7 January 2005

DUBAI - For the first time in more than 10 years, prices of most categories of consumer electronics goods are poised for a significant surge in the UAE with both manufacturers and distributors coming under intense pressure to review pricing in the backdrop of a steady hike in the cost of production, freight and inventory combined with the impact of a declining dollar.

Market analysts in Dubai predict that the across-the-board price increase of 7 to 12 per cent in consumer electronics and home appliances would an inevitable reality within a couple of months in a booming market which has remained as a buyers' realm for quite some time thanks to a steady price slide over the years.

"Most manufacturers have been holding an upward price revision for some time, but now it has come to a stage when they are unable to absorb the spiralling production costs anymore," said Deepak J.  Babani, Chief Executive Officer, Eros Group, the UAE distributors of Samsung range. He expects the price increase to come into effect soon after the Dubai Shopping Festival.

Hisham Abdulla Al Shirawi, Chairman of The Electronics Group, and Executive Director of Oasis Enterprises, distributors of JVC range, concurs. "In fact, the impending higher prices will reflect the reality of the marketplace." Since dirham is dollar-pegged, consumers in the UAE will also suffer from a weakening greenback, particularly so with goods coming from manufacturers based in yen or Euro zones.

Ruling out a steep price rally, Al Shirawi said since some raw materials used for the production of electronics goods are dollar-priced, there will be only moderate increase from the side of manufacturers. He also ruled out a uniform pricing policy by the group. "It will be naive to expect such coordinated pricing strategy by the Electronics Group as we are dealing with a multitude of brands and products."

Ram Buxani, Executive Vice Chairman of Cosmos-ITL Group, distributors of Sharp products, said although there are indications of a general price surge, it was to be seen how long those manufacturers could sustain their position in the face of increasing competition from low-cost manufacturers. "And if the price increase is just single digit, we cannot rightly consider it as a sweeping trend but a fluctuation."

Buxani pointed out that for a market that has been used to a continuous drop in price since early 1990's, the new scenario would come as an unpleasant surprise. The only category that would be spared of the price surge is the plasma and LCD product range.

Babani said while prices of all brown and white goods are poised for a certain drop, plasma and LCD TV prices will continue to  slip by 10-15 per cent.

Babani pointed out that apart from the increased cost of steel and plastics, the main raw materials used in the manufacture of electronics products, some 40 per cent surge in freight rates and nearly 100 per cent increase in warehousing cost are putting pressure on prices. "The year 2004 saw prices most for products stabilising after several years of a sustained slide averaging at 3-4 per cent per annum . And this year, the trend will reverse as there is no escape for distributors from the mounting cost of inventory and freight."

According to Babani, warehousing cost has escalated fro Dh7-12 to Dh14-25 per square foot. An acute shortage of vessels and fuel price increase have pushed freight rate from $1600-700 to $2,600 per 40 foot container. Al  These factors will impact the new pricing that may come into force most likely by March.

The UAE's Dh5 billion electronics market is still dominated Japanese manufacturers although they are slowly giving ground to other Asian producers thanks to rising yen.

The most remarkable among these is China. China is now the leading exporter of radio cassette recorders to UAE. Japan is still the dominating exporter of video cassette recorders, but it has seen its share dropping. The major beneficiary of Japan's losing share is South Korea which has seen its share surging. The rising strength of the Yen is a major reason for declining Japanese share. 

ISAAC JOHN

© Khaleej Times 2005