Magic Kingdom

The Kingdom of Saudi Arabia remains a massive opportunity for vendors and distributors prepared to put in both the investment and the effort

  • E-Mail
By  Stuart Wilson Published  March 28, 2005

Land of opportunity|~|SaudiChammas200.jpg|~|Jacques Chammas, managing director at Mindware|~|A total of 600,000 PCs will be sold in Saudi Arabia during 2005 according to estimates from major vendors and distributors operating in the Kingdom. The scale of the opportunity is certainly not to be sniffed at and vendors and distributors are responding by ramping up their investment in on-the-ground resources. For the reseller channel, the reasons to buy from authorised in-country distributors are becoming more compelling by the day as vendors roll out structured channel programmes that make it harder for sub-distributors and re-exporters buying kit out of Jebel Ali to find willing customers in the mighty market that is the Kingdom of Saudi Arabia. Saudi Arabia remains a hot prospect for vendors and distributors plying their trade in the Middle East, with 2005 shaping up as the year when the need for investment in local resources on the ground in the Kingdom becomes a top priority for those that have so far taken a ‘wait and see’ approach. Some regional distributors have already invested significant resources in the Kingdom with Aptec, Empa and Mindware just a few examples of the companies leading the way. Others will surely follow, and simultaneously, in-country distribution specialists including Al-Jammaz Telecom, Nahil, NASCO and others will look to leverage their intimate local knowledge in order to establish themselves as genuine distribution powerhouses. One point that all players agree on is the strategic importance of the Saudi market in the wider Middle East context. Jacques Chammas, managing director at Mindware, explains the importance of the market: “The Saudi IT market probably represents over one-third of the entire Middle East market, and the products that are sold in Saudi Arabia are staying there. There is no re-export to speak of and there are significant IT budgets being spent.” Mindware is already working hand-in-hand with Dell to create SMB-focused channels-to-market in the Kingdom and has also established itself as a source of components for local assemblers. With more than 20 employees in the Kingdom and local stocking points, Mindware is investing the necessary resources to ensure that it is capable of serving the in-country reseller community with the range of value-added services they require from a distribution partner. “Saudi is a massive market and that is why we have dedicated facilities there,” continues Chammas. “Some vendors have resources in Saudi Arabia and some do not. I think that everyone is now realising the requirement that exists in Saudi Arabia regarding the provision of local support.” ||**||Local touch|~|SaudiSunil200.jpg|~|Sunil Nair, regional sales manager for Saudi Arabia at Acer Middle East|~|To date, not all vendors have made an investment in Saudi that is concomitant with the scale of opportunity that exists. However, the tide is starting to turn and recent moves such as EMC’s decision to open a dedicated office in Riyadh suggests that the deployment of in-country vendor resources will accelerate during 2005. A few vendors have spent substantial amounts building up operations in the Kingdom, and for them it is an investment that they believe is reaping rewards. Hazem Bazan, SPO and PSG manager at HP Middle East, explains: “If you ask the customers how important a vendor’s commitment to the market is and you find it is very high on their list of priorities. HP has more than 100 staff in the Kingdom covering all market segments and ensuring that post-sales support and services are provided.” HP also demonstrated its commitment to the Saudi market by launching a PC assembly facility in 2003. This facility has resulted in significant contract wins for HP and has prompted rival vendors such as Acer and even IBM to actively consider the potential for doing likewise. The mission for HP now is to stay one step ahead of the competition as rivals attempt to emulate its presence in the Kingdom. “If other vendors are looking at opening facilities in the Saudi market it means we have done a great job,” says Bazan. “The Saudi factory is a key initiative for HP and we will build on what we have already achieved and keep one step ahead of other vendors.” For Acer too, visibility on the ground in the Kingdom has played a powerful part in the development of brand equity. “The Saudi Arabian market is taken for granted by many vendors,” explains Sunil Nair, regional sales manager for Saudi Arabia at Acer Middle East. “It is a huge market and you need to understand how the channel operates and address the unique issues that exist.” The emphasis on local presence and local touch is creating a fundamental shift in the channel supply dynamic for Saudi Arabia. Although still a significant force, regional distributors sitting in Jebel Ali and even the sub-distributors and re-exporters buying from them are coming under increased pressure. ||**||Balancing act|~|SaudiZeidan200.jpg|~|Mahmood Zeidan at Empa Saudi Arabia|~|Regional distributor Empa’s emphasis on the development of its in-country operations in Saudi Arabia has positioned it as a firm favourite with the Kingdom’s reseller community. Representing a strong set of vendors including Intel, Kinsgton, Fujitsu, Biostar, LiteOn and BTC among others, Empa will be on hand at Gitex Saudi Arabia to lend support to its resellers. Mahmood Zeidan, territory sales manager at Empa Saudi Arabia, says: “We have points of presence in Riyadh and Jeddah and have resellers in all the major cities across Saudi Arabia. Empa is now in a position to offer next day delivery to resellers who also benefit from our excellent stock availability.” Empa currently has over 400 resellers purchasing regularly in Saudi Arabia with a customer base covering all sectors of the channel community including power retailers, dealers and corporate resellers. “We are pushing hard to serve local customers well,” explains Zeidan. “Distributors trying to serve Saudi resellers out of Jebel Ali struggle to provide such a high quality of service when it comes to RMA support and receivables. Availability is another issue to consider. Empa can supply the product in the quantities resellers require for specific projects.” Savas Yucedag, sales and marketing manager at Empa Middle East contends that the margin situation and the financial security of a distribution operation can also be improved by moving in-country. “We have over 100 resellers with credit lines in Saudi Arabia,” he says. “While there are still issues with receivables from time-to-time, this model is much more stable than the large credit lines being extended in Dubai. We believe in the benefits of developing local operations and will use the experience we have in Saudi to assess the potential for launching similar operations in other Middle East countries.” The one factor that does prevent more vendors and distributors from entering the Saudi market is the complexity involved in setting up an operation and the amount of paperwork that is frequently involved. It is a factor that has held back inward investment in the Kingdom for several major distributors. The co-existence of regional and in-country distributors both attempting to serve the Saudi market does create issues for vendors in terms of pricing, the allocation of territory rights and the impact of grey product movement. It also creates issues for the distributors themselves trying to run both models simultaneously. For Empa, certain fast moving components are sold out of Jebel Ali to sub-distributors pushing the product into the Kingdom as well as to their in-country operations in Jeddah and Riyadh. However, for other products, Empa only sells to its own in-country operation and does not allow sub-distributors to move this kit into Saudi Arabia out of Jebel Ali. ||**||Supporting role|~|SaudiElAbd200.jpg|~|Hesham El Abd, director for business development at Aptec|~|At a vendor level, manufacturers also employ channel tactics to protect their in-country partners in the Kingdom. BenQ uses warranty benefits and a differential pricing policy to protect its channel in Saudi Arabia by offering them slightly cheaper prices. The vendor is also quick to clamp down on any evidence of grey product flow threatening to disrupt its well-oiled channel machine. “If we see some grey product arriving, we take steps to allow our in-country channel to counteract it,” says Manish Bakshi, general manager at BenQ Middle East. “In one instance, a reseller in Jeddah bought a specific BenQ digital camera model on the grey market. We immediately isolated that reseller by allowing retailers in the vicinity to cut their prices. The reseller in question never bought off the grey market again, but to do this, you need to have very good market intelligence. That market intelligence comes from investment on the ground and close co-operation with first tier in-country partners. BenQ is poised to open a dedicated liaison office in Saudi soon and already has staff in the Kingdom utilising the premises of its distribution partners and regularly visiting reseller partners. With some vendors now employing staff on the ground in Saudi Arabia and opening offices, structured partner programmes are encouraging resellers to purchase from authorised distributors. Hesham El Abd, director for business development at Aptec, explains: “Some of the vendors are here and have introduced rebate programmes. When this is communicated to the resellers they realise that the opportunity is there to make money buying from the authorised distribution channel.” While some vendors have already invested in building up Saudi operations, others prefer to take a watching brief. According to El Abd, these vendors are missing out on a golden growth opportunity: “The biggest issue is still the overall lack of vendor investment in Saudi Arabia compared to other Gulf markets. This keeps the market unorganised and some of the activities that take place are uncontrollable. It is a pity to see this when you consider the market size.” “If vendors invest they have greater control of the channel, can monitor profitability and sales become more consistent,” continues El Abd. “If product is being moved in unofficially from Jebel Ali it can end up killing the vendor’s in-country channel.” “Resellers may not know how to sell, support and service a product, but they buy it as grey because they see a margin opportunity. The consumers lose out if they are misled about the quality of the product or service promises are not kept. This can also hurt the vendor’s reputation. Customers want to feel safe when buying a particular brand,” concludes El Abd. ||**||Pros and cons|~|SaudiLutfallah200.jpg|~|Sam E. Lutfallah, sales and marketing director at Al-Jammaz Telecom|~|While much is being made of the efforts by regional distribution powerhouses and international vendors to ramp up their presence in Saudi Arabia, it is important not to forget the growing reputation and vast potential of the existing indigenous players in the Kingdom. One such example is Al-Jammaz Telecom — a distributor boasting a fine financial pedigree and already holding distribution rights for Cisco and Linksys in the Kingdom. The company is poised to expand its vendor portfolio and is already in negotiations with international vendors to expand into mainstream product areas such as PCs and peripherals as it strives to become a one-stop IT shop for its impressive reseller base throughout the Kingdom. Sam E. Lutfallah, sales and marketing director at Al-Jammaz Telecom, explains the science behind the strategy: “We have the in-country infrastructure, resources, organisation and management and this is our plan now. This is an opportunity for Al-Jammaz to move to the next level.” With an excellent logistics infrastructure including twelve points of presence and four service centres, expect Al-Jammaz to bring some major vendors on board in the near future. Similarly, Empa is also looking to expand its vendor range in the Kingdom as it attempts to widen its product portfolio to finished goods — a transition it has already started to make in the UAE and CIS. Saudi remains something of a quandary for many vendors and distributors as they attempt to decide on the level of investment to make in the market. Yes, the size of the opportunity is massive, but there are risks involved, especially in terms of credit and the collection of receivables. Sources claim that one major distributor in the Kingdom is currently experiencing cash-flow problems. There are pros and cons but companies prepared to make the effort, understand the local way of doing business and put in a sustained effort can reap rewards in the magic Kingdom. ||**||

Add a Comment

Your display name This field is mandatory

Your e-mail address This field is mandatory (Your e-mail address won't be published)

Security code