Partner Watch

Staying the course

After an unfortunate fire mishap that destroyed millions worth of stocks in late 2007, Empa Middle East has staged a strong recovery in its business. It moved into an expansive new facility in the relatively new Jebel Ali south in the first half of last year. Since then, the company has since moved on to adding new business units as well as strengthening its operations in GCC markets.

Shahood Khan, Sales and Marketing Director, EMPA says that their move to their own facility helps in the longer run. With their own facilities, the distributor sees their overheads stay instead of paying a premium for third party logistics facilities.
The fire accident came at a most importune moment for the distributor as it lost a lot of its inventory. Still the distributor claims they managed a significant growth.
About the fire accident, he says, “The fire was toward the end of the quarter and the inventory was at its peak. We still grew by over 20% last year in spite of the fire incident and the erosion of the ASP across product categories. “
He adds that the inventory pile-up towards the end of first quarter last year was because a lot of back to back orders could not go through as there was speculation rife about the volatile dollar rates. The loss was about 9 million USD but the distributor had no choice to take it in its stride. Although, it was insured, the claim took its time.
Khan says, “It took close to 8 months to recover the money from the Insurance company. We had to pay our vendors in the meantime and we needed to by new inventory. We came out stronger because of our inherently strong financials.”
The distributor is perhaps one of the exceptions in the local market because it claims to be debt free and believes in doing business with its own capital. That is helping the company cope with the tough market conditions when high interest rates are plaguing loan repayments for businesses.
Khan says, “We do not avail bank loans and do business with our own money unlike those who do with bank loans. Today, the bank rates are quite high. The cost of financing has gone up and companies who rely on outside finance will struggle.”
The distributor has always looked at keeping costs of operations under control. Building own premises on leased land seems to have been one of the salient attributes of this strategy. Besides there are other tenets that it believes helps it sustain stability even in volatile market conditions such as issuing credit based on insurance, something which has helped the company avoid risks such as significant bad debts.
Khan adds, “In different markets like KSA, we first look at the option of leasing land and building our own premises.  We are good at talent management. We are able to retain our key staff on a long term. Most of the staff that joined Empa from Tech Data after its exit from the Middle East are still with it. We are also tightly managing inventory as we look at inventory management as a key to keeping costs under control. We give credit based on insurance to resellers. We haven’t had a single bad debt in the past two years.”
Khan is also confident that while there is a market slowdown, there are some possibilities that work in their favour and help them register a healthy growth in 2009. One of the reasons he believes is that the ASP ( average selling price) in some product categories will stay healthy without further erosion.
He says, “We look at growing in 2009 with existing vendors. We believe the ASP should get better. Last year, there were big drops in Memory, hard drives as well as LCD. “
Khan adds, “In 2009, I see the ASP of LCD monitors going up because panel prices have gone up and smaller manufacturer are exiting as well as production is coming down with major manufacturers also closing down some factories. Further, the channel inventory on LCD monitors is drying up. Product availability is an issue because of component shortage. The same applies to memory. So I expect ASP to be healthy and our margins should be safe. Vendors are looking at modest realistic targets because everyone is looking at sustaining this year and also because they have reduced their production.”
Chasing the KSA opportunity
The distributor sees the possibility of more business coming their way as sub-distributors face the likelihood of a credit crunch. Besides, it also expects its in-country initiatives in strategic markets such as the KSA to make more impact.
EMPA has enhanced its central warehouse at Al Khumra area in Jeddah, along with the local warehouses close to Khaled bin Walid Street in Jeddah and Olaya market in Riyadh, while a fourth warehouse will be opened in Al Khobar to serve the eastern province customers as part of a strategy to increase the KSA fleet and cover other key cities such as Al Kharj, Al Qasim, Makka and Taif. EMPA has also deployed a team of highly experienced professionals for its Saudi operations led by Country Manager Anas Safadi.
Khan says, “We should be benefitting from our beefed up in-country operations. In KSA, we have consolidated over the past 6 years and have in-country sales people, local billing, local warehousing etc. In KSA, we originally had two offices, one in Jeddah, one in Riyadh and two warehouses. We have taken a new larger warehouse in Jeddah which will be the central warehouse. We will use all these locations to cover other neighbouring cities.”
EMPA’s recent manpower movements also saw Tareq Al Shawwa move from EMPA’s Dubai office to become Sales Manager for the Western Region based in Jeddah, while Sayed Chaudhry from Al Ramma distribution has been recruited to be the Channel Sales Manager for the Central and Eastern Region based in Riyadh. In addition, EMPA has also strengthened its in-country credit and finance team in Saudi Arabia.
Khan adds, “We have recently added more resources in KSA. We have hired a larger team from a distributor there. Our team in KSA originally had expertise in components business. The new additions bring on expertise in networking and PC businesses as well.”
The distributor is keen to sign up with more PC vendors. It has signed up with Netgear for KSA, one of its recent additions.
Khan claims, “The majority of distributors are looking at selling brands which sell without much efforts. We are good to creating new markets for brands that we take up.  Some of the brands are internationally strong but have struggled here. For instance, Philips was struggling in this market with its monitors market but after we took it up, they have been seeing good sales. Similar is the case with Biostar and Samsung Pleomax. It takes time to build markets for these brands. You struggle for one or two quarters but when you are eventually successful, there are more margins on these..”
He adds, “The channel appreciates these efforts because they do not make margins on brands that are over-distributed.  Most times, the channel ends up losing money.  They make more on brands that have optimal distribution. Besides, the channel is reluctant to take up new brands without vendor or distributor support because they face a lot of risk in this.
Khan is confident that a mid-size distributor like Empa will continue to have room for growth and similarly he sees the growth avenues for vendors that are yet to reach a critical volume in the region. On the other hand, he believes that vendors who already have market leadership will struggle to increase market share.
The distributor is hopeful that it should see a 20 + percentage market growth this year. They are also looking to consolidate with the addition of two new business units – networking as well as branded PCs and notebooks/netbooks by end of year, which helps diversify the company’s profile from a pure components distribution model. It has signed on vendors including FSC as well as Netgear. Its focus on networking tie-ups could also pave the way for it getting into value business mode although Khan comments that in the present scenario, they are not looking at it. But he doesn’t rule out the possibility of getting into that by next year.

Empa is beefing up in-country initiatives and expects a profitably showing in 2009

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