Enter the dragon

With Sino-Arab trade at an all-time high, ECN investigates the impact Chinese manufacturers are having on the Middle East consumer electronics and appliance markets.

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By  Michael Thorne Published  July 11, 2006

|~|Chen,200.gif|~|TCL general manager, MEA, Frank Chen.|~|The entry of Chinese consumer electronics giant TCL into the Middle East last month and its subsequent announcement that it will establish a regional manufacturing hub in Egypt and possibly Jordan represents a significant development for the local consumer electronics sector. China’s influence has been increasingly felt in the regional consumer electronics industry in recent years, with many local vendors outsourcing their manufacturing requirements to China through OEM deals with Chinese companies. The success of Dubai’s Dragon Mart, which is the largest dedicated trading hub for Chinese manufactured goods outside mainland China, is also testament to the growing links between the Asian giant and the countries of the Middle East. As the region’s leaders and politicians court each other at highly publicised events, such as the talks last month between the Chinese Foreign Minister, Li Zhaoxing and the Arab League, so to do the regions’ businessmen, with consumer electronics forming one of the core segments of Sino-Arab trade. Last month’s talks set ambitious targets to expand annual trade between China and the Middle East to US$100 billion by 2010, up from US$51.3 billion in 2005. “You can tell by the number of initiatives launched by the Chinese government in the Middle East that this region is a strategic market for Chinese manufacturers,” TCL general manager, MEA, Frank Chen tells ECN. “Even by looking at the attendees at our launch last month, you can see that relationships are flourishing at a high level.” Among the delegates at TCL’s launch was the Chinese ambassador to the UAE, Zhang Zhijun, and the general director of the Department of Foreign Trade and Economic Cooperation for the Canton (Guangdong) province in China, Liang Yaowen. The Canton province is China’s economic powerhouse, providing around 12% of China’s entire economic output. “Now Chinese business has really begun to focus on the Middle East as a key potential growth area,” Chen explains. “The new initiatives between governments of the Middle East and the Chinese authorities are encouraging trade between the parties. As far as TCL is concerned, this market is wonderland for us. This is due to both its size and the purchasing power of local consumers. “In the past, we would decide what products we wanted to sell from China and then bring them here to this market. Nowadays we are more focused on catering to consumer demand in the Middle East and we have adjusted our products accordingly. We have achieved this by combining the expertise of our distributors who have knowledge of local consumer trends, and leveraging the flexibility of our manufacturing base, which enables us to manufacture the appropriate goods.” TCL claims to be the world’s largest TV manufacturer, having established OEM deals with a number of high profile international brands, including Thompson and Philips. Its consumer electronics portfolio includes audio-visual, white goods, home appliances and mobile phone handsets and accessories making it a formidable force. However the growing prevalence of Chinese manufactured consumer electronics goods in the Middle East is not a new phenomenon. The inherent flexibility and versatility common to Chinese manufacturers ensures a steady mix of OEM and branded goods are produced to meet market demand. Prima, the international brand of Chinese firm Xiamen Overseas Chinese Electronic (Xoceco), has pursued an aggressive marketing and pricing campaign in its bid to secure a greater share of the region’s TV receiver market while also forging OEM deals with major brands such as Hyundai, Wansa and Sanyo. Other companies, such as Nikai, Touchmate and Elekta have built successful businesses supplying branded goods, with manufacturing bases either owned or outsourced from China. The hypermarkets are also at it; Carrefour’s own brand, C4line, is manufactured under an OEM agreement with Chinese firm Zhejiang Cuori Electrical Appliances (Group), for example. In each case, the trend is the same; brand owners are now finding that the quality of Chinese goods has significantly improved, as has their image in the marketplace, and they are therefore increasingly able to reap the rewards of competitive price structures gleaned through these relationships. “We usually start by looking at the prevailing prices of competing products and work backwards from there,” says Prima executive director, Suresh K. Singhvi. “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,” he says. “Brands are important but provided the product is good quality, 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.” This year’s Hometech home appliances and consumer electronics show in Dubai, UAE, was dominated by Chinese manufacturers looking to forge new deals with regional partners. The key to the attractiveness of these companies is their flexibility; they are willing and able to do business in whatever capacity required. This includes OEM deals for a variety of brands or by customising products to cater to the needs of their partners. Jamal Bin-Marghoob, Dragon Mart Complex’s commercial and marketing manager, believes that the cost of living in the Middle East is another factor driving consumers to lower-priced Chinese goods. “Chinese goods are affordable,” he explains. “Previously, consumers had poor impressions of the quality of Chinese products but this has changed as manufacturing processes and efficiencies have improved. “With the rising cost of living in many areas of the Middle East, especially Dubai, consumers are increasingly embracing more affordable products having realised they also offer premium quality. This is where Chinese manufacturers maintain an important competitive advantage.”||**||Quality a priority|~|Marghoob200.gif|~|Jamal Bin-Marghoob, Dragon Mart Complex’s commercial and marketing manager.|~|Another factor highlighted by Bin-Marghoob is the rapid rate of technological development in the consumer electronics and mobile handset sectors that leads to new technology being made redundant soon after it is launched on the market. “In this instance, consumers are aware that an item they buy may be replaced much faster today than in the past in order to keep up with the latest technologies. Consequently it’s better to buy something affordable so that when you buy new things you don’t feel like you’ve wasted your money,” he says. The success of Dragon Mart in Dubai highlights the strong demand for Chinese manufactured electronics goods in the Middle East. The massive dragon-shaped structure, which consumes more than a kilometre of desert space on the outskirts of Dubai, operates as a free zone trading hub catering exclusively to Chinese companies looking to boost their presence in the Middle East and surrounding regions. The facility is divided into seven sections, each representing a different industry with a dedicated area for consumer electronics and mobile products. Established just two years ago, the facility has attracted more than 4,000 companies including a large number of consumer electronics, home appliances and mobile manufacturers and traders. “We consider Dragon Mart to be the second window for Chinese products being exported to the world, after China itself,” says Bin-Marghoob. “The background is based on wholesale – a lot of people from the region travel to China to buy goods in large quantities that they can trade in their respective countries. Nakheel [the Dubai-based developer responsible for Dragon Mart] came up with the idea of having a platform from which all of these products could be sourced closer to home. “This saves the difficulties associated with travelling to China such as cost and organisational factors as well as obvious language barriers." Dragon Mart provides Chinese companies with similar incentives to other free zones in the UAE, with each company’s trade license issued through Jebel Ali Free Zone (Jafza). Traders enjoy tax-free status and do not require a local sponsor. The sole payment required is a 5% customs duty placed on all goods entering the UAE. Special business facilities are also at hand such as conference rooms and translators available to help aid communication between Chinese speakers and regional buyers speaking in English, Arabic, Farsi and a number of other languages. “Dubai is known as a business hub and a place that can attract buyers from the surrounding areas,” says Bin-Marghoob. “We have the infrastructure, the political and economic stability and the favourable business conditions that companies look for in order to invest and that helps us draw Chinese companies into the market,” he explains. “Logistics are also a major factor and something that this market caters for well. Each month, of all the goods being exported out of China, 10% will pass through ports in the UAE.” Bin-Marghoob explains that Nakheel promotes Dragon Mart’s activities extensively in Iran, Saudi Arabia, Jordan, Syria and Iraq. “These are countries with historical trade links to Dubai populated by traders who find it convenient to source goods here. The Iraqi market is generating strong demand – many Jordanian buyers come here, source goods, import them to Jordan and then re-export them to Iraq overland,” he explains. Despite this increasing success, Chinese consumer electronics brands have a long way to go before they can be considered alongside their South Korean or Japanese rivals. Still, many industry pundits believe it’s only a matter of time before this occurs. China ranks as the most competitive manufacturing hub in the world, and is unlikely to be eclipsed in this position for the foreseeable future. The question of quality should be answered as the country adopts modern manufacturing processes and raises its own ambitions to compete with the best in the world. With the Chinese economic dragon focussing its sights clearly on the Middle East market its influence in the region will doubtlessly increase.||**||

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