UAE a strategic stopover for distribution of IT goods

Before Dubai became known around the world as the home of glittering skyscrapers, man-made islands and the world’s tallest building, the city was already one of the world’s largest trading zones, a superlative it can still lay claim to.

Thousands of commodities worth billions of dollars come in through Dubai before being traded off to a variety of different countries. The major reason for this is the prime geographical location that Dubai enjoys, linking buyers and sellers from Russia, Central Asia, Africa and even farther afield.

Dubai is not only a popular stopover for people, but also for goods that come here in transit to other countries. Aside from the central geographical location of Dubai, it’s the easy seaport access, favourable government regulations, tax-free environment, and trade embargoes on a number of surrounding countries that have helped establish the city (and the UAE as a whole) as the leading trade centre in the region.

International Data Corporation (IDC), the market research company where I work, is intrigued by this transit phenomenon and has conducted research to develop a clear understanding of the trend as it affects IT products. Essentially, there are two aspects to this trade.

The first is grey market movements: these are goods that are shipped to a country but not through the official vendor channels. They happen without the knowledge of the vendor and through traders who buy and sell stocks from and to different countries. Most of the grey shipments coming to the UAE ports, are redirected straight from Jebel Ali port to the country of final destination. However, a smaller portion also enters the UAE market to be consumed locally or be put into the re-export trade.

The second aspect is re-exports; these are movements of stock that is shipped either officially to the UAE through authorised vendor channels or through the grey shipments above, but are ultimately “re-exported” out of the UAE when sold to wholesale traders in other countries.

This re-export movement happens in large volumes and significantly affects the final volumes that are actually consumed in the UAE versus what was officially shipped here. It is therefore very important to understand this trend, as a vendor’s global headquarters often presume the demand stems from the UAE market itself and set their expectations accordingly.

IDC has also shown in its research how the re-export trends and proportions vary by technology and brand significantly – depending on the two, sometimes as much as 30 to 50 per cent of the official stock into the UAE gets re-exported.

So why does all this trade happen?

Our research has found several reasons; the first and most dominant being demand. Given Dubai’s historical reputation as a trading hub where technology products can be prevalently bought, there are always wholesale buyers from other countries looking to purchase these products here, regardless of how widely available these products may be in the buyer’s home country.

The second reason is when a given product is simply not available in another country. This is because vendors have either not established direct channels for selling their products in certain countries, especially in the surrounding developing countries of Africa and Asia, or they intentionally make certain models unavailable. This inevitably results in demand for these models being fulfilled by grey and re-export market players. A good example of this is Apple’s iPhone.

The third reason is better prices. When global pricing strategies are not in sync, the same product can be available at a much cheaper price in one country than in another. This usually motivates buyers to import the particular product from the cheaper country. The large volumes handled by distributors in the UAE (when compared to other countries in the region) means that prices are often lower here. Also, given the proximity of many of these countries, it is a fairly straightforward and profitable exercise for traders to buy their required stock here in Dubai.

The fourth reason is that distributors want to meet sales targets or get rid of stock from previous quarters. When this happens, distributors can easily dump stock in the re-export market. The price is usually slashed and the products then sell like hotcakes. This trend then feeds back into the third reason mentioned above – cheaper prices.

It’s easy to see how and why millions of units across all technologies have become part of this lucrative trade. And given the large volumes of re-exports out of the UAE, it’s important for vendors to understand this movement so that when they see an increase in shipments to the UAE, they appreciate that it’s not related to real organic growth or demand for the technology in this country. IDC tries to capture these true shipments into the country by accounting for the impact of “grey” and “re-export” shipments to the countries’ final numbers in its quarterly trackers.

Lately vendors across all technologies have taken more measures to reduce these movements. They have tried to address the root causes of such systems and because of their efforts, in some technologies, there has been a significant reduction of grey movement from what it was few years ago.

We are eager to see how the changing vendor global strategies and steps taken to address them will affect IT trade in the future. Regardless, the UAE will continue to be a major source of IT products to the region.

Based in Dubai, Nabila Popal is a research manager with IDC’s systems and infrastructure solutions group.

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