be re-export oriented.

RAKESH BOHRA: The majority of businesses in the region prefer not to travel to the Far East, where product originates. African people are not always allowed in the Far East due to immigration problems and so they come instead to Dubai. Dealers here do the hard work of importing product for the rest of the Middle East. The amounts these visitors want are not enough to cover the costs of shipping from the Far East to their home destination and so it makes more sense to ship in bulk and sell small — especially on fast moving product where prices drop rapidly. But Dubai has recently stopped a lot of Africans from entering the country. The government has to stop doing this. There were problems with a few Africans defaulting but this country is a trade centre and such practices will occur. If Dubai wants to see growth it has to have an open visa policy.

Cme: What is the Street's role as a re-export hub?

TARUN NANDI: When small customers come, they feel much more comfortable staying on the Street with resellers, rather than going to the big distributors who have a limited product portfolio but also want big volume orders. Re-export sometimes involves big orders and at other times it is for small amounts. The Street is much more re-export friendly and so those who do re-export come to the Street and do business here.

MOHAMMED JABER: Big suppliers and large distributors cannot reach everybody. The Street is the main hub for the general population of the business people from neighbouring countries. Not everyone can afford to build a relation with the big distributors because not everyone will order large volumes. Those who come to the Street will buy a different range of products and order low quantities.

SATYEN AGRAWAL: The people who come here don’t know Jebel Ali, but they know about us. They can come and see the products, sit down with us and do business. If they want to buy we can supply them with products instantly. Buyers don’t want to wait several days for delivery.

MOHAMMAD YAGHI: We help the customers in a way that vendors and distributors find impossible to fulfill. We can get an Epson printer from an Epson dealer, a Samsung from a Samsung dealer and so on and all of this can be sent in one container to customers. Big distributors cannot compete with the Street, they simply can’t take on our role. Lets say a customer wants small items shipped in a specific way. He may want the CPU box opened and shipped on a tray via FedEx or Aramex. Distributors cannot meet these kinds of individual requirements but us smaller companies can satisfy the customer in the way he wants to ship, the goods he wants to collect and even the quantities he wants.

Cme: What geographic markets does the Street sell into?

SATYEN AGRAWAL: The Street sells into the GCC and Africa — basically the whole MEA region. There is also India, Pakistan and maybe some European countries. People come from all over the GCC and now people are even coming down from Iraq. There is a big inflow of Iraqis coming in with cash and picking up stuff like crazy. Iranians have always been here in the Street since the beginning of Dubai’s IT market. For Europe it is more of the Mediterranean but sometimes people even come in from as far as Germany as they find prices here cheaper for goods like laptops. And Libyans have been putting in a lot of visits too because of the sanctions in place on their country.

TARUN NANDI: It depends on the resellers themselves. Iranian people sell to Iran. Arab people sell to Syria, Jordan, Saudi, Kuwait and other markets where they share cultural ties. Then there is the whole of Africa starting with Djibouti, Somalia, Sudan, Ethiopia, Eritrea, Kenya, Nigeria, Mali and Uganda. And there is the CIS, states such as Tajikistan, Uzbekistan, Georgia, Ukraine and Armenia. The Indian market is served from Asia directly and not so much from Dubai. Maybe somebody is shifting boxes but this is not a prime market for the Street.
||**||Re-export routes|~|Mohammad-Yaghi-side.gif|~|Mohammad Yaghi, general manager at HMP|~|Cme: What are your major markets and what volumes do you typically sell?

MOHAMMAD YAGHI: Our major markets are those of the neighbouring GCC states. We have started selling to Iraq recently. There is Jordan of course and also some African markets that we re-export to. In regard to the volumes we do, I would say 50% of HMP’s sales are for the Iraqi, Jordanian and African markets. The other 50% goes to the GCC.

RAKESH BOHRA: I sell into Africa, both East and West, as well as most of the GCC. There are 25 large re-exporters on the Street and their revenues range from US$10m to US$30m. You have the big guys like Expert Computers, Transworld, Sycom and then smaller players like Tangerine, Far East, Al Mizan and Micron. Transworld claims to be doing US$35m a year and Expert Computers around US$30m.

MOHAMMED JABER: Our major markets are the GCC, Iran and Russia. Over the five years that we have been here we have established frank, clear and mutually beneficial relations with certain customers in many of the countries across the EMEA region. For instance in Oman we have selected customers who always buy from us. In Saudi Arabia we have a strong customer base in Jeddah, Riyadh and other cities. We even have a re-export relationship with businesses in countries as remote as Sudan. Our strategy is to expand our re-export platform so our customers get a winning deal on price.

TARUN NANDI: My major market is Africa, and I do volumes of major branded products like Dell, APC, 3Com and Cisco. Even in the optical market people always go for the branded product. Non-governmental organisations such as the World Bank who invest in Africa insist on a famous brand, like Dell, as there can be no argument about quality, availability and pricing. Volumes vary from country to country and heavily depend on the economy — there is no average amount that I do.

Cme: Do all vendors support the Street’s re-export role?

SATYEN AGRAWAL: Definitely. All the vendors crave for a share of exports. I got an order for US$200,000 recently and I had four vendors calling me every half an hour to get a share. They are not bothered where it is going as long as their volumes are growing.

TARUN NANDI: You cannot say that all the vendors support what the Street is doing. The likes of Acer, APC and 3Com really help the Street. They give us a target and if something goes wrong then they talk to us. So that support is there, but not from everyone.

Cme: Is there a difference in attitude between A-brand and B-brand vendors?

RAKESH BOHRA: There is more of a difference in the way Asian and Western vendors operate. The Western vendors are very aggressive in Computer Plaza and Al Khaleej while Asian vendors are aggressive on the Street. Toshiba, Dell and Fujitsu-Siemens — the notebook giants — are very aggressive in the Plaza. They do up to 1,800 laptops a month in the Plaza, while they only sell 300 units on the Street. Conversely LG, Samsung and BenQ are pushing the Street hard and seeing results.

MOHAMMAD YAGHI: I would say B-brands are more aggressive in supporting the Street’s re-exporting. Major A-brands usually deal with a few specific outlets and that is it, while the B-brand do much more and support smaller people involved in re-export by dealing with them directly. So there is a difference in the attitude and B-brand vendors have a better attitude in regards to supporting the Street.

Cme: What type of products are most popular for re-export?

RAKESH BOHRA: Everything you can think of, from computer cases and accessories up to notebooks. Notebooks are even going to Iran and India. People are carrying notebooks to India and Iran, around 35 to 50 on a daily basis, to avoid duty tariffs and ensure that product reaches the market as soon as possible. If a Centrino 1.7GHz is launched here today and it reaches Iran tomorrow morning it fetches higher margins now because after two months it will be readily available in Iran. Customers will take it from here, drop it into Iran and try to make the most margins. Latest products move the fastest into re-export.

SATYEN AGRAWAL: We do high numbers of peripherals, motherboards, processors and monitors. For monitors it is still CRT. Regions like Africa are still not that developed and people are not ready to spend double the amount on a monitor. So for them it is just price. There is a lot of movement on dot matrix and inkjet printers. Europeans take mainly laptops. Customers from developed markets demand high-end products like laptops as prices in Dubai are comparatively very low.
||**||Distributor delight|~|BohraRakeshTrinityInfotech-.gif|~|Rakesh Bohra, CEO at Trinity Infotech|~|Cme: Do all distributors support the Street’s re-export role?

MOHAMMAD YAGHI: Of course not. There are some distributors that support re-export customers directly and do not help us on the Street. But these people are not growing as quickly as distis who do support the Street’s re-exporters. If you compare Al Yousuf and Tech Data, then Al Yousuf was bigger than Tech Data several years back. But now because of their pro-Street policy Tech Data plays a huge role in the market and surpasses Al Yousuf. This is because they do support people like us who are involved in the re-export market.

SATYEN AGRAWAL: Distributors support our re-export role just as much as the vendors do. As long as there are volumes then they definitely promote re-export. We tell them we have a re-export order and the distributor is more than happy to give us a re-export document and he will also dump the product for us in a warehouse in Jebel Ali so the 5% tax doesn’t get paid. From there the customer takes his container and leaves.

Cme: How detailed is the sell out data vendors and distis now want?

MOHAMMED JABER: They already have the data on what we buy and sell. We are like an open book with all our information but much does depend on our relationship with distributors. Most of our distis have people in the market who visit us all the time. They know the type of customers we are servicing and we give them statistical information for surveys and feedback and to help them improve their service. I don’t think resellers are afraid of distributors. We are all part of the channel.

SATYEN AGRAWAL: Vendors and distis don’t ask us anything. They don’t ask us where the product is going and honestly they are really not bothered. They sell on volume and that is it. I have never had a distributor call me and ask where the product is going to. They did make us sign a form agreeing that we will not send to any countries which have embargoes and that is it. That is all they want from us.

Cme: Do they appreciate the role you play in building their sales?

MOHAMMAD YAGHI: The bigger the disti and vendor the less they appreciate our role but the smaller distis and vendors do see how we contribute to their success.

TARUN NANDI: When they see the volume the Street does they are very appreciative but vendors and distis should stay with loyal channel partners. If 20% of customers gives 80% volume then why do distis do business with the other 80% which do not do clean business? Why do vendors and distributors do business with dirty traders? Of course it will mean less cash for them, but don’t they want to do safe business rather than take the risk? Go with the safe guys.

RAKESH BOHRA: Some vendors do. I started working with Canon a year back in the Plaza. They have been appreciative about the way we have been operating and they made us the sole supplier for the Plaza. Anybody who wants anything from Canon, they pick it up from my shop and I maintain a price for the end customer. I don’t drop one Dirham to the end customer and I ensure that all my dealers are able to sell to end customers. If everybody understands this and does not undercut then everybody will make money. If a brand accepts that the channel is very important, the channel will respect them and do much larger volumes.

Cme: How do you see the re-export role developing?

MOHAMMAD YAGHI: Whenever I think of us five years from now I really don’t know what will happen. My expectation is that we will exist but it is scary when we hear about the vendors and distis establishing warehouses in other countries; when we hear they are reaching our customers and are supplying them with smaller quantities. The Street will still have a role and we will still be here re-exporting but we are pushing our own brand name in the hope that this will become the mainstay of the business.

RAKESH BOHRA: I foresee constant growth, but it difficult to say how much. We in the Street take a step forward and then two steps back due to rogue traders. We need to go to the Chamber of Commerce and establish an IT forum to be heard by the government. The only impediment to our development is the constant flow of money leaving our market. Every time we make some money all of it goes back into paying these bad debts and these cheats who are getting into the market and taking our money. I have lost US$70,000 over the past two years which is peanuts compared to the big companies losing millions.

Cme: Are the days of traders, brokers and sub-distis numbered in MEA?

RAKESH BOHRA: There are always going to be such types operating in the market. Their numbers have shrunk for certain product categories but with new product lines entering the market more middlemen are popping up.

TARUN NANDI: There are 500 resellers in Dubai and there are only 35 genuine companies who do business without hanky panky. Every manufacturer knows about this and who they are. If a customer asks about a product they will tell them to go to several people on the Street.
||**||Increasing volumes|~|Winningdeal-side.gif|~|Another busy day exporting in Winning Deal Computers|~|Cme: Who is the re-export customer base?

MOHAMMAD YAGHI: Most of my business is done with sub-distributors who come over here and buy in bulk to get a low price. These guys know the market, they know where to get good rates and they have good relationships with the distis. They can then go back and sell their wares to their own channel networks of small traders. I also deal with a fair number of resellers but the sub-distributors are the majority of the business.

RAKESH BOHRA: It is mainly assemblers and traders. Sub-distis do come for some product, buying grey. Some also buy product for the first time for their market. We are selling new items such as Bluetooth to countries which have never heard of the technology.

Cme: What have you seen in terms of re-export volumes during last year?

SATYEN AGRAWAL: We did around US$1m last year and this year we are expecting to do US$5m after opening up our Street outlet. With an outlet on the Street our exports have gone up fivefold. A lot of distis have started selling very aggressively in the GCC — look at Tech Data in Bahrain. I am sure that for the items we both trade in our numbers will come down but then there are still a lot of products that these guys don’t do, and that’s where we will do well.

TARUN NANDI: It is growing in volume and quantity but pricing is coming down day-by-day. To do the same turnover I did last year I’ll have to sell a much higher volume of goods because of the drop in pricing. Last year I sold 3Com switches at a price of US$500. Today I am selling the same switches at US$130.

RAKESH BOHRA: Re-export volumes have grown at a startling rate. Volumes from the Far East are coming down and people are buying more and more from Dubai. There is not a large local market so what choice do dealers have. Even with Computer Plaza. If somebody tells me that the Plaza is a retail market I say they are wrong. A few weeks back I executed eight orders for customers from Abu Dhabi, Oman, Libya and Algeria, small guys who just walked in. They are traders or assemblers who decided to pick up cargo for US$3,000 or US$2,000 from each reseller on the Street. This is where the growth is coming from.

Cme: Is it difficult to claim vendor rebates and incentives if re-exporting? If so, why?

RAKESH BOHRA: I don’t get into incentives and rebates. My distis give me direct discounts on prices. Rebates are for re-exporters dealing with Intel CPUs and hard drives.

SATYEN AGRAWAL: Not at all. We just hand the forms back and get the rebate. Generally these people give rebates after four to five months now because their internal policies are very slow. But it doesn’t affect re-export.
||**||Recent runners|~|AgrawalSatyenMDCommit-side.gif|~|Satyen Agrawal, MD at CommIT|~|Cme: What's happened in terms of credit in light of Golden Bell and Emachine?

SATYEN AGRAWAL: Credit has not lowered for us. People have opened their eyes after the debacle of Golden Bell and Royal Star before it. But credit is too easy. Three or four months after shops open they have a credit limit which is far too high. We formed a credit union in Bombay of 300 companies. The top guys came together and they told the market that anybody who wanted credit in the market had to first come to the union and get references from members. Every company was obliged to show balance sheets to the union so people would know who is doing well and who is in trouble. There were still runaways but the union cut bad debts by 50% to 60%. Fly by night operators left the market. I think we should start something like this in Dubai. Distis are insured but we lose our own money.

MOHAMMAD YAGHI: The distis are actually giving more credit to the market and one of the main criticisms I have against them is that for small shops they go ahead and give them credit. Distributors should stricter in who they give credit to and they shouldn’t give huge sums to people who run tiny corner shops. Yearly audited statements should be the base for distis to increase credit or even cut off credit. And it should be a legitimate audit, signed by auditors. When I give customers credit facilities, I try my best to get as much information as I can about them because after all I am protecting myself.

MOHAMMED JABER: People will learn their lessons but the channel has to be careful, especially with credit. Don’t give credit to people you don’t know and you should define limits for every customer. Vendors and distis should study reseller behaviour. They should avoid resellers who sell below margin for cash as these guys are completely screwing the market and undercutting the rest of us doing business on the Street.

Cme: Do you expect any more runners in the near future?

RAKESH BOHRA: Several people have already gone. The amount which is outstanding from Golden Bell and Emachine is US$20m according to some people. We in the market are not making that kind of money. There are other people who are going to get stuck: traders who gave credit to them and will not get that money back. It is a chain reaction and with the huge amounts involved the reactions take longer.

SATYEN AGRAWAL: There will be. There is a saying on the Street that everybody comes to Dubai with a return ticket. Some come with a year’s ticket and others longer.

Cme: How important is Gitex to the Street?

TARUN NANDI: Gitex is crucial for the street. Vendors come with new products, new promotions and customers see what is out in the market and their questions get answered by the vendors and distis. It becomes easier for us and we don’t need to reply to their questions. This is an occasion when people come together and distis, vendors, resellers and even customers meet. Sales are best during Gitex.

MOHAMMED JABER: Gitex is the festival for the IT industry in Dubai and the whole region. We wait the whole year for this week and it is vital for us. We know more about the technology, we meet new suppliers, new vendors and it is like a feast of technology.

SATYEN AGRAWAL: A lot of people delay purchasing IT products in the run up to Gitex so during the event itself there is an excess of business activity. We do large sales and big volumes for Gitex. Most of the people who come in from abroad come to view and don’t really pick up those large volumes. It is more the locals from the GCC who buy because of the deals that they get. Last Gitex Dell brought out a laptop machine, Centrino based, which was selling at US$1,100. Before Gitex it was selling at US$1,300 and this brought down the cost for all the other laptops on the market. We are expecting a lot of deals this year and that will encourage people to buy. Our sales will double or triple over Gitex week.

Cme: What have you got planned for Gitex and what do you hope to achieve?

MOHAMMAD YAGHI: We have participated twice in Gitex. Unfortunately the cost of participating in Gitex is very expensive and for smaller companies like us it is not easy to handle. Even Intel does not support you in regards to the space you rent and the majority of the expenditure is on space. I hope organizers will give people like us a different kind of pricing to multinationals. That will help us to participate more frequently. We are planning to have as many ads as we can in magazines and other Gitex-related material to keep in touch with existing customers and attract new buyers.

RAKESH BOHRA: I am looking forward to a big month. I have stocked up on products like Wi-Fi and Bluetooth, and I am looking forward to doing the highest sales of the year this month. In regards to my WiFi Computer Zone I definitely want to make this mall popular to the 100,000 visitors who visit the UAE. They will know that they have one more retail location from where they can buy products at a low and fair price.

TARUN NANDI: I am planning with vendors and distributors. But for now it’s a secret!

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