Prime position

Where’s the best place to locate a PC assembly facility to serve the Middle East market? It’s a question that Fujitsu Siemens obviously thought long and hard about before finally opting for Jebel Ali Free Zone. Nevertheless, some channel insiders still reckon that the disadvantages of locating a PC factory in Jebel Ali Free Zone actually outweigh the advantages.

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By  Stuart Wilson Published  March 22, 2006

Where’s the best place to locate a PC assembly facility to serve the Middle East market? It’s a question that Fujitsu Siemens obviously thought long and hard about before finally opting for Jebel Ali Free Zone. Nevertheless, some channel insiders still reckon that the disadvantages of locating a PC factory in Jebel Ali Free Zone actually outweigh the advantages.

A-brand vendors do have a tough choice to make. Stick the assembly plant in a major market such as Saudi Arabia and you actually stand a much better chance of winning major tenders in the public sector space. It’s worth noting that Fujitsu Siemens had also toyed with the idea of establishing its plant in Egypt — a market where local assemblers still account for the lion’s share of PC sales.

Much depends on what products the vendor intends to assemble and what its core target market actually comprises of. Both HP and Acer are now assembling desktop PCs inside Saudi Arabia. They want the massive government tenders (we’re talking tens of thousands of units for each deal) and having a local factory that the bigwigs making the purchasing decision can actually visit frequently means a great big tick on your bid for the contract.

I’ve spoken to senior executives at three separate A-brand vendors with local assembly operations in the Middle East during the last week. And each one makes a compelling argument for their choice of PC assembly location in the region and the business model they have employed to operate the facility — be it a wholly owned facility or a joint venture with outsourced manufacturing and logistics.

The fact is that each business model has its own long list of pros and cons and each vendor must carefully weigh them up in the context of their long-term objectives. For those locating at Jebel Ali Free Zone, the ability to operate a slick just-in-time delivery system for components is greatly enhanced. Simultaneously, the speed with which they can move product out to various locations in the region is second to none. The downside for the Jebel Ali aficionados is the current situation regarding import duty for the GCC states. As soon as the finished product leaves the free zone, 5% duty is slapped on.

I’ll be honest; I can see two very good reasons why Fujitsu Siemens decided against starting a facility in Saudi Arabia: they are HP and Acer, both of whom already have plants in the Kingdom. Maybe it is simply a case of letting those two big names fight it out in the Kingdom, leaving Fujitsu Siemens the opportunity to target the rest of the region with business-focused desktops produced out of its Jebel Ali facility.

As Fujitsu Siemens rightly pointed out, you can’t have an assembly plant in every country in the Middle East. It is impractical and the critical mass is just not there in every market. This means that every decision regarding assembly plant location involves an element of compromise somewhere along the way.

A-brand vendors clearly put in the research before deciding where to set up an assembly plant. It is not a case of opening up a map of the Middle East, closing your eyes and sticking a pin down on the paper. What I am really intrigued by is how much of the decision revolves around the conditions on the ground in the region right now, and how much it is governed by long-term thinking of how the region will develop in the next ten years.

It is difficult to predict what will happen in terms of customs procedures and duty structure in the region during the next decade. However, it is a pretty safe bet that Jebel Ali Free Zone will develop into the region’s premier multi-modal logistics hub. Let’s also remember that when A-brand PC vendors talk about local assembly in the Middle East, they actually mean slapping a few fast-moving high value components into a pre-assembled chassis from the Far East.

What the customers really care about when it comes to purchasing desktops are the build quality, lead times and price. That’s about it really. Sure, there’s still some political capital involved in having facilities within specific countries, but getting the fundamentals right — wherever the facility is physically located — remain much more important.

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