Driven by increasing local consumer confidence and fast-growing demand from neighbouring emerging markets, the UAE’s demand for imported products is assuredly strong. What Hong Kong manufacturers and traders also need to know is the country’s consumer behaviour and distribution channels. Diverse consumer needs and a wide variety of retail channels determine where the opportunities lie.
Different preferences on finished electronic products
Dubai’s consumer electronics market is largely segmented by distribution channels. Products sold in chain specialist electronic stores within mega-sized shopping centres or multi-brand electronic sections in hypermarkets are mostly medium-to-high brands from the US, Europe and Japan, targeting local residents as well as tourists. In recent years, Korean brands have been making a stronger impression, given their innovative product design and extensive marketing campaigns.
Another major distribution channel is stores within specialised malls, such as Al-Ain Centre, where one can expect to find a wide range of computer hardware and related products. For computers, there are some local traders assembling their own computers for sale, while most components are imported from East Asia. Competition in the market for mobile phones, computers and digital cameras can be fierce, given the high brand consciousness. Hong Kong companies can choose to tap into the electronic accessories sector, for example , Bluetooth earphones, memory cards and headphones. There is greater brand diversity and less emphasis on brand differentiation for those products.
Shops at the “street” level are equally important, particularly for budding brands. Major target clients for those shops are overseas buyers and local resellers. Some expatriates living in the UAE also come and look for low-to-medium priced products. Indeed, “value-for-money” is the key reason for the survival of those shops. It explains why Chinese brands and products have been growing more popular at the “street” level in recent years. They are particularly popular among buyers from emerging markets. Indeed, Dubai is an ideal platform from which to tap into the lucrative African market and the fast growing Iraqi market, for companies able to supply “value-for-money” mobile phones, computers and home appliances.
Not surprisingly, local manufactured products are rare. However, some local distribution agents have started to launch their own brands, particularly household electrical appliances, targeting the low-to-medium market segment. Most of them are seeking for original equipment manufacturers (OEM), thereby offering another opportunity for Hong Kong manufacturers. However, there will be fierce competition from competitors on the Chinese mainland.
Look at the regional market when it comes to parts and components
With limited manufacturing activities within the UAE, selling parts and components to the country means selling to the neighbouring markets. Iran is among the most important market for traders in the UAE. High import tariffs on finished electronics and automobiles in Iran have led to the country’s fast-growing automobile and electronics manufacturing sector. For example, imported cars are slapped a 100% tariff by the Iranian government, which speeds up the growth of the local automobile industry. Annual car production in Iran increased from 300,000 in 2001 to more than a million in 2009. However, the majority of manufacturers in Iran focus on assembly, which means that they have a strong demand for parts and components.
Though demand for parts and components keeps increasing, competition gets fiercer, as Dubai is already a very mature buying centre of parts and components. According to local traders, price competition is so fierce among Dubai traders that their prices are already 10%-20% lower than those in neighbouring countries. A lot of Dubai traders are now seeking a way out, looking for price-competitive products with strong functionality and good quality to improve their profit margins.
Ready to face competition on fashion products
Owing to the increasing competitiveness of Turkish and Indian apparel, Hong Kong manufacturers face fiercer competition to land orders from the UAE. Made-in-China products, which used to be price competitive, are losing their competitive edge. In 2010, apparel imports from China were about US$2.5 billion, only up 3% from 2007.
Unlike finished consumer electronics, the UAE’s clothing market is better segmented by customer groups. Wealthier expatriates and local nationals prefer mid-to-high-end clothing. Most of the time, they prefer branded clothes, though not necessarily global brands. On the one hand, they buy clothes from world renowned brands in high-end malls. On the other hand, they also buy clothes from less famous brands, emphasising “value-for-money”. Indeed, Asian brands known for “value-for-money”, such as Giordano and Hangten, have been expanding fast in the UAE in recent years.
Expatriate workers with lower disposable incomes also buy those “value-for-money” brands, but most of the time they prefer cheaper clothes from small retailers in the market. In those shops, T-shirts only cost around US$5 each. Facing huge competition from Chinese, Indian and Turkish companies, Hong Kong companies should set their sights on the “value-for-money” sector with stronger focus on quality, instead of the low-end segment.
Given the fierce competition in textiles products, Hong Kong can strengthen its brand-building efforts to differentiate from other products, thereby avoiding head-on price competition. Hong Kong companies may also find opportunities in other non-textile products like footwear, accessories and bags. Indeed, Hong Kong’s exports of footwear and travel goods to the UAE increased by 95% and 53% from 2005 to 2010, far exceeding that of clothing (1.5%).
Special gifts are needed
With increasing affluence and flourishing commercial activities, demand for gift and premium products will continue to show steady growth. Local conglomerates and commercial agents for large multinational corporations are the major buyers. Most of them buy from local importers. Therefore, doing business with local importers remains the best way to reach the end users of gift and premium products.
With good quality assurance and strong innovation, Hong Kong has long been the most popular destination for sourcing gift and premium items. To sustain the appeal to UAE importers, Hong Kong companies should keep abreast of the changing trends of the gift and premium sector in the UAE. One of the most notable trends is the increasing popularity of gifts with electronic or hi-tech elements. Indeed, fiercer competition has forced a lot of importers to look for unique items. UAE importers are showing a growing interest in building long-term relationships with Hong Kong brands and products, through which they can strengthen their mastered exclusivity of innovative products in the region.
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