Channel economics

The Middle East IT market continues to be tested by the challenging conditions it faces. But how does it compare to other regions around the globe and how are consumers buying habits changing?

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By  Andrew Seymour Published  August 6, 2009 Channel Middle East Logo

The Middle East IT market continues to be tested by the challenging conditions it faces. But how does it compare to other regions around the globe and how are consumers buying habits changing? Channel Middle East went searching for answers from a man with his finger permanently on the pulse of the market, Pascal Bollon, global director for IT at research house GfK.

So what is your assessment of the Middle East IT landscape? Is it fair to say the market is in the midst of a crisis?

The Middle East has a financial challenge, like everywhere else, and it does sometimes face currency fluctuations, although you certainly couldn't say there was a currency crisis. Looking at the situation, the most important thing is that the Middle East still has consumers who strongly believe that tomorrow could be difficult but certainly don't expect it to be a catastrophe.

What trends do you see when you look at other markets around the globe? Are the same trends prevalent everywhere?

Nobody can deny that the start of 2009 has been tough and we see across the globe that the trends have slowed down. Nevertheless, in the middle of February we saw a pick-up in many economies, such as China where the majority of the demand was for PCs and TVs. In fact, South-East Asia has recovered extremely quickly. Europe is a totally different beast though. Why? Because you have got two massive blocks. One is Western Europe, where demand restarted in the third or fourth week of March, and the other is Eastern Europe, which still faces difficulties.

Are such difficulties linked entirely to the global economic crisis?

They are essentially linked to three factors, the most important one being the currency exchange in countries such as Russia, the Ukraine and Poland. That has created massive difficulties for the channel because stock was often paid in US dollars, but also for the consumer because there is no mystery - at some point somebody has got to pay for the purchase.

The second factor is clearly the financial crisis, which has hit the investment capacity of these countries. It is more difficult to get export credit, export insurance and stock payments. Basically, it is more difficult to do business. The third dimension, on top of all that, is that you have got consumers which are extremely worried about their futures.

So looking at the retail landscape as a whole then, the Middle East hasn't suffered as badly as Europe...

No, we definitely see a significant slowdown in the Middle East - people are not dancing on the tables at the moment! Nevertheless, we see that the demand is unbelievably resilient. What is most interesting is that if you look at the type of products purchased, it is not by definition the first equipment that the customer has bought, it is also renewal and upgrade business. I wouldn't say the market is sound because you always hope it could be better, but there are definitely a lot of opportunities.

Are you observing many differences between the various markets around the Middle East?

Absolutely. First and foremost, you have obviously got different structures between markets. Whether you take Egypt, KSA or Kuwait, the public is not the same, the consumer is not the same and the geography is not the same. You have also got extremely different and differentiated business habits in each country.

You can have the same store format, same products - you could even sell the same brands - but you would still have to do it differently in each country. In these difficult times, people can actually benefit from their understanding of local markets greatly. One of the key lessons is that there is no magic recipe. You cannot buy a business model of X,Y or Z off the shelf and apply it anywhere else in the world, it simply doesn't work like that.

When a market is going through difficulties do you see a change in the price points that stimulate end-user sales? Or is it just the case that overall demand across all categories slows down?

I think what we have started to observe, and what has been accelerated by this slowdown, is a high market concentration around price points. It does not mean there is a price slide or massive fire-sale driven by panic, but people will insist on much lower price points than before. What we have seen is the concentration of the market around three or four critical price points, whereas formerly you probably had five or 10.

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