Margaret Thatcher once said, “You and I come by road or rail, but economists travel on infrastructure.” The former British prime minister was speaking about transport at the time, but the same idea can be applied to almost any industry; especially technology and electronics.
Today infrastructure is viewed as the main catalyst for growth in developing economies. “They are still growing because it’s all about infrastructure build-up,” said Robert Chu, vice president of Asia Pacific at Hitachi, told Reuters when asked about the reasons emerging markets like the Middle East are still seeing rapid growth. The same applies to the consumer electronics industry where the development of technological infrastructure is fueling growth in the industry. Throughout the MENA region, depending on which nation you are dealing with, national infrastructure is having either a beneficial or an adverse effect on consumer electronics products, as well as consumer behavior. Moreover, demarcation lines defining what products and services are feasible are beginning to take shape across the region.
Oil rich nations eager to encourage investment are pouring money into their infrastructure. For example, due to its continuing investment in technological infrastructure, the UAE was recently ranked as the region’s most ‘e-ready’ nation, according to the World Economic Forum. Services that require technological infrastructure, such as GPS, have been embraced by mainstream consumers throughout the GCC as price levels become more affordable in unison with infrastructure initiatives.
“You need an appreciation for the technology in terms of an educated market that is willing to pay for those [advanced] features,” said Agop Kassabian, executive director of sales & marketing at Toshiba’s exclusive distributor in Lebanon, “and you [also] need other players that complement that have the available technology for the consumer to make use of these products.”
Despite the rosy outlook for the GCC, not all the Middle East is taking advantage of the fruits of infrastructure. Many countries in the region, such as Lebanon, are suffering from limited buying power amongst their citizens as well as lack of basic services, both of which greatly hinder sales and investment in the consumer electronics industry. “Today in Lebanon we still lack some of the basic means of life — we don’t have power — first we need the basics in order to work on something else,” said Cesar Chalhoub, vice president of ITG Holdings.
In Lebanon, political wrangling and a lack of vision have crippled infrastructure and slowed the pace of progress to a crawl. “There is no futuristic vision … it’s a mentality issue,” explained George Khoury, CEO of Khoury Home. “In terms of the political aspect, if a futuristic idea is proposed, because you are from a certain [political] party, other parties will block your initiative purely for political reasons so as not to give you the credit for implementing such an idea.”
Infrastructure issues are also effect on the cost of finished goods as consumers are having to invest more in order to protect their products from damages. “If you buy a TV set for $1,500 you have to pay an additional $300 for a UPS or a stabilizer to protect it,” Khoury said. Distributors are also feeling the infrastructure crunch in Lebanon. “We have to apply a standard warranty on products by default,” said Adib Cherfan, CEO of Samsung’s exclusive agent in Lebanon, “and if we find that it is an electrical problem that caused this TV to crash, we are repairing the problem ourselves, even though it is not covered by the standard warranty.”
On the other hand, the same consumer behavior that is being adversely affected by the lack of infrastructure is also making up for infrastructure shortcomings. “You have to overcome these infrastructure issues until the government installs the appropriate infrastructure,” Khoury explained. “But people will not stop buying products because of infrastructure constraints. People will purchase products and wait till the infrastructure is available.”
Show me the way
The future of the consumer electronics lies in integration as consumers demand more and more flexibility and compatibility between products. “Everything is becoming digitalized which allows more flexibility in terms of sending and receiving data,” stated Chalhoub. “Also being able to convert data into different types of media and to transfer and communicate these elements […] integrating and automating everything, whether remotely, wired, or wirelessly is a major technological concern for the consumer.”
This trend is also occurring on the product level as consumer behavior is becoming increasingly dictated by integration capabilities. “The product itself is becoming an integrated product that is compatible across the consumer electronics spectrum,” said Chahwan. “These features push consumers to demand more, so instead of being satisfied by one item they have to have the complete the set.”
This idea resonates with what many of the major consumer electronics manufacturers are promoting as their ‘next big thing’. The answer in terms of products is wireless boxes that communicate with several devices in the home or office to provide consumers with a truly integrated environment. “You already have wireless speakers and wireless communication between notebooks and printers,” said Selim Antaki, CEO of LG’s distribution agency in Lebanon. “Next year, you will have wireless communication between your DVD player, home theater system, and your flat-screen television.” With the recent growth in the consumer electronics industry, the focus of integration seems to be centered on the flat-screen TV and in particular the LCD. “The LCD will be the main unit when it comes to the CE industry carrying all other CE products and peripherals,” stated Karl Zalum, commercial manager of Philips’s exclusive agent in Lebanon. “This will create a centralized technological environment around the LCD that will encompass everything from your mobile phone, to your laptop, to the Internet,” he said.
Other technologies on the horizon such as Blu-ray DVD players and High Definition Television (HDTV) have yet to penetrate regional markets due to high retail prices and infrastructure constraints. Blu-ray initially won the battle against Toshiba’s HDDVD format, which the Japanese company abandoned due to accurate forecasting in relation to limited adoption levels associated with high definition DVD technology.
“The battle was not fought for very long because the market demand for such a product was not that great,” Kassabian explained, “so it wasn’t worth the investment, and the proof is that we don’t see Blu-ray catching on like wild fire.” Blu-ray DVD players are still seen by most as too expensive for mass adoption. “It will take over as soon as it is more affordable and well positioned to reach everyone,” said Chalhoub. Antaki added that “for a Blu-ray, you pay more than 10 times what you pay for a conventional DVD player.”
Regional piracy also plays a role in the adoption of Blu-ray technology. “Blu-rays biggest issue is piracy,” Antaki stated. “People can buy cheap video CDs and DVDs; if they want to use Blu-ray they have to pay fifteen-fold what they are paying locally.”
HDTV has taken off in Europe and North America, though infrastructure constraints and the inavailability of complementary products essential to high definition broadcasting are stunting the growth of this technology in the region.
“There are no high definition receivers on the market,” Kassabian said, “and even if you do have a high definition receiver you need an HDMI (High-Definition Multimedia Interface) cable and a high definition subscription that doesn’t exist.” The main reason behind the unavailability of high definition signals is that most broadcasters do not yet see enough potential revenue in terms of advertising and subscriptions if this service is offered to consumers in the region.
“It is difficult to put a time frame on exactly when we will begin, because it needs to make good business sense,” said Azhar Malik, the vice president of marketing and public relations at Showtime Arabia, to The National. “The decision to begin will be dictated by customer needs and their willingness to adopt and pay for the technology […] We are not at that stage today.”
Moreover, some countries in the region still rely mainly on analogue signals and rather than digital transmission. However, technology products such as FPTVs are beginning to promote the idea of digital transmission in order for customers to make the most out of their products. “LCDs and Plasma television adoption has affected the quality issue,” Antaki observed. “So it is driving people to demand a better [quality] signal.”
Keeping this in mind: many of the industry players believe that the pressure from products and consumers will eventually lead to high definition signals becoming available to the wider market. “It’s just a matter of time until high definition signals are picked up [in the region],” Kassabian said, “and once the consumer sees the picture quality of high definition they will get hooked.”
