Street Talk

Khalid Bin Al Waleed Road is a sanctuary for computer resellers and retailers operating in Dubai. Such is the vital role they play in the sale and re-export of technology products that many of these companies enjoy an influence that stretches way beyond the UAE. But what are the issues facing their business and what does the future hold?

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By  Andrew Seymour Published  January 31, 2007

|~|eyas-shouman---gulf-shadow2.jpg|~|Eyas Shouman, Gulf Shadows Computer Systems|~|Khalid Bin Al Waleed Road is a sanctuary for computer resellers and retailers operating in Dubai. Such is the vital role they play in the sale and re-export of technology products that many of these companies enjoy an influence that stretches way beyond the UAE. But what are the issues facing their business and what does the future hold?

Channel Middle East surveyed some of the reseller channel’s most recognised faces to discover a little bit more about life on the Street.

They are Anoop Das Cherai (AD), showroom manager at Fujisoft Technology; Rakesh Bohra (RB), general manager at the Wi-Fi Computer Zone; Rajesh Keshwani (RK), director at Tiger General Trading; Gaurav Brahmwar (GB), managing director at Computer Depot; Mohammed Jaber (MJ), CEO at Winning Deal Computers; Eyas Shouman (ES), general manager at Gulf Shadows Computer Systems; Sunny Menghani (SM), managing director at Quality Computers; and Tarun Nandi (TN), managing director at Bluebell Computers.

CME: Is Computer Street still as important to the IT market in the region as it used to be?

AD: Computer Street is still very important, particularly as we get a lot of export customers. However, the showroom people are killing each other by offering rock bottom prices. It didn’t used to be like that. Everybody had their own customers who used to come and purchase regularly. Nowadays, if my customer goes to another shop and the guy gives him the products for 10 dirhams less then he will buy from them.

MJ: Computer Street’s contribution to IT development in the region is still important and it is growing because we are taking a very major role in distribution. We provide customers from all over the region with IT solutions and hardware. We have even started receiving traders and customers from Saudi who used to depend more on China and on distributors in Saudi Arabia. Maybe the competition means the prices in Dubai are very competitive and they see more advantages and savings from buying here than going to China.

GB: No, it’s decreasing. I think the resellers’ role will keep reducing because most buyers who have the money and don’t need the credit will buy directly. What stops a big guy from Ethiopia, Sudan or parts of Russia buying from Tech Data or Redington? Why should they come to us? They have the money and they know what they need to buy. For the first few years, maybe I can manage to strike a deal because of his ignorance, but eventually he will come to know where the stuff is coming from and go there directly, unless he is a friend of mine.

ES: I think the business in Computer Street and Computer Plaza has been increasing and I hope that it will be better in 2007 than 2006, but that doesn’t mean the importance of Computer Street has increased. If we are talking about Dubai alone then the place is growing rapidly and is not dependent on Computer Street at all. There are lots of IT companies that are not located in Computer Street and they are taking a good proportion of the business in Dubai. Now, in relation, to the Middle East and Africa — even worldwide — Dubai is becoming very important. There are customers from the CIS countries, both sides of Europe, Turkey and Africa so if you look at the growth in IT demand then the importance of Dubai as a source of IT to the world is growing as well. But it could be that there is still a higher amount of business in Jebel Ali than Computer Street.

RB: Computer Street will remain the most important place in this country, whatever happens. There will be more traders coming in to this area than moving out. More and more people have now moved into the Wi-Fi Zone. Previously, this building was not available, but we have now attracted close to 60 computer retailers in the space of two years.

CME: Which markets do your main customers come from?

MJ: Winning Deal customers are mainly from the GCC region. There are also some from Yemen, Oman and Iran — although not that many come from Iran. Our business with Africa is also good. Up to 15% of the business is now coming from Africa.

ES: It differs from one month to another — there is no stability in any of the markets we are dealing with so one month we could have 50% going to Africa and the next month it could be 50% to the GCC. I think it’s a good thing that in Dubai we are not dependent on one market.

SM: Mostly Africa — we used to have a large Russian base but slowly distributors have set up offices in Moscow to satisfy demand from Russia. But it is difficult for distributors to maintain offices in Africa, and as a result we have around 10 to 20 customers from Africa. That is our main market — today we are surviving on Africa. There are some problems there and any IT distributor who tries to open up offices cannot maintain them. It’s very simple to do business with Africans when they come out here, but I think distributors face problems because resellers in Africa ask for credit and distributors are quick to give out credit, which can be dangerous.

RB: Largely Iraq, Iran and Africa. There are some Eastern European customers and some from the GCC countries. We deal more with the Qataris and Bahrainis out of the GCC countries, as these markets are a little more free and open. Technological equipment is selling there at a faster pace with higher margins.||**|||~|sunni-menghani---quality200.jpg|~|Sunny Menghani, Quality Computers|~|CME: How do you intend to expand your business in 2007?

AD: I’m going to keep a good database of African export customers and give them a good price. There are no worries about money. Before shipping, everything is on the table and you can deliver the goods with no headaches. The corporate business is more profitable, but the issue is getting the funds back. It can take 30 days, 50 days — some companies have 90-day credit limits and they only pay it back after that.

GB: Concentrate on making money! I have some ideas but I can’t let them all go right now. Retail is one of them. We have already taken new premises in one of the malls that is coming up in new Dubai. We have been very strong retailers from the word go so I think that sticking to retail is the easiest thing we can do. 70% of our business has always been retail. Mall customers definitely have deeper pockets. The Street customers are always street-smart — they have less money and want more value for their money. They will always do a lot of hunting and with so much competition next to each other they don’t allow us to make a lot of money.

RB: This has been a very hard year because Iraq is in a tough position. We have all been facing tough times over the last few months and we hope that Iraq’s position improves over the next one or two months because if it does Iraq will be one of the largest markets for us. Iraq’s stability means an increase in business for everybody in Computer Street. More corporate businesses are entering this market as new companies and investors come into this country. They are setting up offices and need IT so we can become a mandatory part of their business.

CME: What are the major challenges you face these days?

MJ: The threats are very limited because Dubai is well established and the law here prevails. The challenge is to keep updating the technology and to be fast at understanding customers’ demands. The other challenge is to educate our customers because we are in the front line. The resellers are promoting what the distributors and vendors bring to the market. If resellers and Computer Street were not available, distributors and vendors would find it very difficult to grow in the market because the importance of the resellers in terms of educating customers and creating demand is very important. Without the resellers, the vendors and distributors would face a tough time. They might come and do the job of the resellers, but it would cost them a lot of money!

RB: The bankers in Dubai have become quite rough with IT companies because of the three large resellers that ran away last year. They have pulled out the credit lines, just on the premise that we all belong to the same bunch, and so this is a challenge we are facing. The support from banks is absolutely negligible, and this is the most important thing to an IT business because we can’t keep pumping in our own money the whole time.

RK: The biggest challenge is the pace of change in technology. Obsolescence is a challenge. If I don’t sell products very quickly, a new model will come out — maybe at a cheaper price. This puts tremendous pressure on the whole Street. Things change too fast, even before consumers can digest it.||**|||~|rakesh-bohra---wi-fi-zone20.jpg|~|Rakesh Bohra, Wi-Fi Computer Zone|~|CME: What more could the vendors you work with do to improve your business?

AD: It’s not only about price. They should keep concentrating on the quality because people rely on brands. The customer should not lose confidence in the products so the manufacturers have to keep the quality.

GB: I think they should take an equal interest in our inventory. Selling is not everything. They sell it to us and we buy it, but helping us to get it off our shelves is the key. I would like more interaction from their side into a store. More of a basic interest in the merchandise that they have sold — how well are the products we gave you last month doing, has the price dropped, are you facing any problems? Basic general interest in our business is what we would expect because we take a lot of risks. If we end up buying, say, 2,000 notebooks a month, that’s US$2m. We take the risk so we expect them to be concerned about our business as well.

MJ: We need them to improve in the RMA field. I wish that distributors of brands would make a service centre where RMA is processed directly instead of us acting on their behalf. The best examples of service centers in the market are LG, HP and Toshiba. I wish all distributors would deal with RMA this way. For example, I sell HP and the customer doesn’t come to me if there is a problem, they go to Emitac. And for LG it’s the same. This is the way it should be. I have an RMA manager here working full time just to service my customers. I don’t mind that — but it would be more professional for a famous brand, a respected brand in a market with value and marketshare — to have a service centre.

ES: I think the vendors are doing their best, trying to survive and make money in Dubai. They are supportive in a difficult market and I believe that the customer himself builds his needs from the vendors. If his needs are realistic to the vendor they will support him, but if not they can’t.

RB: A vendor must put a line between the power retailers and the small shopkeepers. In the IT business the small shopkeeper will remain for years to come. You can’t close a small shopkeeper in this business because a Carrefour will never be able to give what my shop or any other market-specific shop can give. If you walk into a Carrefour with a problem with your laptop, I don’t think they have the people and they could never have that kind of focus.

In America, you walk into Fry’s Electronics — it’s a pure IT company, not a hypermarket, the same as Circuit City and CompUSA. They are IT or consumer electronics companies. We will certainly remain, it’s just a question of whether vendors support us in the same way that they support the power retailers.

RK: I would like vendors to offer some sort of price protection as I haven’t seen this with any distributor and I deal with all the big ones — Aptec, Tech Data, Almasa, Redington as well as others. I don’t think anybody offers price protection. You buy at your own risk and try to sell. Some dealers are so aggressive that they buy and sell at the same price to keep cash flow and gain cash through back-end rebates, but these are very meagre, often around 1% or 1.5%. I don’t think that’s a good strategy. Many dealers play this game and during the course of a year many wind down. There are a lot of ‘fly by night’ resellers who quickly go bust.

TN: We get support from the vendor but we need much more. If a vendor reduces the price, they should at least tell us two weeks in advance that the price will be dropped, like Intel does. Other vendors don’t do this. HP doesn’t do it, and I am a Preferred Partner of HP. Even the distributor doesn’t know when the price drop will take effect.

Vendors don’t normally go to the market either, they sit in the office and plan everything. They have to go to the market and see what is happening. How many of a vendor’s product managers come into the market and see how the product is doing? Without the market information a product manager cannot plan the product.

Another problem we are facing is with the power retailers. Some power retailers, to promote a product, buy at US$65 and then advertise it in the newspaper for US$50. They only need to buy 200 units, so they can take the heat off the US$15, but when I am buying 2,000 units, I can’t take the heat off that US$15.

SM: Vendors should offer back-end rebates or profit assurance, not necessarily with everybody, but at least with platinum or gold partners. I should be assured of 3% to 5% profit in my back-end rebates as a preferred partner. Also, some vendors are very conservative with their product advertisements. I don’t know what kind of advertising they’re doing, but it’s just not clicking.||**|||~|tarun-nandi---bluebell200.jpg|~|Tarun Nandi, Bluebell Computers.|~|CME: The pace of technology change is extremely fast. How is buying behaviour among your customer base changing?

MJ: The buying behaviour and the quality of product being demanded is getting more sophisticated. But there is still a trend of customers checking for prices and trying to get the best deal available. The sector that used to buy assembled PCs is now moving into branded PCs too.

GB: Notebooks are growing very fast. They require the maximum revenue and they give the maximum revenue. The back-end rebates are decent enough because if you turn around, let’s say, US$2m or US$5m worth of notebooks in a month and you get 1.5% back then it keeps you going. Convergence, particularly with the mobile products, is also a growing area.

RK: Customers in this region are looking for a bargain. As a result we only make a AED25 (US$7) profit on laptops, which is ridiculous. That is just 1% of the sale price. Those are the kind of margins we see.

SM: In the past, customers could only visit one or two places and weren’t able to negotiate a bargain, but nowadays they have so much choice in this street because there are so many showrooms. Sometimes resellers have to offer products below the actual cost price and the customer is confused because he doesn’t know where he should buy. The people who suffer are people like us who bring the product in legally, pay the full duty and cover the warranty. There are some people who bring the product illegally and sell it with no warranty and they cause the biggest problem for us as well as the customer.

CME: What are the advantages and disadvantages of operating in such close proximity to your competitors?

ES: It depends on the way you deal with it. If you deal with your neighbours as potential customers then you will be happy living among them, but if you think of them as competitors and people who are going to take your customers then you won’t. Nobody is able to give the customer his full needs without the needs of his neighbours and nobody could possibly be the strongest in everything. And if your customer wants a brand and my neighbour can give me a good price for a small quantity then I should be buying from him and not going to a distributor to buy at a higher price because it is a small quantity.

GB: I don’t see any advantages. We are a company with big overheads, we know what service is all about. We are the only IT company which has a Dubai Service Excellence award. We give service to our clients, but we can’t take too much for them. We have a few customers who pay us a little bit more — we command a premium — but then we can be shockingly expensive as well because of the guys next door who have smaller shops and lesser service.

TN: It is an advantage, not a disadvantage. What happens is I sell almost all the products and I don’t have any agony because I can source more products from next door. It’s beneficial to everyone when they’re sitting together doing business because it provides more visibility.

RK: The disadvantage is that it gives us very low margins. Every business wants to see the bottom line growing, but due to this set-up we see paper-thin profit margins. Everyone can see each other and the chances are that a customer will just end up buying from the first reseller it visits because we all have to offer a very competitive price, especially for laptops. The advantage is that sales volumes are huge. ||**|||~|rajesh-keshwani---tiger200.jpg|~|Rajesh Keshwani, Tiger General Trading;l Computers|~|CME: What does the future hold for Computer Street?

GB: I don’t think it will last for more than four years from now. Who will want to come? It’s very difficult to park because of the traffic and it will only multiply. I don’t see Computer Street remaining Computer Street in the next four years. There will be a computer shop here, shops selling other merchandise there. There is a restaurant next door to me that used to be a computer shop and now a pharmacy the other side. Don’t be surprised if you see a good gold souk on this street!

MJ: The future is growth, growth, growth! I say to beginners on Computer Street that it will be difficult at the start, but by the end of it they will really enjoy the business. I’m very optimistic that the role of Computer Street will increase for two reasons: the vendors and distributors are still paying a lot of attention to Computer Street and the number of customers is increasing.

RK: It’s not easy on the Street and to grow their business I believe resellers will need to diversify their product portfolio as well as their own channel. As current customers from developing areas in the region begin to deal directly with distributors, resellers in Computer Street will need to diversify their own customer base as well.

TN: I don’t think there is a problem in Computer Street — it will just grow further. By the way, those people who ran away last year were not from Computer Street. Fortex was in Computer Plaza, one was from Jebel Ali and another had an office. Not one of them was based in Computer Street. Business is not going to shift — especially in computers — to a mall or to a power retailer, because these people only do a small proportion of the computer business in Dubai.||**||

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