Primed for action

Having established a successful business based on OEM partnerships in the Middle East, Prima is now committed to promoting its branded product line in the region.

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By  Michael Thorne Published  May 10, 2006

|~|Singhvi,-Suresh-K200.gif|~|Prima executive director Suresh K. Singhvi|~|Consumer electronics manufacturer Prima, a wholly owned subsidiary of Chinese firm Xiamen Overseas Chinese Electronic (Xoceco), has enjoyed rapid growth in recent years spurred by its aggressive approach to flat panel TV markets worldwide. Xoceco manufactures a range of consumer electronics products with particular emphasis on TVs including CRT, LCD, PDP and HDTV receivers. Founded in 1985, the company’s growth has been aided by encouraging economic conditions in China, a plethora of OEM deals abroad and the increasing profile of its overseas brand, Prima, which now boasts a presence in more than 100 countries worldwide. Xoceco’s sales turnover nudged US$1 billion in 2005, making it the largest exporter and manufacturer of flat panel TVs in China, it claims. “The company has enjoyed explosive growth in shipments of its flat panel TVs in recent years and expects this trend to continue for the next five to 10 years. We are currently the world’s eighth largest manufacturer of flat panel televisions and by 2010 we want to be in the top five,” explains Prima executive director Suresh K. Singhvi. “We are years ahead of our competition in China in terms of manufacturing capacity and export capabilities. It will be a long time before anyone can catch us in terms of developing such an efficient operation.” With a series of regional OEM and distribution deals already established, Prima is following an aggressive expansion plan in the Middle East as it looks to increase the market share of its branded product range. As a consequence of this, Singhvi tells ECN, Prima’s 2006 sales budget for the Middle East has doubled compared to that of 2005 and he expects the company to experience 100% year-on-year increases in turnover in the region over the next four years. “We are a wholly owned subsidiary of Xoceco and are following the same path that Prima is following in other foreign markets. The brand is doing well in the US, has an 18% share of the Canadian flat panel market and is enjoying strong growth rates across Europe. It has offices in France and Germany as well as manufacturing bases in Hungary and South Africa,” he explains. Xoceco will complete construction of a new flat panel manufacturing facility in Sharmen, China, this year, at a cost of US$200 million. The company continues to invest heavily in research and development in a bid to raise its profile and compete with other more established Asian consumer electronics brands such as Samsung and LG. “We will still manufacture CRT TVs but the company recognises that the demand in the flat panel market is going to far outstrip that of CRT TVs in the coming years so we will focus on this segment of the market to spur sales growth,” says Singhvi. In the Middle East, the company has established a formidable market position based on established OEM deals with Hyundai, Wansa and Sanyo. The bulk of Prima’s OEM business is based in Kuwait, Iran and Saudi Arabia although it also has deals in Syria, Lebanon, Jordan, Yemen and Iraq. Singhvi believes that the market for flat panel TVs is continuing to grow at pace and is increasingly impacting demand for CRT TVs, especially as many consumers are becoming accustomed to purchasing larger units and competition in the market is bringing prices down to more affordable levels. A number of major players in the consumer electronics sector have pursued aggressive marketing campaigns promoting their respective ranges of flat panel TVs in order to increase their market share. Singhvi believes that these campaigns have had a knock on effect for all flat panel vendors, including Prima. “Sony’s massive advertising commitment to its Bravia range, for example, has had a knock-on effect for LCD TV sales in general, which has benefited other manufacturers especially in the Middle East,” he explains. ||**||The Prima brand|~|Aboobacker,-Ramees200.gif|~|Prima's country manager, UAE, Ramees Aboobacker|~|Singhvi says the time has come for Prima to become a bigger brand in the marketplace, independent of its OEM deals, and he claims that the company’s strategy already demonstrates this ambition. “Without a doubt, we are the most aggressive player in this market as far as flat panels are concerned. Competitors use our prices as a benchmark; once they reach our level we reduce our prices even further,” he claims. “We usually start by looking at the prevailing prices of competing products and work backwards from there. We try and address pricing issues by putting pressure on the factory to manufacture at a lower cost. “Our distributors benefit because their business increases as there is little competition at our price points. The Middle East is a price driven market – brands are important – but provided the product quality is good, then price is the key factor. The way we put it to dealers and distributors in the channel is simple; deal with Prima and your sales volumes will increase,” he says. “We always ensure that dealer and distributor margins are protected and we work out the end-user pricing based on the fact that we want to protect their interests while also putting pressure on our competitors in the marketplace. It is the same with our retail partners; we focus on the quantity of products they can sell in order to expand our channels. We focus on the full range of retail outlets, including hypermarkets, power retailers and dealer stores,” he explains. Singhvi explains that while Prima is committed to maintaining a competitive pricing structure for its product range, he says the company is conscious of the sometime negative connotations associated with ‘cheap’ products. He claims Prima’s products boast comparative standards of quality to those offered by its higher profile competitors. “We need to ensure that more discerning consumers with larger budgets are aware of this and they don’t see Prima as a low-quality brand because of the reduced prices of its products. We therefore encourage our distributors to conduct promotions with the hypermarkets and be proactive in their approach to pull-marketing, especially point-of-sale promotions,” he says. Singhvi notes that while Dubai’s domestic market represents a natural testing ground for companies looking to launch their products to the wider Middle East market, many other markets in the region are less competitive. “It varies from country to country,” he explains. “Some of our other partners in the Middle East are not so aggressive. There are countries in the Levant where distributors and retailers work to very high margins so we’re trying to educate them and get them to see that it is better to work on slightly lower margins and increase their market size so that at the end of the day their overall sales contributions are much greater.” Singhvi estimates that in markets such as Lebanon, distributors and retailers often work to margins as high as 20%. The end result of this being that the difference between the vendor-distributor transfer price and the end-user price can often be as great as 40% to 45%. “Vendor pricing in these cases does not necessarily determine the cost of the products at point of sale,” he says. “Instead, a great deal depends on how the channels in a particular market are ordered. This is not a trend that is limited to the channel for consumer electronics products, people work on high margins for all branded products in these countries. “We are encouraging channel players to increase their volumes and cut back their margins. The message we send out is that if our channel partners don’t fall into line with our strategy we will work with their competitors to ensure our goals are realised. “However, it is early days at the moment and we’re still working to identify the best distributors in the Levant. The channel distributors have become used to making big money there and have never really been exposed to any real form of competition. The entire market operates in the same fashion. Over a period of time we should be able to put some sense into their heads but I cannot say with certainty that we’ll be able to change the dynamics of the market.” ||**||Channel strategy|~|Singhvi,-Suresh-K---Prima--.gif|~|Singhvi claims Prima "is without doubt the most aggressive player in the flat panel TV market."|~|Singhvi says Prima takes a multi-faceted approach to regional markets working with distributors and via OEM agreements; the latter contributing a significant percentage of the company’s turnover. “We have some particularly good customers in Kuwait, Iran and Saudi Arabia,” he says. “Wansa, our OEM partner in Kuwait, has an impressive operation that has ensured it maintains a vice-like grip on the flat panel and CRT TV markets in the country. “It has eight retail outlets and a warehouse facility that operates 24 hours a day and guarantees delivery of a purchase within 24 hours of a customer placing an order. It also offers price points that make it the most competitive player in the market,” he claims. Singhvi says that even in countries such as Saudi Arabia and Kuwait, distributors and resellers work to much higher margins compared to Dubai where stiff competition means that margins are often wafer thin. “Dubai is a showcase for the potential of the Middle East consumer electronics sector,” he says. “However, it is also highly competitive, which makes margins an omnipresent factor. “But given the fact we have a core manufacturing competency we can adapt to shifts in demand and these competitive challenges quickly,” he explains. Prima’s country manager for the UAE, Ramees Aboobacker says that fostering successful dealer channel relationships in Dubai is fundamental to fostering growth compared to other markets in the Middle East. “In other countries in the region, the hypermarkets and power retailers dominate the market in terms of sales volumes but in Dubai there are other factors which force you to redress your strategy,” he explains. “Smaller retail outlets dominate the re-export market and attract individual consumers, so they contribute to a major percentage of our turnover. At the moment 50% of our business comes from the smaller outlets and 50% from the hypermarkets whereas in the past it used to be 30% to 70% in favour of the hypermarkets.” According to Singhvi, Prima has achieved great success with its smaller dealer channels in the UAE, including those souk-based retailers. “We are able to nullify the potential ill-effects associated with always doing business with the hypermarket retailers, which can be extremely demanding by nature and will dump you at the earliest opportunity,” he says. “As far as future growth is concerned, consumers are embracing hypermarkets but there is a changing dynamic in the UAE market. “Even the smaller dealers who have paucity of space have found it advantageous to sell flat panels because they provide potentially far greater margins. Dealers make around US$2.00 on CRT TVs compared to US$50-80.00 on a plasma or LCD unit and this means that they can cover their expenses much more efficiently.” Prima does not have distributors in Kuwait because of Wansa’s success in the market and a desire to avoid conflict between the two brands. “Kuwait is an exception,” Singhvi explains. “In other countries we have, or are seeking, both distribution and OEM partners. This is the case everywhere, especially in Iran, Levant and the central GCC. “Saudi Arabia is the most significant market in terms of potential commercial growth,” he continues. “We are currently searching for a major distribution partner to link us directly to the market. “Most of our business at the moment comes through the OEM channel but we want to do a brand building exercise there once we find the right partners. “Our perception of Saudi is that there are very few distributors which have a presence throughout the entire country, hence most companies have agreements with two or three companies.” “We would also only consider appointing a distributor that could provide quality after-sales servicing. We would like to tie-up with a channel partner that has the ability to fulfil this need on a national level in conjunction with the distribution of our products. At the moment we are biding our time, we have a lot of options but hopefully we’ll secure a deal in the next three to four months.” “We are also looking to develop our sales channels in Lebanon, Jordan and Syria as well, even though we already have OEM partners in each of these countries. We also have similar plans afoot for Africa and the CIS where we want to establish both OEM and distribution deals.” Singhvi believes that Iran offers tremendous commercial potential for Prima, despite the challenges associated with securing suitable channel partners in the country. “Doing business in Iran is very difficult,” he says. “The country represents something of a commercial wild card. It has the potential to prove an excellent market for us but for the foreseeable future Saudi Arabia will provide the most crucial market for our business.”||**||The Chinese challenge|~||~||~|Ultimately, Prima is perfectly positioned to capitalise on the booming demand for consumer electronics goods across the Middle East. China’s emergence as a manufacturing powerhouse based on low cost and highly efficient manufacturing techniques provides the company with large economies of scale, giving it an advantage in terms of pricing that many of its competitors fail to match. What remains to be seen is whether it can convince Middle East consumers that Prima is a quality brand that has the mettle to challenge its more established competitors. Singhvi is characteristically confident that the company can achieve this goal. “I am absolutely confident that in 10 years you will talk about Prima in the same breath as you talk of the Korean multinationals such as LG and Samsung,” he boasts. “That’s the kind of growth path this company has embarked on. It is a path that will not only see us consolidate our position as China’s most successful television manufacturer but also achieve major success in international markets.” ||**||

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