Real deal

The notebook market in the Middle East has become synonymous with soaring growth rates during recent years, but that has also brought with it a number of major challenges for resellers, not least the issue of making a healthy margin. Channel Middle East reveals what resellers should be doing to ensure that selling mobile PCs remains a profitable business.

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By  Andrew Seymour Published  September 13, 2007

The not-quite-so delicious irony of the laptop channel is that as the size of the market dramatically expands so too does the prospect of margins getting squeezed to uncomfortably low levels in the reseller space. It goes without saying that the Middle East channel for mobile PCs is enjoying a spectacular run of form that has so far displayed no sign of abating. More than 1.25 million laptops were sold in the Gulf region last year, representing a jump of 61% and crowning notebooks as the dominant form factor. Every country belonging to the GCC achieved shipment growth in excess of 50%, while Qatar performed so strongly that the market doubled in size.

But any seasoned reseller with a long-term eye on the market will know that the golden days won't last forever, and even if they do then the pricing pressure is likely to be so intense that they will need to find ways of earning extra margin to augment the hardware sale. Sources insist prices are declining at a rate of 15% a year, particularly in the low-end segment where the fight between resellers and retailers is characteristically fierce.

The introduction of notebooks without operating systems in the corporate segment has merely exacerbated this trend by playing into the hands of resellers motivated by low price points. "Resellers are going for the cheapest price point and then later they realise they are ruining their image and are not able to increase their year-on-year revenue," said one channel source. "The prices are dropping so they are just moving boxes. That is why there are a lot of fly-by-night operators. They invest a lot of money, get stuck with stock, sell it at half the price and then just vanish."

It depends on the model, as the margin can drop 2% on very fast moving products if the bulk justifies it, while it can go to two-digit if it is a high-end product with a level of value addition.

Sascha Haake, director SME and channel at Fujitsu Siemens Middle East, suggests the reason for declining price points is partly to do with the fact that notebooks are no longer the "wow product" that everybody wants but can't afford. "Parts of the notebook market have become a commodity like the standard desktop," he observed. "Entry-level products are still a huge segment and vendors are focusing there because of the huge supply and demand, but prices are dropping." This has led some parties to sell laptops at absolutely no margin in an effort to achieve volume even though it means undercutting market prices and potentially devaluing the brand at the same time. Bradley Bennett, divisional manager at retailer Plug-Ins Electronix, believes this issue is largely caused by the computer trading community rather than the power retail sector and calls on vendors to address the issue. "The power retailers have all identified that to go and sell something at no profit is not worth it," said Bennett. "I think it is definitely the vendor's responsibility to maintain price parity in the market and the vendors should be taking action against people who are breaking prices by restricting product to them." On the other hand, some channel players believe the price-cutting culture is actually becoming less aggressive than in the past. Amer Khreino, general manager at Acer and HP distributor Emitac, reckons resellers are more selective about the margins they make and this has restored some stability to the market. "If you go to [Dubai] Computer Plaza you'll find most of the resellers advertising at the same price and I believe nobody would be interested below the 8% bracket when it comes to retail," he suggested. "It depends on the model of course, as the margin can drop 2% on very fast moving products if the bulk justifies it, while it can go to two-digit if it is a high-end product with a level of value addition."

While notebook vendors operating in the Middle East can still afford the luxury of pushing stock into the channel and seeing it move without much resistance, many acknowledge the importance of forging closer ties with resellers who are spoilt for choice in terms of brand availability. Toshiba recently hired country managers to engage with partners in markets such as the UAE, Oman, Kuwait and Saudi, citing the level of competition as its reason for getting closer to the channel. "You need to position your product within the reseller segment so that they promote your product and it all boils down to how much money they are making and the return on investment," explained Santosh Varghese, general manager at Toshiba's Middle East and Africa operation.

While the temptation to exploit the current upwards growth trend by catering to all categories of notebook users remains strong, vendors insist prosperous resellers will be the ones capable of developing a clear focus that involves taking account of their positioning in the market and defining their strengths. It doesn't necessarily mean resellers must neglect certain parts of the business, simply that they need to exploit their assets. At the same time, it is also clear that introducing an element of differentiation is one method of standing out from those who are just shifting boxes. This can be achieved by cultivating a services portfolio, according to Sameh El Deeb, client PC product manager at Dell Middle East.

He draws comparisons with the auto market where certain brands are more popular because of the quality of service associated with them. "Taking that analogy, SMB resellers need to develop the services portfolio that they offer around the box, especially as the reality is that a lot of SMBs don't have an IP infrastructure. They need a solution, they don't need a product," advised El Deeb.

Indeed, the array of services that can be offered around a laptop sale are not as constrained as they initially may seem, particularly in the SMB segment where customers increasingly require installation, wireless infrastructure, data migration and back-up support. Knowing what the customer needs to aid their business is a precious quality to possess.

"I think the successful resellers out there really understand the business," said Mark Prosser, product marketing manager at Acer Middle East. "As a reseller, if you are able to address every customers' needs in terms of their individual requirements, rather than trying to push a particular SKU, there are opportunities to then up-sell additional support features. That makes a successful reseller versus a mainstream reseller," he said.

This point is particularly pertinent in the corporate space, where efficient sales cycle planning and account management remain key factors in being recognised as an expert.

"When you are addressing mid to large-sized business customers you need to be specialised in what you are doing," said Serdar Urcar, general manager of HP's Personal Systems Group in the Middle East. "You've got to know their mobility needs or the things attached to mobility, like security and manageability, so you can talk about it and create the perception that you are on top of these technological aspects."

Khreino at Emitac insists resellers need to be proactive with their customers in terms of service and concentrate on up-selling products such as network connectivity devices for SMBs or models with additional access points and wireless routers. "There is room to grow in the market, but how much depends on the innovation being driven from the retailers' side because there is a lot of complementary solutions and products in the market today."

In the midrange segment and above, the ability of dealers to articulate the benefits of the product to the end-customer is arguably more influential than the price because corporates want assurances that they are making the right investment.

"Businesses want to know where they are spending the money and why they are spending the money," explained Acer's Prosser. "So if I'm going in there for security features it's not so much about whether the notebook has got fingerprint security or a smart card system. It's about the benefit of that to the customer. We are all about selling the benefits, not the features."

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