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Sun 27 Nov 2005 04:00 AM

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Collision Course

Is it an IT product or just consumer electronic kit? The Middle East channel explores the ongoing convergence conundrum

How Converged?|~|BabaniDJ200.gif|~|Deepak J. Babani, chief executive officer at electronics distributor Eros Electricals|~|The word convergence has almost lost its meaning through overuse in both the IT and consumer electronics channels. We all know that product ranges are growing, lifecycles are shortening, functionality is increasing and channels are consolidating, but are people simply using the word without looking into what it means, conveniently bundling together two very different channels rather than assessing whether they really have come together?

Acer is releasing flat screen TVs. BenQ is putting a big push in sales on its digital camera range. LG is making laptops and HP is producing PDA devices. Nowhere is convergence more visible than in the swap shop of digital devices and home technology products that various vendors are pushing to market. PDA phones are essentially small computers, complete with Microsoft Office, but a PDA is still classed as a consumer electronics product, as is an mp3 player, which themselves are frequently now simply a hard drive with a play function.

“We see the crossover point as plug and play. Once products become easy enough for the average consumers to set up themselves, they are consumer products. mp3 players or digital cameras were IT products at one time, but they are marketed as consumer products,” says Deepak J. Babani, chief executive officer at electronics distributor Eros Electricals.

IT is replacing older technologies, and storage vendors in particular are doing well out of convergence, as cameras, phones and music players now integrate hard drives or memory cards. “Convergence is mainly seen in consumer electronics devices, hence most consumer electronics vendors are pioneering in this area. IT component vendors are working hand in hand to design and produce required parts,” says Rajeev Mukul, general manager at hard drive vendor Maxtor Middle East and Africa.||**||The rise of retail|~|Khalkho2002.gif|~|Nilesh Khalkho, operations manager for electronics superstore Sharaf DG|~|To become dominant players in the converged market, IT vendors must pit their brand equity against traditional consumer manufacturers. This battle is already raging in the consumer market, which is witnessing dramatic changes as retail evolves across the region.

“We're shifting from high street mentality to mall mentality. In a high street mindset the user has his set price and looks for a product based only on that criteria. In mall shopping the stores are different in terms of ambience, product range, layout and sales skills, which is why we introduced the Sharaf DG brand, a large format retail store, at 10,000 square foot plus in size,” says Nilesh Khalkho, operations manager for electronics superstore Sharaf DG.

As retail grows and consumer behaviour changes, product offerings have also changed. The number of products and the range available on the market today has increased dramatically, and in turn, lifecycles have shortened.

“Digital device products used to have a lifecycle of eight months to a year, but now there is just so much choice, and maybe three or four new models are released each month. There will always be early adopters, but the products are moving faster than the market can handle. When a consumer is playing a large amount for a small device, they want it to last for at least six months,” says Ahmed Al Azzawi, director at mobility product distributor Source IT.

A product lifecycle lasts between 18 and 24 months according to mobile phone vendor Nokia. This is not the amount of time the product is in stores being sold. It takes time after a product has been introduced before distributors will stock it, related to consumer demand, in turn driven by pull marketing from the vendor. Again from the distributor to the retailer, it will take time for the product to gain momentum. The nature of retail is now so cutthroat and there are so many products and technologies being released, that Khalkho at Sharaf DG claims across the board products have a shelf life of three months before sales will have hit their peak and started to decline.

Vendors are now hunting distributors who have the valuable skills to succeed and add value to products in a retail distribution environment, as well as fulfil a channel role. This paves the way for distribution outfits such as Source IT, which has found its own area of the marketplace, offering mobility solutions as its core competency.

“Mobility is where IT and telephony come together, this is a new segment in the market that a lot of people are not concentrating on. We have no competition with any distributors that have mobility as their core business, they tend to either stick to IT or telephony,” says Azzawi.||**||A new field of distribution |~|SOURCE-IT---Ahmed-Al-2.gif|~|Ahmed Al Azzawi, director at mobility product distributor Source IT|~|The specialised setup of companies like Source IT exemplifies a new breed of distributors that will emerge in the region as the market matures, carrying more limited portfolios that concentrate on one niche area of the market.

Power retailers have emerged in certain areas of the Middle East, such as Plug-Ins, Jacky’s Electronics and Jumbo Electronics in the UAE, or Hyper Panda and Al Jarir Bookstore in Saudi Arabia. These stores are complemented with the all-encompassing approach of hypermarkets such as Carrefour or Geant, which stock a range of IT products. The rest of the Middle East still has a very fragmented retail structure, and vendors need to establish a channel that can serve outlets that are both large and small, which often requires a multiple distribution channel.

Distributors are also typically the point of contact for retail stores when it comes to training. With a sale in an electronics store taking an average of twenty minutes, training is of far more important than previously.

“We are a consumer electronics distributor that has embraced IT to a very large extent. We have trained all of our staff and the natural progression of the market has evolved to encompass IT. Previously we used to call our dealers for training once a year, now its five or six times, and its gone from training on one product to training on three or four products at a time,” says Babani at Eros.

At present, traditional consumer electronics and IT distributors are crossing over in their product offerings. Both sides have advantages over the other; consumer distributors have a much wider channel base of smaller resellers, and are much more adept to dealing in the retail environment. IT vendors are used to dealing with quicker logistics, lower margins and are more prepared for shorter product lifecycles. Again the argument comes down to the issue of brand equity. The marketing in the two different product areas has nurtured very different techniques.

“If you see the marketing of an IT company, it is mainly technology driven. Compare that to the marketing of an electronics company, which is mainly image driven. The consumer side hits people on their senses and convince consumers that their items are fashionable and sexy. If IT guys want to sell into the consumer electronics market they have to market their products in a more sexy way,” says Khalkho at Sharaf DG.||**||Distribution or retail?|~|Shenoy2002.gif|~|Sathish Shenoy, general manager, Samsung division at Eros Electricals|~|Vendors need to strike a balance in their marketing techniques, mixing the right formula of both the consumer and the IT approaches to make the most effective campaigns. The digital home is the ultimate goal of convergence, where vendors provide appliances and the IT to control them together. This technology is isolated to a few areas of the Middle East, limiting its viability through both cost and availability. Establishing better infrastructure, such as a basic telecommunications systems in some countries, or increasing the availability of high speed broadband in the UAE are more viable short-term goals.

“The products are all available here, and people have the buying power, but again, the infrastructure isn’t here. Unless you have all the elements in place it won’t happen. There will be adoption but not mass adoption. For example, Wi-Fi: this concept only applies to very few isolated areas, whereas in Europe whole cities are practically wireless,” comments Sathish Shenoy, general manager, Samsung division at Eros Electricals.

Convergence can and will happen but presently the whole process is in a state of Flux. Vendors are still finding their feet and deciding what exactly they want to offer. In turn, the distribution chain is still establishing itself to offer a better and more converged portfolio and distributors are finding niche areas to work in. The retail concept is developing, but presently only in the most developed areas of the Middle East. From the channel’s perspective, convergence still promises a brighter future.||**||

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