Emerging markets hold key to success

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Deepak Srivastava, the chief operating officer of GITEX Shopper 2007 exhibitor and ambitious power-retailer, Emax.

The continuing boom in demand for consumer electronics goods in the Middle East has largely been seen in the flourishing economies of the GCC region, namely the UAE and Saudi Arabia. Both countries offer channel players enhanced infrastructure and easy access to consumer markets, which are characterised by considerable spending power.

However, profit margins have significantly diminished in recent years, which has forced some companies to reevaluate their commercial strategies in the Middle East. Forward-thinking companies are increasingly turning to ‘emerging' markets in the GCC to provide healthier returns on their investments as the consumer electronics markets of Bahrain, Kuwait, Oman, Qatar and Yemen offer potentially greater profits.

Governments across the region have embraced globalisation and are increasingly abandoning economic protectionist policies, which is providing consumer electronics vendors with new commercial opportunities.

Distribution companies in Bahrain have hailed the government's market liberalisation policies for transforming the dynamics of that country's consumer electronics sector.

"We have enjoyed 20% to 30% annual growth in our business in recent years," claims Hassan Al Mahroos, managing director of Manama-based home appliances distributor Al Mahroos.

Al Mahroos says the company, which boasts German-based cleaning appliances vendor Kärcher among its clients, has revisited its sales strategy in recent times in a bid to tap demand for high-end goods coming from Bahrain's increasing pool of middle-class expat residents.

"Bahrain's expatriate population is largely drawn from Europe and the Far East, contrasting starkly with other countries in the region where expats are largely nationals from countries like India and Pakistan," says Al Mahroos.

"The dearth of cheap labour has limited the ability of channel players to provide low-cost, value-added services in areas such as home installation.

"This has promoted a ‘DIY' mentality among Bahrain's consumers. As a result, we have seen a surge in demand for consumer electronics and domestic appliances," he adds.

"In a manner of speaking this phenomenon has led to the creation of a new ‘product market' as opposed to a new ‘market trend'."

Sandeep Saighal, retail sales and marketing manager for Samsung Gulf, Mobile Division, says the company relies heavily on market data when developing its sales strategy for the GCC.

"We work hard to develop new ways of spreading our message to consumers in emerging markets," he says. "It's important to develop a strong presence initially as research has shown brand-loyalty holds sway among consumers in these markets."

The race to win favour with the region's purportedly ‘impressionable' consumers has prompted some channel players to slash profit margins in an attempt tap growing consumer demand.

Mobile handset vendor Motorola recently introduced a raft of cut-price handsets designed for the region's emerging markets.

Motorola Middle East, North Africa and Turkey area sales manager Harout Bedrossian explains the company is leveraging its low-cost handset strategy in a bid to gain market share in emerging markets and in the long-term, garner brand loyalty among consumers. He did concede that the limited infrastructure that afflicted some of these markets posed significant challenges to commercial expansion.

"Yemen, for example, has a population of around 22 million, of which 60% reside in remote regions of the country. As a result, we have had to reevaluate our strategy for this market, given the lack of telecommunications infrastructure and diffused population," he explains.

Vendors also point to other salient factors influencing their enthusiasm for developing a strong market presence in the region's emerging economies.

Manish Bakshi, general manager of BenQ Middle East, describes Kuwait as one of the company's most profitable markets in the region. He attributes this to BenQ's strong partnership with local distributor Xpresscell.

"Our success over the last 18 months is the result of our strategy of teaming up with established channel partners, such as Xpresscell," he says. "Small scale retail outlets account for only 20% of our turnover in Kuwait, while more organised retailers provide 40% of market share in terms of revenues."

However, he notes that such impressive returns, in terms of market share, come at a cost.

"The comparative lack of infrastructure in emerging markets leads to higher operational costs resulting in diminished returns," he explains.

"Kuwait-based distributors typically work towards 15% profit margins compared to six-to-seven percent margins in the UAE."

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