Business Benefits

Desktop PCs continue to be the form factor of choice for many large tenders and vendors are fighting hard for a slice of the action.

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By  Andy Tillett Published  May 1, 2006

Vendor options|~|openeer200.gif|~|FSC's production facility in Jebel Ali, Dubai|~|The channel has a number of difficult options to consider when it comes to aligning with a vendor for their desktop offering: assembly, shipment, main stocking points and lead times are all elements that can make or break a sale. These factors become ever more crucial as the market grows and more manufacturers make the move to producing locally. Three of the ‘big five’ vendors have now set up facilities in the region, raising the heat on both each other and the battle for big business accounts. The Middle East, as a developing region, presents a variety of options to vendors. As a prime location with easy access to many markets including Africa, Asia and Eastern Europe, do they manufacture locally or ship goods in? If they ship PCs, do they bring them from Europe or Asia? If they set up locally, which country do they choose? Desktop supply chains represent a complex jigsaw of possibilities for vendors, with no clear formula for success, but a number of tempting options that they must choose between. Less volatile and larger than the consumer space, the commercial PC sector is dominated by desktops. Though vendors tout the ‘mobile workforce’, it still remains more of a concept than a practice, as most businesses take the more cost effective route of purchasing desktops. As demand across the region reaches a point of critical mass, the biggest players in the market have realised the effectiveness of building desktops locally. This has led to massive investments from Acer, HP and more recently, Fujitsu Siemens Computers (FSC). “Consumer desktops have shown a steady growth, but commercial desktops have seen explosive sales in the last two and a half years. It is desktops rather than notebooks that companies are going for,” says Sanjay Kachroo, business development manager, desktop PCs at Acer Middle East. Acer has its own facility in Jebel Ali, Dubai, producing 15,000 desktops a month. The vendor has also started a joint venture facility producing Acer PCs in Saudi Arabia at the beginning of this year, with a starting figure of 3,000 PCs a month; though its targets are set at 100,000 desktops a year. HP set up its Saudi assembly facility in 2003 and is producing over 10,000 PCs a month, though it has recently pledged to ramp up this capacity to serve the entire Middle East and part of North Africa from the Kingdom. FSC inaugurated its first regional assembly facility in Jebel Ali in April. “The current capacity per day on one shift is around 350 PCs. We want to produce at least 50,000 units in the next five months. The full capacity of the plant at three shifts a day is 100,000 PCs a year. We are working on a smaller scale while we create market demand ,” says Peter Esser, executive VP volume products and supply operations at FSC. Also emerging is a number of second tier manufacturers, who don’t have the capacity for production that the A-brands have, but are still winning orders from smaller accounts, and also claim some government projects and tenders. IT vendor Sahara set up a production line in the UAE last year and assembles a healthy 850 PCs a month. “Tier one prices have come down a little, so tier two brands have to be quality conscious. Our aim is to improve quality and service so we are comparable to tier-one brands, but we still have a price advantage,” says Ashok Chopra, general manager Middle East operations at Sahara. ||**||Setting up locally|~|eldeeb200.gif|~|Sameh El Deeb, category manager commercial desktops and displays at HP Middle East|~|Setting up a local facility for desktop production requires many considerations, but the most important is where? The three locations that normally come up for discussion are Cairo, Riyadh and Jebel Ali. “You need to assemble next to your business partner. Saudi is in the heart of the region, so you get good shipping routes and rates to other GCC countries. The GCC represents 80% of our addressable market, so we need to take advantage of it,” says Sameh El Deeb, category manager commercial desktops and displays at HP Middle East. Free zones, such as Jebel Ali in the UAE, are a tempting prospect, allowing free movement of goods into them, making sourcing components tax-free, but once goods cross the border into the GCC they are charged a 5% tax. Setting up outside a free zone means components have to be sourced from the free market, but all goods produced within the GCC are exempt from tax and have free movement within its composite countries. Working in the corporate space requires a lot of commitment and vendor support, as enterprise customers will not give partners an easy ride to winning large orders. “It is harder to fight in the corporate space, largely because customers in the enterprise segment are more demanding. They expect more from both an economic standpoint and a service standpoint, which obviously imposes costs. We work very closely with our corporate reselling partners to make sure it is worth their while,” says Anil Ghandi, general manager of HP’s personal systems group in the Middle East. The typical relationship between a partner selling desktops in the corporate space and its customers will not be on a hardware level, but typically cultivated through involvement in more complex solutions projects. “Partners need to have a healthy business in the solutions space, solving normal problems from a large customer in order to have a healthy business which then allows them to compete aggressively in a few large bulk purchases,” says Ghandi at HP. The largest chunk of vendors’ sales is still through the distribution channel. Acer estimates this figure at 60%. Both HP and Acer use their distribution partners to manage programmes to differentiate their offering to second tier resellers.||**||Customisation options|~|Kachroo200.gif|~|Sanjay Kachroo, business development manager, desktop PCs at Acer Middle East|~|“We create demand pull through our three commercial distributors, Aptec, Emitac, and Tech Data, through channel programmes, incentives for regular orders, special offers, pricing and promotions,” says Kachroo at Acer. Offerings in the marketplace rely on much more than price. Customers are all about customisation, and resellers and vendors have to work together to be as flexible in their offering as possible. Vendors align their products into categories depending on the level of customisation. HP drives its channel business through sales and support partners (SSPs) working with large accounts. The vendor divides its product offering into three different categories. El Deeb says product take up can be related to industry sector. “The SSPs sell most of the corporate products to tenders, which are mainly government driven. Each of the three corporate models we offer moves fastest in different sectors. For SOHO we sell the entry-level ‘good’ boxes, the ‘better’ offering goes to the mid range market and ‘best’ is an enterprise sale,” says El Deeb. FSC has a similar approach with its product offering, with three levels of configuration to partners, but it also stocks a sizeable number of so called ‘Golden SKUs’ — popular product offerings that satisfy the needs of most business customers, estimated to cater for up to 70% of the market. “Our new facility offers 18 different standard configurations of desktop, through the ‘Value for you’ option. ‘Built for you’ is where a customer can choose from a variety of components. ‘Made for you’ PCs are our tailor made option and can include customers’ components and specific software. This has a minimum order value of a couple of hundred units,” says Esser at FSC. Lenovo takes a similar approach, but says that its partners have more involvement in the specifications they can bring to the market. The vendor also says that despite not having regional assembly, it can still deliver small, configured orders from its facilities in China. “The channel partners work with their channel managers to assess what a reasonable order is. We can even customise an order down to a couple of hundred units. If a partner thinks it can sell a certain specification and will be able to place repeat orders, we will produce it.” says Mohamed Sharaf, marketing manager at Lenovo Middle East. The vendor is also tempted to bring production to the region. ||**||Customisation and innovation|~|Sharaf200.gif|~|Mohamed Sharaf, marketing manager at Lenovo Middle East|~|“An assembly facility would unlock the potential of the huge orders that governments place and the government aided purchase programmes (GAPP) initiatives they employ. For us as a newcomer, assembly may not be the option that we go with just yet because we have other priorities to take care of, but we are not ignoring it,” adds Sharaf. For large vendors to make a customised offer economically worthwhile, orders typically need to be a couple of hundred units or over. This gives second tier manufacturers an advantage by being able to produce configured units in smaller quantities. “Our minimum order quantity is usually 50 and above. We deal with a lot of the small businesses that don’t place large orders,” says Chopra at Sahara. Customisation is one aspect of product differentiation, but the innovations and technologies that vendors can offer are also a major factor that can make the difference and make their products stand out. “We refresh our products as soon as new technology is introduced. The way that we will sell more desktops is by innovating within their functionality. We have ultra small form factor PCs, we have enabled our PCs with security features such as fingerprint readers and we have very comprehensive rescue and recovery options. Innovation for the end user is our focus,” says Sharaf at Lenovo. Corporate resellers also have to look at where the PCs are being sold. The largest single desktop customer in the region is the Saudi Arabian educational sector, which invests in some 30,000 to 40,000 PCs a year. Governments look upon vendors with a local presence more favourably, and in many cases limit participation in increasingly popular GAPP projects to those with local assembly. “The objective of the Saudi plant is to start fulfilling the PC for every home initiative in Saudi. The government is talking about purchasing over a million units in the next three years, or 300,000 desktops a year,” says Kachroo at Acer. The Saudi GAPP scheme currently works with two assemblers: HP and local brand Zai. Local assemblers such as Zai in Saudi or Raya in Egypt have good links to the government and are looked upon very favourably, as they are home grown names. A-brands targeting their business will find it hard to win over, and as investment in the region grows, the fight to sign up the corporate resellers with the experience to win in such accounts intensifies. ||**||

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