Local Heroes

Get big, get niche or get out. The heat is on for local assemblers looking to build regional scale, take on the A-brands and boost sales

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By  Andy Tillett Published  October 26, 2005

Setting sights high|~|Assemblt-Facility200.gif|~|eSys assembly facility in Jebel Ali|~|Quarter after quarter the global PC manufacturers roll out figures trumpeting their growth in unit sales. They seem oblivious to the rise of the local PC manufacturers, many of whom have an aggressive growth strategy and are looking to expand their business and branch out regionally Many local assemblers in the Middle East have their sights set high. Tactics to take their brands to the next level are being put in place. These include introducing notebook and server offerings, and a number of assemblers are aiming to take their local brand regional, starting the race to become the first home grown pan-Middle East assembler. “Once we have developed the GCC markets to their full potential, we will move out further regionally. This is both a challenge and an opportunity, as we have to start from scratch,” says Manoj Kisani, director at Sky Electronics, which is a regional assembler of PCs fitted with AMD processors. The Middle East remains a fragmented region. Its composite markets have very different infrastructures and levels of development. Research house IDC estimates local assembly to account for only 16.3% of the total PCs sold in the GCC in 2004. The companies indigenous to these markets face a fierce fight, but the opportunity in other countries of the region, which are presently dominated by small local assemblers, becomes an ever more attractive target for local brands looking to go regional. This is a window of opportunity that will not last forever, as many companies have designs on the Middle East, including Time Group, which has pledged to establish a factory here. Assemblers such as eSys, which has an assembly plant in Jebel Ali is already making OEM PCs and plans to launch its low cost eSys brand PC into the region. A-brand vendors are also keen to invest in the region as it grows and take advantage of government initiatives to stimulate local assembly. HP has established a production line in Saudi Arabia, making it exempt from 5% import duty, and heightening the competition against local players. ||**||Finding market space |~|esys200.gif|~|Pavan Gupta, general manager at eSys Middle East |~|Unfazed by the heightened presence of the worldwide vendors, local brands see an area of the market for themselves between the A-brands and PCs produced by traditional local assemblers. Dubai’s iTech believes it can beat the offerings of the large names through the specifications and prices it can offer. “Our major target and gap in the market is to take the area between the local assemblers and the low end of the A-brand market — we can beat the local assemblers on price and we can offer better value-adds. We can customise a smaller number of units than the A-brands will,” says Akbar Shanu, product manager at iTech. iTech says it sells, on average, a three-figure sum of units each month and splits its business into three sectors: consumer, SMB and enterprise. The SMB segment accounts for 60% of its business and i-Tech lays claim to a 10% to 15% stake in the UAE assembly market. “We have no competition with local assemblers, our sights are set higher. They will use whatever components they get cheapest. We use only Intel validated products, assuring our quality,” adds Shanu. Another assembler targeting the enterprise and business sector, but concentrating more on tenders, is GenX, which says it believes there is a ‘huge gap’ for serious assemblers to scale up and take on the A-brands in the region. It has an assembly line with a capacity production of 10,000 units a month. “Most people are not thinking outside of their domestic markets. GenX wants to be considered as a regional player, we are doing everything that is required to be seen this way,” says Sultan Shabu, sales and marketing manager at GenX Middle East. Dubai-based brand Sky sees the leverage for its brand coming from small resellers, and is getting them to offer its brand over their own low scale white box assembly. “If we are assembling PCs and supplying them to the smaller companies, then we offer them a good margin, and free them up to provide value adds. We give them more opportunity to offer services and spend time on sales, while bringing unification between our resellers,” says Kisani at Sky. One of the largest local assemblers in the region is Zai PC in Saudi Arabia. The vendor says it is selling 100,000 PCs a year and is beating off A-brands in its home market. Zai also has plans to widen its brand by striking partnerships: “The multinationals do not affect us much, we have an added value over their offerings. We have our own showrooms and channels. We are far more flexible than them. We are planning to expand regionally, and have started talks to tie up with other big manufacturers in Turkey and Egypt,” says Akram Elyas, general manager at Zai PC. ||**||Components and OEMs |~|itech200.gif|~|Shabu Sultan, GenX|~|Although production capacities are growing, component manufacturers, such as hard drive manufacturer Western Digital, say it is still not enough to create direct buying relationships. “We don’t have any tier one assemblers in the Middle East — no local companies buy enough product to work directly with us. We work with the channel to build loyalty from resellers that work with Western Digital, so whichever distributor they buy from, they are asking for our products,” says Hafeez Khawaja, Western Digital senior regional director, Middle East, Africa and South Asia. An OEM manufacturer with perhaps the largest production scale in the Middle East is the regional branch of global distributor eSys with its new facility in Jebel Ali. The eSys production line has a capacity of 20,000 PCs a month, producing units to be sold worldwide. There are two sides to eSys’ business: one producing OEM PCs for large customers such as the Wal Mart Group, or governments, where eSys has already won tenders in this region; the other side is its own eSys brand PCs which haven’t launched in the region yet. “Outside of the GCC, the Middle East and Africa buys five million PCs a year. But there are no large assemblers who can provide 100,000 PCs at a time — it’s very fragmented. Anyone looking for a large tender goes to the Far East, so we saw a gap in the market,” says Gupta at eSys. Scaling up is the goal of many local assemblers, but as this happens, the whole ball game changes. In the developed markets there is a much greater emphasis on harder to assemble notebook PCs, and it is a tough job competing against the global brands, which have the advantages of marketing budget, greater brand visibility and economies of scale. For any assembler to compete, they need to keep an up to date product offering that will be competitive in the consumer space. “In the Gulf we have had to introduce laptops so we are not left out of the market. To compete we have an offering that is attractive in comparison to the top brands,” says Shamla Begum, administrative manager at Micron Computers, the parent company of iTech. Sahara, a South African local brand turned PC powerhouse, is also planning to introduce a laptop offering to the Middle East. The vendor plans to co-ordinate this from its recently established assembly facility in Jebel Ali, that it says is currently producing 1,500 to 2,000 PCs a month. Sahara is expanding rapidly and aggressively, and is one of the first regional assemblers to offer both Intel and AMD products. Chip vendors play a key role in local assembly, offering most local assemblers the monetary support and roadmap for growth that enables them to develop their offering in the region. For example, iTech freely admits that it wouldn’t have got to where it is today without Intel’s support. ||**||CPUs and support|~|AMD200.gif|~|Pierre Brunswick, regional sales director, Russia-CIS, Middle East and Africa at AMD|~|The main chip vendors, AMD and Intel, want their chips to be inside the PCs of any brands emerging within the region, so it is integral to support and encourage the assemblers they work with. Interestingly, they both take very different views on the best way of doing so. “We work with local assemblers to promote their own brands. These companies need to stop promoting manufacturers’ stickers on computers and concentrate on themselves. Promoting chipset or processor manufacturers instead of your own branded product gives an opportunity to A-brands to compete by showing that they include the same components in their PCs. Consumers will always choose an A-brand over a local product. AMD encourages local assemblers, by giving them support to build their brand over ours,” says Pierre Brunswick, regional sales director, Russia-CIS, Middle East and Africa at AMD. While AMD has made a lot of effort to promote its offering to the market, the Middle East has long been an Intel dominated region. The chip vendor’s channel partner scheme is structured to encourage partners to focus on development. Intel operates three different levels of partnership for local integrators: Intel authorised reseller, Intel product integrator (IPI) and Intel premier provider (IPP). Though most companies fall into the IPI category, there are 19 IPPs in the GCC region. “Our schemes are developed to offer as much as possible to our integrators. At an IPI level we are encouraging partners to invest back in their own brand and they get an advanced warranty service where any product registered as faulty within 30 days of purchase will get replaced for free. An IPP gets more information about our roadmaps and product strategies,” says Nass Nauthoa, reseller channel manager, Gulf countries and Saudi Arabia at Intel Middle East. ||**||PC for every home |~|Ayman-El-Baz200.gif|~|Ayman El Baz, director at Raya Distribution|~|The other omnipresent form of stimulation that integrators receive comes in the form of government schemes giving special treatment to local assemblers to nurture growth and local industry, giving large orders to local manufacturers. Local PC schemes, such as Saudi Arabia’s ‘PC for every home’ is enjoying massive success. The first government schemes to promote ownership of PCs were in Egypt, providing PCs for students and households. These programmes are starting to be replicated all over Africa, and are glaringly absent in other countries, particularly those of the Levant. Egyptian assemblers are some of the biggest brands in their home country. Although PC schemes provide a lot of work for domestic assemblers, many still receive a lot of their business through government tenders. Despite the thriving face of local assembly, from the inside of the market, Ayman El Baz, director at Raya Distribution in Egypt, which produces its own brand of PCs, says this produces an overly price driven environment. “The tenders go to local brands that have positioned themselves to win on price. If it were done by specification it would feature a whole different set of players. We sell mainly to the retail market concentrating on the high end, and we don’t really compete for government tenders,” says El Baz. If local brands are going to move up to the next level, they can’t rely solely on government tenders. They can be a good springboard, and a way of building up a stream of business, but to develop further into the wider markets, the local brands need to compete on a different level. The CPU manufacturers, at least, are fully in support. “There are a few companies that we are working with today that have aspirations to grow beyond the country they have set up in. They are doing the right things in terms of building up their portfolio into other countries. It won’t happen quickly, but we want to it happen,” says Nauthoa at Intel. Local brands also need to look past their present horizons, think big and plan carefully. “A-brands put pressure on the local brands through price. Assemblers will never win on price, so they need to look at configuration and go for added value,” says Gupta at eSys. There is a lot of talk, but if a local brand is going to make it in the regional marketplace, it needs to put plans into action. The most viable way of doing this is through partnerships with assemblers in other countries. Saudi Arabia’s Zai brand could be leading the way with its current scale and negotiations, but with a number of different plans and tactics up their sleeves, any one of the local heroes could be the first to go regional. ||**||

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