ALKHOBAR, 2 March 2004 — Headquartered in Neuss, Germany, the Computer Systems Division of Toshiba Europe is a wholly owned subsidiary of the Toshiba Corporation, the world’s eighth-largest computer and electronics company. In the area of computer systems, Toshiba is focused on mobile computing solutions and in addition to notebooks, offers servers and PDAs. Three years ago, Toshiba barely featured in the Saudi market. Over the past two years, however, the company made a considered shift of resources into emerging regions and in 2003 their new strategy met with success.
“We are doing absolutely fine in Saudi Arabia,” said Ahmed Khalil, regional manager, Toshiba’s Middle East Computer Systems Division. “In terms of notebook sales in the Middle East for Toshiba, the UAE is No. 1. Number 2, very close behind, is Saudi Arabia. Number 3 is Kuwait. We believe that some of the booming business in Kuwait is being generated from contractors going out to Iraq. Number 4 is Lebanon and No. 5 is Egypt. Egypt struggled in 2003 due to local currency devaluation and other economic problems. This has prevented Egyptians from purchasing notebooks, although we have seen that the interest is there. The UAE and Saudi Arabia are major markets. They make up approximately 60 percent of the total notebooks sold in the Middle East with a total Middle East market of around 235,000 units per year.”
Notebook computers were once considered essential only for senior executives. The technology has evolved though and prices have fallen. Now everyone is interested in a portable machine that can go everywhere. Research has shown that desktop units have lost favor, especially among young adults. Khalil agreed that the recent reduction in notebook prices has created enormous interest in mobile technologies.
“I would say that Q2 and Q3 2003 had the highest price erosion that we saw in the last five years in the notebook business. I would estimate this price drop to be around 25 percent year over year, only because of the period Q2-Q3,” Khalil explained. “There was a big price war between ‘A’ brands, mainly in retail and small and medium businesses (SMBs). This has to do with the logical shift of ‘A’ brands from the desktop to the notebook business. For some time, ‘A’ brands were very strong in pushing desktops as well as notebooks. But then, due to the very unfair price war with desktop white box assemblers and ‘B’ brands, they shifted into pushing the notebook business in terms of sales and marketing. This definitely had quite a negative effect in terms of profitability on vendors. At the same time I’m sure it was to the benefit of retailers as well as small and medium-sized business dealers and ultimately the consumer. The price gap between a notebook and a desktop has become very slim. Soon, in the Middle East, we will reach the desktop replacement phase. This is when first-time computer buyers will make it a priority to choose a notebook, not a desktop.
In addition to falling prices, hardware vendors have had to cope with the changing market. According to Khalil, more and more demand for notebooks is coming from the retail sector. It is the market driver. The second most important group of customers is the SMBs. The third is education and fourth is corporate. This is a reverse of the trend that was out there a few years back. Toshiba found it had to move rapidly to meet the needs of those fast growing market segments.
“What we did is that we now have two partners in Saudi Arabia,” Khalil said. “One is Arabian Business Machines (ABM) and they are clearly focused on corporate and SMB business. ABM as a part of Olayan Group has good marketing coverage in all the regions of the Kingdom, three service centers and a wide network of business relationships throughout Saudi Arabia. However, because of our future projections, we decided to introduce Jarir Bookstore as a retailer to make it easier for consumers to interface with Toshiba products.
“Jarir is a very aggressive retailer,” Khalil added, “perhaps the most sophisticated retailer in the entire Middle East. Just look at Jarir’s method and rate of expansion from Saudi Arabia into Qatar, Kuwait and the UAE. They are doing absolutely a great job. I believe that’s because they have made customer satisfaction a priority. For us, that means in terms of service, each Jarir Bookstore in Saudi Arabia has a service center to handle Toshiba notebooks. Jarir has the service centers located at the back of the bookstores so the customers are familiar with the location and feel comfortable obtaining support from them. Jarir understands local consumers so they can help customers make informed decisions when it comes to computer equipment. We have found that our relationship with Jarir Bookstores has helped us grow the satisfaction level among Saudi consumers and this has helped to increase our market share in this important segment.”
Another way that Toshiba is working to increase market satisfaction is by developing technology that is perceived to meet market needs. There has been a growing level of discontent among users of IT who have come to view many IT vendors as being out of touch with reality. Lately there has been a question of whether new technologies are being introduced to serve market requirements or if perhaps these technologies were developed just so companies could have something “new” to push at customers.
“It’s possible to make a vacuum cleaner that could also be used as a frying pan,” said Manuel Linnig, PR manager, EMEA Marketing, Toshiba Computer Systems. “It is questionable though if anyone would want such a device. To prevent misguided engineering attempts, Toshiba now has put all its engineers in one location. For a new research project to be funded the engineering team must have commitments from three divisions in Toshiba to support the project. We hope this will result in improved user interface and more support across Toshiba’s corporate structure.”
At all expos and conferences where Toshiba participates, an attempt is made to introduce prototype devices to the local audience. Staff at these events make note of viewer reactions to the devices. In this way Toshiba’s engineers can get feedback from a variety of potential users during the research and development phase so any necessary modifications may be made to enhance the desirability of the devices. Toshiba is also looking at computer design from a new perspective.
“A high-end notebook could have 2,000 different components,” said Linnig. “This is unacceptable in terms of warehousing and service. We have heard from our partners globally that there is a need to reduce the number of components in the machines and streamline our product line. We are currently examining all our products with the goal of not only reducing the number of components, but also the number of component manufacturers. We believe that this will help us strengthen both quality assurance and logistics, while reducing cost. Instead of producing many models, our goal now will be to produce technologically superior models targeted at the three main market segments. This will reduce the confusion currently common in the market over which machine is suitable for serving which need. Our research has demonstrated that users are more confident with their purchases when they can clearly understand the notebook’s optimum functionality.”
Toshiba’s new corporate strategies sound remarkably straightforward — based on common sense. It is interesting to note that other IT vendors have also recently decided to develop new products and services focused on market requirements. Such realistic plans and schemes were almost unimaginable a few years back. I wonder why? Perhaps a little market education and a lot of belt tightening were exactly what was needed to bring some sanity into the business of information technology.
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