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Thu 10 Aug 2006 04:00 AM

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Sun shines brightly

Suns Corporation’s innovative approach to business is creating waves in the international consumer electronics and household appliance industries.

|~|Matthew200.gif|~|Ravi Matthew, the managing director of Suns Corporation’s wholly-owned Jebel Ali Free Zone-based subsidiary, Suns Marketing FZE.|~|Established in 2003 following the bankruptcy and subsequent takeover of Aiwa by Sony, Suns Corporation is forging a unique path in the consumer electronics and appliance sectors as a ‘virtual manufacturing consortium’, whose shareholders are the very companies that distribute its products.

This innovative approach has guaranteed the company rapid commercial growth worldwide, with projected revenues of US$500 million by 2008, up from just US$100 million in 2005.

Suns Corporation’s Sunstech consumer electronics and household appliance brand is currently present in 17 countries, however the company is eyeing rapid expansion in the lucrative Middle East and African markets in a bid to reach its ambitious revenue target.

Emerging economies with flourishing consumer demand for entry level consumer electronics and appliances, typical of both regions, are Sunstech’s core strategic markets, says Ravi Matthew, the managing director of Dubai-based subsidiary, Suns Marketing, which manages Suns Corporation’s Middle East and African operations.

“In the Middle East and Africa, Sunstech is being pitched as a C-class brand with B-class aspirations,” he says. “We target the entry level sector of the market, which is arguably the most competitive in this region.

“Our strategy is based on promoting our price advantage and the high quality of our products compared to other brands competing in the sector.

“While demand for LCD and plasma TVs, for example, has taken off in Europe, there is a still a huge market in countries such as Iraq, Iran and those in Africa for entry level CRT televisions. We need to take advantage of this.

"Within the next few years, I believe that the Sunstech brand has the potential to easily turn over US$100 million in the Middle East alone. When Aiwa ceased operations four years ago, it was turning over US$300 million in the region, and it was fairly limited in terms of its product range. So US$100m does not represent a significant challenge for the company in this region.”

The spectre of Aiwa hangs silently over every aspect of Suns Corporation’s operations. From a management board predominantly consisting of ex-Aiwa brass, to a distributor/shareholder network made up of former Aiwa distributors, to the involvement of former Aiwa OEM manufacturers, Sunstech is leveraging the best elements of the brand in its corporate strategy.

Matthew explains that unlike Aiwa, the dynamic structure of Suns Corporation guarantees its long-term prosperity by leveraging the intrinsic business acumen of shareholders with a common goal in mind, placing the onus for success largely in their hands.

“As the Aiwa brand retreated from certain markets even despite Sony’s intervention, Aiwa distributors faced a common dilemma – should they look to take on another brand or downsize their own operations,” he says.

“The concept for Suns Corporation was created to solve this predicament. We settled on creating a new brand that would be owned by these distribution companies.”

Matthew says that fundamental to this strategy was the realisation that brand alone could not “command the premium it had in the past”.

“Therefore, the consortium decided to sell a brand-like commodity whereby it would only recover costs. Since the brand is owned by the companies that sell it, these companies are all shareholders in the business. We do not therefore have distributors – we have shareholders and brand owners for the respective countries they operate in.”

Matthew claims this structure provides major benefits for all Suns Corporation stakeholders.

“There is a level of financial transparency because each shareholder is aware of the company’s manufacturing capacity, its OEM partners in this process and the associated costs,” he explains.

“They’re also informed of the margins placed on goods by the company itself to cover operating costs.” ||**||Growth strategy|~|TV-3415F200.gif|~|Suns Corporation manufactures a range of televisions under the Sunstech brand.|~|Restricting operating and manufacturing costs forms the cornerstone of Suns Corporation’s strategic growth plan.

The strategy means the company maintains a major commercial advantage over smaller rival vendors that also source products through OEM relationships with manufacturers in Asia.

“Our product range is hugely competitive on a cost comparison basis as we don’t build any more than 4% into our initial cost price,” says Matthew.

“There are Jebel Ali [Dubai]-based companies that struggle to turnover more than US$30 to US$40 million each year, and it’s largely due to the overheads they face. Firstly, they have to deal with a 12% margin on cost price from the manufacturer, even before they find a distributor who will demand a 15% margin on the product before it hits stores. Ultimately, the combination of these factors makes it difficult for them to compete on price.”

Matthew claims the scale of the company’s operations and its subsequent buying power also provides it with some significant advantages.

To provide some perspective in terms of volumes, he claims that while most OEM brands in the Middle East might shift 10,000 to 15,000 DVD players per month, Sunstech is selling closer to 100,000 each month worldwide.

“That is tribute to the company’s global reach,” says Matthew. “Unlike our local competitors, we do not rely on sales in this region alone to prosper. To that extent, our growth has been much faster compared to rival vendors based in the region.

“There are some very good and very strong regional players in the Middle East, and it’s not easy to challenge them on quality and price. But we have the distribution network and we have a certain base in terms of OEM partners that help us achieve our aims.

“Just as there are power retailers in the industry, we like to think our shareholders are power distributors. Because of our volumes, we can command certain quality, pricing and service support guarantees from our OEM partners and expect to receive them. We can also demand that the product be customised to our own specifications. The biggest challenge for any OEM brand is guaranteeing volume and the quality of their product range.”

While refusing to rule out any plan to establish a manufacturing presence itself, Matthew believes it would be more beneficial for the future of Suns Corporation to admit existing OEM manufacturing partners into the consortium.

“That way we could leverage their capabilities just as we do those of our distribution shareholders,” he says.

Matthew claims that many existing partners have expressed their enthusiasm for such an initiative, given the rapid commercial growth of the company worldwide.

“It makes sense for them to be involved given the volumes we command,” he says.

It also would seem to make sense given the close working relationship Suns Corporation enjoys with its manufacturing partners, most of whom were also involved in Aiwa.

The company collaborates closely with each manufacturer’s research and development team to deliver customised products under the Sunstech brand.

The majority of these manufacturers are based in mainland China, although Matthew says high-end products including the company’s portable MP3 players are sourced from South Korea.

“We are not involved in direct selling. We are a virtual manufacturer and restrict ourselves as such. Product development is outsourced to individual OEM partners. We work with them to customise the specifications of certain products for different regions, based on the expertise in-house,” he says.

“For example, one of our flagship hi-fis boasts 4000 watt PMPO output. No other vendor, apart from premium brands such as Sony or Panasonic, offers a similar system in this region, and even then, they cannot match us on price. We are able to offer such quality items due to the close relationships we enjoy with our OEM partners, who know us from the Aiwa days and trust our distribution network to be able to handle such high-end products.”

Suns Corporation boasts distributors cum shareholders in each country of the GCC, including former Aiwa distributor Al Sayegh Brothers in the UAE, Videohome in Qatar, and OHI in Oman. It also boasts a presence in Iran, and is looking to expand this base into other countries in the region, including Iraq.

Matthew says the company is seeking the cooperation of its network of partners worldwide to create a new global consortium in which the company’s distributors will come under the Sunstech brand.

With Suns Corporation formally incorporated in Japan, he says this development would preempt the company’s listing on either the Tokyo or Hong Kong stock exchange. He adds that such a move would provide the financial impetus to take Sunstech to the next level, ultimately challenging the major players in the global consumer electronics industry.

“Our brand philosophy is very simple – we are concentrating on design, quality and value,” says Matthew.

“We believe that if we get these three elements right, we will give even the major international brands a run for their money.”||**||Building a brand presence|~|DP200.gif|~|Sunstech's mini DP-F8110 MP3 player.|~|Suns Corporation currently relies on its partners in each country to coordinate marketing activities promoting the Sunstech brand in their respective markets.

Matthew says that the rapid growth of the company and the disparate impact this has on brand equity may force that responsibility back to a centralised authority, probably based in Dubai.

“At present, each shareholder is promoting the brand differently,” he concedes. “In Iran, Sunstech is pitched as a premium brand above any other Chinese manufactured rival, while in Spain, for example, we fight tooth and nail with Chinese manufacturers in the entry level sector. However, we pride ourselves on the belief that the quality of our products is comparable to Japanese brands. To ensure a universal brand image, this process will have to come under the control of a central entity sometime in the future.”

In addition to fostering the commercial growth of the Sunstech brand, Suns Corporation is diversifying its interests to cater to niche demands within the consumer electronics industry.

The company recently established a new division committed to sourcing products for rival consumer electronics brands.

Typically, these volumes are incorporated into Sunstech’s own OEM stock orders, enhancing the purchasing power for both companies involved.

“By merging our volumes, we can demand guarantees from manufacturers relating to pricing and quality standards. While specifications may remain the same, we provide these vendors with exclusive panels to differentiate their products from ours,” says Matthew.

“Brands we are working with in this regard include Orion and Funni, the latter of which is one of the one of most profitable Japanese manufacturers of consumer electronics. Our OEM partners manufacture their MP3 player range through our network.”

Suns Corporation is also increasingly providing management consultancy services to manufacturers, typically based in China, looking to streamline their operations and provide world-class services.

“One of the biggest challenges Chinese manufacturers face is upgrading the quality of their operations to Japanese standards,” Matthew claims.

“Our consultants go into these factories and analyse their existing work practices, identify bottlenecks and streamline their manufacturing processes.

“The division has become incredibly profitable thanks largely to the fact that some of our vendor partners are asking for ongoing consultancy services.”

Matthew says that the success of this division also pays dividends for the Sunstech brand, in that it can assess the capabilities of a potential OEM partner looking to work with the company.

“The technical manager of the division has more than 35 years experience working with the Sony group,” he says.

“If we were to negotiate a new OEM deal with an unknown manufacturing partner, we would employ his help in assessing that factory’s capabilities before going ahead with it. He could also suggest what changes should be implemented so we could work with them.”

In terms of product rollout in the Middle East, Matthew says the company has plans to introduce new products in certain markets, depending on consumer demand.

While the company already sells air conditioning units in Iran and Kuwait, it only expects to begin shipping the range to the UAE next year.

“We have not yet introduced our plasma or LCD range mainly because the source prices are fluctuating wildly at the moment,” Matthew explains.

“A new brand cannot afford that kind of risk. We would rather deal with mature product sectors.

“If LCD prices drop by 20% manufacturers can cope because they already probably face a backlog in demand. But if I’m a brand owner with six months inventory stacked up, the situation could prove disastrous.

“OEM brands that have pitched their fortunes in the sector of the market are facing major issues now. They are losing money.”

While the Sunstech brand can be found in the major hypermarkets in the GCC by virtue of the fact that many of its shareholders boast existing retail relationships with the key players including Geant, Carrefour and Hyper Panda, Matthew believes that the rapid growth of this retail sector has been a mixed blessing for the region’s consumer electronics channel.

“The small retailers have almost disappeared and the hypermarkets have elbowed their way into a fiercely competitive retail business,” he says.

“They have garnered more support from vendors and distributors because of the sheer scope of their vision and the commercial opportunities they present.

“However, they also often act in a high-handed fashion with the industry because of their buying power.

“One positive aspect is that their influence has brought a certain element of accountability to the consumer electronics channel.

“Personally, I believe it’s a small price to pay – if the channel becomes a little more challenging commercially, it means we all have to work harder to achieve success and it keeps us all on our toes.”||**||

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